The Veterans Memorial Auditorium Foundation was to have taken ownership of the facility by July. “We had a strong plan in place,” said the foundation’s head, Tereann Greenwood. At left is the Renaissance Providence Hotel.

The Providence Journal / Ruben W. Perez

PROVIDENCE — Negotiations over control of the Veterans Memorial Auditorium began a year ago, prompted by fears that the fundraising struggles of its nonprofit operator had jeopardized its operations, according to state officials.

Yesterday, that quiet debate became public after the Rhode Island Convention Center Authority, the state agency that also runs the civic center, asked consulting firms for help studying the possible acquisition of the theater.

It was not supposed to be this way. In 2004, the state Department of Administration signed an agreement with the theater’s longtime operator, the Veterans Memorial Auditorium Foundation, to transfer ownership to it by this July.

As part of the agreement, the state pledged to repair the leaky roof and upgrade the fire safety equipment at the nearly six-decade-old structure. But that was to end the state’s involvement, including a $300,000 annual subsidy for utility bills and maintenance expenses that amounted to $70,000 in the last fiscal year.

“We wanted it off our books. They would assume the responsibility for it,” Beverly E. Najarian, director of the Department of Administration, said. “They were going to put out a capital drive and try to raise the funds. Obviously, that didn’t materialize.”

The plan began to unravel early last year, when arts groups that performed at the VMA raised alarms about the foundation’s ability to manage the building, according to Randall Rosenbaum, executive director of the State Council on the Arts.

After several groups protested to Governor Carcieri about the planned transfer, Rosenbaum organized a meeting in March to hear their concerns. For more than two hours, he said, leaders of the groups expressed deep anxiety over the future of the hall.

Their complaints, Rosenbaum said, ranged from scheduling difficulties to increases in rental costs. Their biggest fear, he said, was that the foundation’s fundraising problems would make compensating for the loss of state support difficult and improvements to the complex impossible.

“There were fears that the facility would become unavailable to an arts community that depends on it,” said Rosenbaum, who has led the council for 13 years. “There were grave concerns about that. If this hall did not exist, those local arts organizations would frankly go out of business.”

Leaders of several organizations that participated in the meeting, including Festival Ballet Providence, did not respond to requests for comment yesterday.

But David A. Duffy, chairman of the convention center authority’s governing board, has said the performing groups also approached the authority with concerns, begging it to intervene. “The Rhode Island arts community has been all over us, urging us to look at this,” he said on Thursday.

“This is a facility that could be a lot busier than it is,” Rosenbaum said. “It really should be the shining star.”

The foundation rejects suggestions that the burden of ownership would have proved crippling. The group, formed in 1992, says it reached out to the convention center authority seeking a potential cash infusion for renovations, not to rescue it from general operating costs.

Earlier this week, former state Supreme Court Justice Robert G. Flanders Jr., the chairman of the foundation’s board, said he did not expect the foundation to be disbanded if the convention center authority gains ownership. Any partnership, he said, remains hypothetical.

Yesterday, the foundation’s executive director, Tereann Greenwood, said she is confident in the theater’s management. “Anything could go bankrupt if people don’t support it,” she said. “We had a strong plan in place.”

Foundation executives were not invited to the March meeting at the State Council on the Arts headquarters, Greenwood said, and no performance groups have complained to the foundation about rental fees or the theater’s financial viability.

The foundation has declined to release detailed financial data, citing the privacy of the performing groups. But Greenwood, director since 1997, insisted that its fundraising has been strong since the 2004 agreement to transfer ownership.

The following year, the foundation began rehabbing the seats as part of $1 million in improvements. Since then, it has formed partnerships to install a new elevator and to promote construction of the Avenue of the Arts, a half-acre plaza in front of the building and adjacent to the Renaissance Providence Hotel, on the other side of the long-vacant Masonic Temple.

The foundation has also attracted $200,000 from The Champlin Foundations.

The criticism, Greenwood said, may reflect frustration with the foundation’s decision to end discounts on rent that have cost it $1 million over the past decade. The Rhode Island Philharmonic, for example, paid $87,000 in fees in the 2006 fiscal year and received $85,000 in discounts, primarily for rehearsal rentals, she said.

Greenwood acknowledged that the slowing economy has hurt fundraising, but said the theater had avoided increasing rental fees for at least three years. “We are exemplary stewards,” she said. “None of the groups have ever talked to us at all about any concern.”

There are signs, however, that the foundation may be on shaky ground.

Several groups, including the Festival Ballet, have complained about a dearth of events at the theater, which they say lowers its profile and hurts their ticket sales.

Even after the state subsidies, the $600,000 the foundation generates in rental fees and donations barely covers its operating expenses, including Greenwood’s $95,000 salary, according to its federal tax return for the 2006 fiscal year.

Last year, the foundation turned down a $50,000 grant from the Rhode Island Historical Preservation and Heritage Commission, after failing to raise the required matching funds, according to the commission’s director, Edward F. Sanderson.

In a March 31 letter to Sanderson, it rejected the money, writing that with a “heavy heart,” it could not accept the money for restoring the interior of the aging auditorium.

“It appears that the auditorium is underutilized and that it has significant overhead costs,” the governor’s spokesman, Jeff Neal, said in a statement yesterday. “The governor is hopeful that the convention center authority could significantly increase the use of the facility while reducing the overhead costs.”

The proposed acquisition would require the continuation of state subsidies at a time of daunting deficits and deep cuts to social services, including health care for the poor. State spending on the performance hall would grow significantly if the convention center authority borrowed millions for upgrades, as the foundation has requested.

Taxpayers already spend $23 million a year to repay debts incurred for the building of the convention center and the purchase and renovation of the civic center.

Fears that opera, ballet and classical music fans could lose their performance hall, however, appear to be drowning out broader budgetary concerns.

“You want to see it be [financially] stable,” Kathleen Pletcher, executive artistic director of FirstWorks Providence, said yesterday. “It is a time of promise and a time of peril right now.”

bgedan@projo.com