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HomeMy WebLinkAbout05/15/2001, 4 - LONG-TERM FUNDING RECOMMENDATIONS FOR THE PERFORMING ARTS CENTER council °° °•s i�-© accnas PepoRt ,�hu CITYOF SAN LUIS OBIS FROM: Jan Marx and Christine Mulholl ouncil Members Prepared By: Wendy George, Assistant City Administrative Officer nU� SUBJECT: LONG-TERM FUNDING RECOMMENDATIONS FOR THE PERFORMING ARTS CENTER SUBCOMMITTEE RECOMMENDATIONS: 1) Approve the long-term funding recommendations developed by an ad hoc task force of representatives from the City, California Polytechnic University (Cal Poly) and the Foundation for the Performing Arts Center(FPAC) for off-setting present and future budgetary deficits of the Performing Arts Center; and 2) direct staff to work with the other two PAC partners to revise the current Operating Agreement to reflect these recommendations. DISCUSSION Background In 1986, the City of San Luis Obispo, FPAC and California Polytechnic University formed a partnership to create and operate a state-of-the-art performing arts facility. Two important agreements were created between the parties. The Development Agreement laid out the responsibilities of the parties during the construction of the building. The agreement stated that _ Cal Poly would donate the land and construction costs would be paid 2/3 by the University, 1/6 by FPAC and 1/6 by the City. The Operating Agreement provided that FPAC and the City would be responsible, on an equal basis, for any operating deficit, while Cal Poly would not be responsible for any portion of the operating deficit, but would pay all utility costs and provide routine maintenance of the facility.. Need for On-going Subsidies from the Partners In the Operating Agreement, the partners envisioned a facility that would be "self-sustaining", without reliance on annual contributions from the partners. They understood that the fees earned from the sale of tickets and rental of the hall are only minor, albeit important sources of revenue. Therefore, the Operating Agreement required FPAC to create a $1 million endowment through fundraising to supplement these other revenue sources for the Performing Arts Center (PAC). Unfortunately, there were construction cost overrides, and the partners decided to use the endowment funds to complete construction. The partners also took out a million dollar loan from Heritage Oaks Bank in order to open the PAC on time. As a result, there has been an on- going operating deficit at the PAC. In order to assist the cash flow of the PAC, each year FPAC and the City have paid an estimated amount toward the operating deficit in advance. In addition to its commitment under the Operating Agreement, Cal Poly has also provided approximately $260,000 a year toward administrative salaries and other operating expenses of the PAC. This current fiscal year, the I Council Agenda Report—Long-Term Funding for the PAC Page 2 City paid $67,500 in operating subsidy, and in November the Council approved an annual operating subsidy of$100,000 for the upcoming Financial Plan period. In addition to underestimating the amount of operating subsidy that would be needed, the Operating Agreement gave no consideration to a method of providing for major equipment maintenance and repair, creating an operating reserve, or paying for capital items that were eliminated at the time of construction to reduce costs. Over the past several years, the partners have pledged funding on an ad hoc basis to provide for the installation of needed acoustical enhancements (the City has allocated $150,000 for this purpose), and FPAC and the City have made payments toward the beginnings of a major equipment replacement and repair fund (the City paid$50,000 last fiscal year). Ad Hoc Long-Term Funding Task Force Cal Poly and FPAC recognized the need to establish a long-term funding plan for the PAC, rather than continuing the existing year-by-year practice. Cal;Poly also faced the fact that it has been paying operating expenses for which it was not contractually bound, such as administrative salaries. As a result, Cal Poly and FPAC asked the City to join in creating an ad hoc task force to address these concerns. At the February 6, 2001, Council Meeting, Council Members Marx and Mulholland were appointed as a Council subcommittee to the task force. The Assistant City Administrator and the Finance Director both served as staff representatives. The task force met on four occasions. The first two meetings were spent reviewing the history of the PAC's development and construction, including exploring a number of underlying assumptions about operations that were held by the partners at that time (Attachment 2). The two existing agreements between the parties were reviewed, as well as the current budget, long- range financial requirements and capital items to complete (Attachments 3, 4 and 5). The PAC's relationship to the City's mission and various adopted policies was also discussed (Attachment 6). At the end of the second meeting, staff was asked to survey other cities that have performing arts centers to determine the level of support provided by those municipalities (Attachment 7). After all the requested information had been gathered, the following things became apparent to the committee members: 1) The PAC is being operated efficiently; 2) Compared to other performing arts centers that were most similar to ours, our City subsidy was actually the smallest(these subsidies ranged from $350,000 to $3 million annually); 3) The partners have not been following the terms of the Operating Agreement, since Cal Poly has been making up part of the operating deficit that should be covered entirely by the City and FPAC under the Agreement; 4) Regardless of the original idealistic belief that the PAC could be wholly self-supporting, the reality is that it will probably always require some level of on-going subsidy. 5) The original $1 million endowment would not have been sufficient to make up the deficit even if it had been in place. �-z Council Agenda Report—Long-Tenn Funding for the PAC Page 3 Accordingly,the committee considered three possible options to solve the budgetary deficit. Option 1: Follow the terms of the Original Operating Agreement The current annual operating deficit is approximately $600,000. If the agreement were actually followed, and Cal Poly ceased to cover some of the on-going operating expenses, the City and FPAC would be required to increase their operating support from $100,000 annually to .$300,000. Additionally, since the Operating Agreement does not consider paying for major equipment repair and replacement, or purchasing the remaining capital items to complete the facility, those issues would continue to be addressed on a year-to-year basis on top of the operating subsidy. Option 2: Change the Operating Agreement to reflect the current practices. This option would serve to put the three partners in compliance with the agreement, but would still fail to address the issues of major equipment maintenance and replacement, the remaining capital items to complete, or the possibility of creating an operating reserve. Nor would Cal Poly have any responsibility for on-going operational deficits. Option 3: Change the Operating Agreement to reflect anew paradigm. Cal Poly proposed an approach that would essentially combine all costs (operations, routine maintenance, utilities, reserves for operations, major equipment maintenance and replacement) with a pre- defined distribution of obligations to each partner to cover net costs after other revenues. Using a five-year estimate of income from operations, inflation adjusted operating costs and reserve requirements based on major repair and replacement cycles from industry sources, Cal Poly projected the annual subsidy that will be required in each of the next five years to be approximately $1.2 million. This number would, of course, be subject to review as part of the annual budgeting process in which all three partners participate. Cal Poly proposed that the annual subsidy amount be divided by the same formula used in the Construction Agreement-1/6 each to the City and FPAC and 2/3 to Cal Poly. The Operating Agreement would be changed to reflect these revisions. Task Force Recommendations A. Adopt Option 3. After further discussion, the task force agreed that Cal Poly's proposed new approach is the most reasonable solution to the PAC long-term funding needs. Under this proposal, the City and FPAC can plan on an annual subsidy payment over the next five years of$200,000 each. Cal Poly will pay$800,000 annually. While this increase will require both the City and FPAC to pay an additional $50,000 more than the $150,000 they each provided in the past fiscal year (for a total of$200,000), it will be significantly less than the $300,000 legally required of each under the current Operating Agreement. Cal Poly will actually increase its contribution, which currently has been just under $600,000, to a total of $800,000. Cal Poly indicated that it is willing to assume this additional cost because it recognizes the benefit of the PAC to the University and believes in the importance of maintaining its present level of excellence. 4-3 I Council Agenda Report—Long-Term Funding for the PAC Page 4 In addition to reducing the dollar amount of the operating subsidy for both FPAC and the City, the recommended funding approach also establishes a predictable cost for the next five years, and also provides for major equipment maintenance and replacement and. for the creation of an operating reserve fund. It also relieves the City from unlimited liability or half of the operating deficit. B. Address future capital needs as they arise- Regarding riseRegarding the capital items still needing to be completed, the task force recommended that these be addressed on a case-by-case basis, taking advantage of opportunities such as deep discounts as charitable contributions, gifts in-kind, donations and possibly partner cost sharing. It is likely that FPAC will take the lead in working to achieve these types of gifts. C. Seek more revenue opportunities. The task force also recommended that every effort should be made to reduce the PAC's reliance on annual subsidies from the partners by seeking alternative revenue opportunities. These could include: 1. Additional rent from new clients 2. Additional rent from use of the pavilion, once is it properly equipped 3. Payment of rent by the University (rent at present is forgiven because Cal Poly has assumed more than its required share of the operating deficit) 4. Additional facility fees 5. Additional income from the parking structure (currently $1.00 per car goes to the PAC) 6. A CSU Summer Arts Program to better utilize the PAC during the slower summer months. 7. Other festivals 8. The Partners actually becoming performance presenters for some events D. Plan for future stability. In addition, the task force recommended that emphasis should be placed on 1. Creation of an endowment,recognizing the constraints that some of the partners, such as the City,may have with regard to participation in this effort, 2. Redirection of the income from the ticket surcharge to general revenues after the Heritage Oaks loan is retired in 2007. Next Steps Once the task force's recommendations are approved by the three partner organizations, the Operating Agreement must be modified and also approved by the three partner organizations. A draft of the revised agreement should be completed in time for review at a Partners' meeting the Council Agenda Report—Long-Term Funding for the PAC Page 5 week of May 2151. It is anticipated that the revised agreement would then come before the City Council for adoption at the July 10'meeting. CONCURRENCES The task force's recommendations were taken to a Partners' meeting for endorsement on April 18, 2001. In addition to City Council approval, they must still be approved by the board of FPAC and by the Cal Poly Chancellor's Office before the Operational Agreement can be changed. FISCAL IMPACT The City Council has currently approved an operating subsidy for the PAC in the amount of $100,000 for the years 2001-02 and 2002-03. In the past, the City has also provided $50,000 annually toward major equipment repair and replacement, for a total contribution of$150,000. Approval of the task force's recommendation would increase this annual contribution to $200,000 for the next two fiscal years. Assuming the recommendation is approved, those amounts will be included in the upcoming Financial Plan. ALTERNATIVES 1. As indicated above, the City could choose to adhere to the current Operating Agreement. (Option 1). Doing so would actually increase the dollar amount of the City's required subsidy, as Cal Poly has indicated that it is unwilling to continue to pick up additional PAC expenses outside the operating agreement. 2. The City could seek to have the current de facto subsidy process memorialized in a revised Operating Agreement. (Option 2) Since representatives from both FPAC and Cal Poly support the task force's recommendation, it may be difficult to convince those organizations to retain the status quo. Additionally, the current practice does. not address major equipment maintenance and repair or creation of an operating reserve. 3. The Council could direct the task force to reconvene and develop another approach. However, after four long and intense meetings, in which history, budgets and the approach of other cities were all explored, the task force members believe they have offered the best possible solution to a difficult problem. ATTACHMENTS 1. Task Force Recommendations 6. Policy Support for the PAC 2. Key Historical Assumptions and Decisions 7. Survey of Other PAC Operations 3. PAC 2000-01 Budget Summary 4. Operating Projections 5. PAC Items to Complete S A �chme�+ l Report of the PAC Partners Ad Hoe Committee on Long Range Funding Solutions The PAC Ad Hoc Committee was"charged with the task of making recommendations regarding possible long-range funding solutions to secure the future of the Performing Arts Center." Background Since its opening in 1996, the Performing Arts Center has relied on operating budget subsidies from the three partners. Only limited funding has been identified for reserves for future major maintenance and replacement. In addition, there still remains approximately $2.6 million in capital items to complete. The intent, as stated in the Operating Agreement, was that operating shortfalls would eventually be addressed through the use of earnings from an endowment. It was the responsibility of the University to cover the cost of routine maintenance and utilities while the City of San Luis Obispo and the Foundation for the Performing Arts Center would be jointly responsible for covering any remaining operating deficit. With regard to major maintenance and replacement reserves, the operating agreement did not address the means by which these reserves would be created. The capital items have been acquired over time and the acoustician has recommended further acquisitions to enhance the facility. These items have been prioritized based on a cost and benefit assessment. Committee Findings In evaluating the operating budget challenges, comparisons with other like facilities were examined. While it is difficult to find a precise comparison,the general conclusion was that the operating costs of the PAC are in line and generally conservative. There was no readily identifiable area where savings of any magnitude can be achieved. In fact, comparison facilities are highly subsidized. From a revenue perspective, a number of suggestions for possible revenue enhancements were identified but those that held most promise are longer term solutions requiring more analysis than the committee had time to conduct. These include: • Additional rent from new clients • Additional rent from use of the pavilion • University rents • Additional facility fees Additional parking income • CSU Summer Arts • Other festivals • CCPACC as a Presenter ! -2 There is little evidence that comparison facilities had established reserves for operations, major repair or replacement, nor is it evident that sizeable endowments had been created to support these entities. It is also agreed that the current Operating Agreement is not being followed with regard to partner cost sharing. Cal Poly has been covering the cost of salaries and. fringe benefits for a number of the employees, thus reducing the potential operating deficit burden on the other partners. Continuation of this arrangement would call for a revision of the Operating Agreement. There is equal concern that in the absence of an endowment for operations, the City of San Luis Obispo and FPAC have the potential for increasing obligations. The need for an operating endowment still exists,however. The need for reserves to cover major maintenance and replacement is acknowledged and recognized as an obligation to be shared by the three partners. Funding for capital equipment items to complete, however,is not as easily accommodated through a pre-defined cost sharing arrangement. Alternatives Considered In attempting to define a solution to the funding challenges confronting the Performing Arts Center,the Committee considered three alternatives: 1. Status Quo whereby Cal Poly continues to cover some staffing costs outside the Operating Agreement —this approach would require a revision of the Operating Agreement. Necessary reserves would have to be addressed through a separate mechanism. 2. Revert to strict adherence to the Operating Agreement—this approach would necessitate increased contributions by the City and FPAC at least in the short term and still require that some means be devised to create the reserves.. 3. Design an entirely new cost sharing mechanism that is more comprehensive in nature, but that is simple to understand and provides a greater degree of predictability as to the obligations of the partners —this approach, as with alternative #1 requires revision of the Operating Agreement. Conclusions and Recommendations After four meetings during which much background material was examined, the Committee concluded that a stable operating environment had been achieved. Operation of the PAC during the past five years has provided lessons learned that better enable us to predict resource needs, facility use, income potential, etc. As a result the Committee felt it is timely to revise the Operating Agreement to accommodate a new cost sharing mechanism. We see an approach that would combine essentially all costs (operations, routine maintenance, utilities, and reserves for operations, major maintenance and replacement) with a pre-defined distribution of obligations to each partner to cover net costs after other.revenues. Under this scenario, Cal Poly would cover two-thirds of the subsidy and the City of San Luis Obispo and the Foundation for the Performing Arts Center would each cover one-sixth of the subsidy. Based on a five year estimate of income from operations, inflation adjusted operating costs and reserve requirements based on major repair and replacement cycles from industry sources,we project that the annual subsidy requirement in each of the next five years would be approximately$1.2 million, with the assessment to Cal Poly being $800,000 and to the City and FPAC, $200,000 each. These requirements, of course,would be annually evaluated in the PAC budget process. With regard to capital items to complete, the Committee recommends that these be addressed on a case by case basis, taking advantage of opportunities such as deep discounts as a charitable contribution, gifts in-kind, donations and possible partner cost sharing. The Committee further recommends that every effort be made to reduce the reliance on partners annual obligations by seeking alternative revenue opportunities. In addition to those cited above, emphasis should be placed on: • creation of an endowment recognizing the constraints that some of the partners have with regard to participation in this effort o redirection of the income from the ticket surcharge to general revenues after the Heritage Oaks loan is retired in 2007 Should these recommendations be adopted at appropriate authority levels by each partner organization,the most immediate next step for the Central Coast Performing Arts Center Commission will be the revision of the Operating Agreement. FTL04/24/01 A 4 4chmen4 Z Central Coast Performing Arts Center Key Historical Assumptions and Decisions Lessons Learned Decision Participants The Performing Arts Center formal partnership between the City of San Luis Obispo,the Foundation for the Performing Arts Center, and California Polytechnic State University dates from a Memorandum of Understanding executed in 1986. This document set the tone for shared decision making and collaboration which has characterized the partnership throughout the design and construction effort and in subsequent operations. . This tone characterized both the Development Agreement and the Operating Agreement. In essentially every case where important decisions were made, consensus was reached by representatives from all three partners typically through representation on the Central Coast Performing Arts Center Commission and affiliated committees. This is true with respect to the process used by the steering committee when key design and program related decisions were bounded by resource limitations. Among the considerations that confronted this group were cost containment compromises and deferral of some maior items to complete to keep construction costs down, retention of acoustical quality features, and substitution of materials when there was no evidence of an adverse impact on the performance characteristics or aesthetics of the facility. A specific, significant example of this type of value engineering decision is in the roof material where the stainless steel was replaced by a painted surface. Major financial decisions during construction had the participation and support of all three partners as well. These decisions included_ redirection of the limited endowment funding that FPAC had raised for operations to fund construction when the construction budget exceeded expectations. Similarly,FPAC responded to use of the funding originally earmarked for the Qiye organ for use in construction. This decision was made with full understanding and support by the donor's family. In each of these instances all three partners supported the decision to facilitate moving forward with the construction of the center. With attention being heavily focused on the challenges of meeting the construction budget,a significant cost containment decision made early on was in the timingof f the agnointment.of the manager of the center. This decision,while part of the early operating budget deliberations in which all Commission representatives participated,provided short term cost containment but was embarked upon with the understanding that it would have been preferable to have the manager on board earlier to influence the construction and budget development related decisions. Post construction a number of decisions were made by the CCPACC that had both capital and operating budget implications. For example, accelerating the acquisition of the gpeaker system was a major decision that had capital cost implications as well as implications for major savings in the operating budget. In this instance the University sought and obtained a deep discount from a sound system vendor and obtained �-9 2- Z concurrence from the Commission membership to assign a priority use for funding earmarked for equipment acquisition to proceed with the purchase. This acquisition significantly reduced sound system rental costs which were disproportionately impacting the operating budget. The partners participated in the approval of the prioritization of all the equipment items to complete. This was definitely true in the use of the proceeds from the Heritage Oaks Bank loan. In fact,the decision to proceed with this fow cost loan, the payoff on which does impact the operating budget flexibility, was again a joint decision of the partnership as was the decision to impose a ticket surcharge as a means to guarantee repayment. It should be noted that the early operating budget estimates were made on some broad based assumptions that were informed in a general way by estimatesgathered from other centers in operation at the time. However, no precise parallel facility could be identified. Clearly,the budget under which the PAC operates today is the result of better understandings of what it takes to operate a facility of this size, scope and quality. The current operating budget is considerably more conservative when compared to facilities of comparable size with similar operating approaches (it should be noted again that there are no facilities that operate with a similar mix of funding sources and/or limitations). It is evident that much has been learned as a result of actual experience in the operation of the Center. Operating budgets have continuously been refined to the point.where costs have become more predictable. The Commission has exercised considerable restraint by approving conservative budgets. Center management has put forth well thought budget requests with a focus on service to patrons,performers and presenters. 00 m m t tn 00 0 to 00 o% 0 0 1 z `z6 Cr- 0r --� C-� 6s in us ———————---- O 00 'n eq O ...... M to -V %a 64 tn Elsen EA 64 ip) \0 0 �a eq In CS N C4 en 66 -n ON in Gn 609 N C� 00 -T -V 0 O %Z m -It -It 0 00 N0 Go h 't en kn 9 m Z 00 r- so� Rn 601) fio� C4 N Go!) f04N 64 6964 i's 60) 1 C4 in r- 00 %n 00 9 et Rn t- b en m 0, t� %n en Cn 40) w 609 64 (!�A fiA 9D Sn' 9 e.4 0, fA C,4 C4 a CA CL. 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N O) f7 f7 O N �O O C N cl W M <O M Cl W t0 v N f7 f7 N fD < J y O n A O co t0 A eD c7 us O ao A ' N O A R IA V eD O O E. h Oi e7 vi,w Oi epi m t0 O N O N U rn rn N 4q 114 � y A O rn N Lq r f n WW3 a _ m U o a E o Z m rn �o m y O — n � 0 K wwF v O O O m 0 W W Y !� U N O d mo w z o x o U H U 4J w Z W U O o GO m m F Z LU m N� H IRD .W y z g � % Z LL li ? a W S p a w km a m o a o LU m w a . w a w A o � � M 'ON I N l7 O 1A �O I� m OI ^ N . t- m ..�, � • l /�\�//1 //////111 QfJ�1 f ILI PAC Items to Complete Estimated Rank t.aatinn111ank Cost Subtotals Acoustic rernediat work(McCWs list aCrckeaaard Report] Kpkegaard consulting fees TBD included within_. HH 4.1 Adddional Velours 1 $50,000 HH 2.1 Audience seating 1 $50,000 HH 1.1 Fiber-optic illuminator 1 $5,000 HH 1.2 Room 406 transformers 1 $10,000 HH 22 Doors.al Yestibules 1 $5,000 HH 5.1 Center loudspeaker duster 1 $50,000 HH 5.3-Front-fill"loudspeakers 1 $50,000 HH 5.4 Distributed loudspeakers 1 $50,000 HH 5.5 Stereo loudspeaker dusters 1 $100,000 HH 7.1 Felt 1 $5,000 HH 5.2 Glass safety ralTings 1 $50,000 1 425.000.00 PAv Audience chairs 1 $40,000 PAv Sound system power 1 $7,355 PAv Audience seatin latforms 1 $50,000 OFFICE Tticket office modificationsthandicap access 1 $30,000 OFFICE Event Management Software 1 1 $16,000 ALL Facility/ready access storage:Chiller room+loading dock 1 $337,000 RANK 1 Subtotal $905,355 Accrostic remedial work(McQWs 1"ist-Firkepaaird Reportl Now includes Acoustic clouds design,fabrication&install. HH 6.1 Forestdge Canopy 2 $450,000 HH 8.0 Lighting 2 $100,000 HH 72 Proscenium Arch 2 $50,000 HH 9.0 Pit Railing 2 $5,000 HH 3.1 HVAC System 2 $50,000 HH 4.2 Motorize velours jabove ceiling only] 2 $50,000 rm,000 PAv Tension Grid 2 $75,000 PAv Tension Grid access and relocate house lights 2 $15,000 PAv Acoustic curtains 2 $20,000 PAV Dance mirrors 2 $5,000 ALL Partners signage 2 $20,000 PHIUPs Motorize blackout drapes w/remote switch 2 $3,000 HH Structural pick-up points for Front-of-House lighbijj truss- 2 $20,000 SSaae liahtbna&truss $200,232 IRACKSTAGE 2 $81,908.00 lsAcKsTAGE Tess 2 $29,360.00 hAXXSTAGE Accessories 2 $6,404.00 JBACKSTAGE 2 $11,600.00 jLo�A.GE Scroners 2 $25,960.00 AGE Automation 2 $45,000.00 RANK 2 Subtotal $1,063,232 Acoustic remedial work fMcCue's list=Kirkeaaard Report] Now incudes Acoustic clouds design,faftatton&Install. HH 7.3 Performer Risers 3 $300,000 HH 7.4 Orchestra Enclosure 3 $200,000 HH 7.5 Choral Risers 3 $50,DD0 Storage costs:North niche 3 $430,000 s900,000 PAv Paint grid conduit 3 $1,500 LOADING Roof over loading dock&other working entrances to match arch 3 $100,000 HH Platform Q attic access 3 $4,000 aACKSTAGE Back sta e(Dressin room redecoration 3 $15,000 LOBBY Hanging ems displays track righting 3 -$25,000 TERRACE Additional decorative features 3 $30,000 HH Pipe organ 3 $1,000,000 Redesign&relocate box boom fighting posftn to accommodate HH organ 3. : $50,000 RANK 3 Subtotal $2,205,500 Contingency-10%overall $ 417,409 TOTAL $ 4591,496 Future Capital Prolects ALL Upgrade JBL sound em $350,000 ouTwoRs Out doors/LED information display AG Film Projection Equipamd HH Surround sound system[possibly part of JBL Phase II Items tads Prepared by Jim Chemoff 3/8/01 P e 1 POLICY SUPPORT FOR THE PERFORMING ARTS CENTER Mission Statement "Promoting the City as a regional trade, recreational and tourist center and improving the quality of life for residents and visitors." General Plan Land Use Element LU 5.21.1: Cooperation— "The ooperation—"The City should cooperate with other agencies and with community groups to help provide facilities for a library, and or arts and sciences which meet broad community cultural needs." LU 5.4: Performing Arts Center "The City, Cal Poly and the Performing Arts Foundation will jointly develop a large performing arts theater on the Cal Poly Campus. LU5.5: Community Arts Support The City will continue to support community arts programs through a variety of means, such as loans, grants and help in obtaining sites. Major City Goals 1993-95 "Construct the Performing Arts Center in conjunction with Cal Poly and the Foundation for the Performing Arts" 1999-01 Cal Poly Relationships Work Program "Work with CalPoly and the Foundation for the Performing Arts Center(FPAC)to resolve long-tern Performing Arts Center financial support issues." Community Partnerships for Cultural Resources Work Program "Continue working through the Commission for the Performing Arts Center and the three partners to develop the funding necessary for the acoustic clouds, needed equipment, reserves for equipment repair and replacement and replacement of carpets and seats at the PAC.." A getchnnel1.+ 7 MEMORANDUM April 4, 2001 TO: Performing Arts Center Financial Planning Work Group FROM: Bill Statler, Director of Finance, City of San Luis Obispo Ron Regier, Managing Director, Performing Arts Center SUBJECT: SURVEY OF OTHER PAC OPERATIONS Attached are our notes on the financial operations of other centers operated by cities or colleges. While we will briefly review these with you at our next meeting on April 9, the following summarizes our findings: ■ Every center has a different story to tell in terms of its operations, partnerships, purpose and finances. (One size definitely does not fit all.) However,there is one thing they all have in common: they all require operating subsidies. ■ Depending on how it's calculated, operating subsidies range from 20%to 50%. ■ For the five cities surveyed in California, annual subsidies range from $350,000 to $3 million. We are looking forward to further discussing our findings with you. In the interim, please call Ron at 781-6557 or Bill at 781-7125 if you have any questions. Ile G:Perfomung Arts Center/Survey Memorandum 0 h tb c c al 0 r4ou ca 6o) fA e w o o cu b 9 69 604c eo F 3 in CP +U- a o eqa C d N C O y Ci7A "" �I W T C O O O •q F - O m v cc 5 ?i N �.o o c 3 ao � � > `o � .cc � m c R «. c •� VII 10 9 C7% fie 4�s ca � 40. o� oo ° w R on cs ¢_ Q� ° � z o a 0 69w ¢ d o v foq 64 46eAD 48. 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V .0 N h O •� = N N N N O v3 fx v rn U W 69 69 °9 69 U k • • • • 0A = o w «. a OD v tG c7 y C L' p � 5.., O O C C -tr — c rrTXT�� is y00j 00 2 O h d 69 69eq tn 669 CA, 6q ^ • • L \ � p cUaeC7 •d .� d y O V 00 V = 0 a W c a? m °> > V ca ^mom " o z G i Ci � e a r LJ o a N M b aoi Ln = LL a > �' �> c g y 0 a m Q C) LZ ir u° .. wN o eO 1 Ej M- = . d R v 69 69 oc 0. �° �° 0 H a o o I o a y � d cg T7 o o.. m 0 5 .S" N 0 3rn4 L a 1016 G7 Q 3 w y� vOOi °: mow' Ln ca 6s • O C O � " V y O o R � o oTy N •+ R L O y > O CL 0 O 0o vcc ID V "1 O 7 in O qRj � wwu council N cyDn� ac Encu REpoRt Imm Numhn CITY 'OF SAN LUIS OBISPO FROM: Jan Marx and Christine Mulholland, Council Members Prepared By: Wendy George, Assistant City Administrative Officer SUBJECT: LONG-TERM FUNDING RECOMMENDATIONS FOR THE PERFORMING ARTS CENTER SUBCOMMITTEE RECOMMENDATIONS; 1) Approve the long-tern funding recommendations developed by an ad hoc task force of representatives from the City, California Polytechnic University (Cal Poly) and the Foundation for the Performing Arts Center(FPAC) for off-setting present and future budgetary deficits of the Performing Arts Center; and 2) direct staff to work with the other two PAC partners to revise the current Operating Agreement to reflect these recommendations. DISCUSSION Background In 1986, the City of San Luis Obispo, FPAC and California Polytechnic University formed a partnership to create and operate a state-of-the-art perfomning arts facility. Two important agreements were created between the parties.. The Development Agreement laid out the responsibilities of the parties during the construction of the building. The agreement stated that Cal Poly would donate the land and construction costs would be paid 2/3 by the University, 1/6 by FPAC and' 1/6 by the City. The Operating Agreement provided that FPAC and the City would be responsible, on an equal basis, for any operating deficit, while Cal Poly would not be responsible for any portion of the operating deficit, but would pay all utility costs and provide routine maintenance of the facility. Need for On-going Subsidies from the Partners In the Operating Agreement, the partners envisioned a facility that would be "self-sustaining", without reliance on annual contributions from the partners. They understood that the fees earned from the sale of tickets and rental of the hall are only minor, albeit important sources of revenue. Therefore, the Operating Agreement required FPAC to create a $1 million endowment through fundraising to supplement these other revenue sources for the Performing Arts Center (PAC). Unfortunately, there were construction cost overrides, and the partners decided to use the endowment funds to complete construction. The partners also took out a million dollar loan from Heritage Oaks Bank in order to open the PAC on time. As a result, there has been an on- going operating deficit at the PAC. In order to assist the cash flow of the PAC, each year FPAC and the City have paid an estimated amount toward the operating deficit in advance. In addition to its commitment under the Operating Agreement, Cal Poly has also provided approximately $260,000 a year toward administrative salaries and other operating expenses of the PAC. This current fiscal year, the MEETING AGENDA D. ITEM # c o un c,l m E m o Ra n b u m May 15, 2001 E$tq,UNCIL ❑ CDD DIR IAo ❑ FIN DIR TO: City Council � ❑ FIRE CHIEF MEORNEY ❑ PW DIR ERK/ORIQ ❑ POLICE CHF VIA: Ken Hampian, City Administrative Officer ❑ pM H DS M REQ DIR L9� � ❑ UTIL DIR FROM: Mike McCluskey,Director of Public Works ❑ HR DIR SUBJECT: Response to Council and Staff Questions Concerning Statewide Transportation Enhancement(STE) grant program. The agenda for the City Council's May 15'meeting includes an item requesting Council support for filing four (4) grant applications with Caltrans. The following questions have arisen concerning these applications and the possibility of others. Question: Why is the requested grant amount for the Santa Barbara Street billboard removal $115,000? Doesn't the budget message estimate the cost at $85,000? Answer: To be eligible for STE funding, the minimum amount of STE funding that can be requested is $100,000, which would constitute 88.5% of the total cost of the project. The City's match requirement is 11.5% or approximately $13,000. Therefore, to meet the State's grant eligibility requirements, staff has increased the project cost to include the demolition and removal of the billboard by a contractor and the construction of two additional parking spaces and landscaping where the billboard currently resides. Question: Can STE funds be used to pay for updating the City's Bicycle Transportation Plan (estimated at $20,000)? Answer. No. The project is too small to be eligible. The State believes that projects less than $100,000 require too much administrative effort to justify the use of Federal TE dollars. TS:ts RECEIVED MAY 1 � 2001 SLO CITY COUNCIL