2005CSW029
Attachment 1
City of Edmonton Arts Review
Draft Report
Prepared for City of Edmonton Community Services
Prepared by Strategy Summit Ltd.
January 2005
CONFIDENTIAL - DRAFT
Table of Contents
Arts Facilities Funding Review Project
Project Overview
City of Edmonton Facility Funding Overview
Common Findings Across Facilities
Capital Replacement Cost Schedule
Facility Funding Reviews
The Citadel Theatre
Winspear Centre for Music
Edmonton Art Gallery
Stanley A. Milner Library
Options for the Future
Recommended Path
Appendix I: Facility Financial Overviews
The Citadel Theatre
The Winspear Centre
The Edmonton Art Gallery
Arts Facilities Funding Review | City of Edmonton
CONFIDENTIAL - DRAFT
Arts Facilities Funding Review Project
Project Overview
The City of Edmonton currently maintains funding relationships with four of Edmonton’s most important arts and culture facilities in the downtown core: The Edmonton Art Gallery (EAG), Citadel Theatre, FrancisWinspearCentre for Music, and the Stanley A. Milner Library. Although the City provides direct funding, funding support, in-kind, or shared revenues with these facilities, the facilities themselves are not achieving the self-sustainability as was once imagined.
Over the last few years the budgets for these facilities have come under pressure as a result of increasing utility, insurance, and security costs. In order to manage unplanned increases in operating costs, facilities have delayed necessary capital improvements and deferred maintenance expenses to the point where each facility may risk their long-term sustainability as valued institutions.
In recognition of the value that these arts and cultural institutions bring to the city, the City of Edmonton Community Services department has engaged Strategy Summit Ltd. to conduct an Arts Facilities Funding Review. This review has set out to identify (1) the current and expected financial standings, and (2) the maintenance and capital improvement needs,across arts facilities within the downtown arts district. This review also identifiesfour (4) action options for the City to consider going forward.
To complete this exercise a highly inclusive process was initiated:
This document outlines the key findings of the research conducted to complete this exercise, concluding with a recommended option that will assist the facilities involved in the review in alleviating their current operations, maintenance and capital improvement requirements, and will assist in addressing their long term needs to ensure these facilities remain as valued institutions in the downtown Edmonton Arts district.
City of Edmonton Facility Funding Overview
Currently the City of Edmonton provides funding to arts and culture organizations through two primary means; the Edmonton Arts Council and Policy C211E (the “Keeping the Doors Open” [KDO] grant).
The City provides funding to multiple arts organizations in the city through the Edmonton Arts Council, which distributes over $2 million in grants in support of arts organizations, festivals and individual artists. The Edmonton Arts Council provides operating grants to arts organizations that are the primary residents of the facilities including the Edmonton Symphony Orchestra, which is the primary resident in the WinspearCentre, and the Citadel Theatre Company, which is the primary resident in the Citadel Theatre.
Through the current funding processes the EdmontonArtGallery is ineligible for funding from the Edmonton Arts Council as it already receives funding from the City through the “Keeping the Doors Open” grant. This grant is currently only available to the EdmontonArtGallery.
The Stanley A. Milner Library receives funding from the City of Edmonton through the City’s regular budgeting process.
Common Findings Across Facilities
Analysis of the financial pressures currently being experienced by the EdmontonArtGallery, Citadel Theatre, Winspear Centre, and Stanley Milner Library revealed several common elements impacting the key pillars of Edmonton’s downtown arts community. These elements are as follows:
Funding models are not sustainable with respect to capital replacement.
Facilities are being run lean and therefore are directing nearly all available revenues to operations. Non-critical capital replacement costs are being deferred, but are increasing in their magnitude and urgency. In some cases, funds previously allocated to capital expenses have been diverted to balance operational shortfalls. The perception among facility managers is that the current funding model is not sustainable.
A complex challenge: growing revenues while also ensuring accessibility.
Facility managers often face the challenge of growing revenues to support operations and capital replacement needs, but also feel driven to ensure that the arts are accessible to Edmontonians of varying economic status. Ticket prices can be increased to bring in additional revenue –demand is strong enough to support it – but this reduces the ability of some Edmontonians to enjoy the arts and these facilities.
Opportunities in Marketing
At times, marketing is neglected when funding is tight, which can create increased financial pressures in the long term. Marketing is often considered a “discretional” expense—i.e. “unnecessary”—but it can have a significant impact on the success of a show or series, and on the financial standing of a facility.
Attendance
Attendance has steadily increased within the last 4 years.
Table 1 outlines the numeric attendance figures at all 4 facilities and the total attendance across all facilities:
Table 1: Facility Attendance 2000/01 through 2004/05
Table 2 outlines the percent change in attendance at all 4 facilities, and across all facilities:
Table 2: Change in Facility Attendance 2001/02 through 2004/05
Table 1 & 2 Notes:
* 04/05 data unavailable for Winspear & Citadel as their fiscal years are not aligned to the calendar year.
** AEG - 01/02 revenues include 18,000 from a special event.
*** Library Construction on the Square had a significant impact on Library services.
Insurance and Utilities are significant drivers of recent incremental cost increases.
All facilities have encountered significant increases in insurance and utilities. Insurance increases have been an industry-wide trend largely attributable to catastrophic events and losses in the insurance industry, and utilities cost increases have been driven by highly elevated energy commodity prices. These costs are unavoidable, and beyond management control, and they have a significant impact on the bottom lines at all facilities.
Equity market fluctuations have impact reserve / endowment fund pools and resulted in poor returns.
The Citadel, EAG, and Winspear all have funds invested through the Edmonton Community Foundation. These funds experienced less-than-anticipated returns during 2001 and 2002 due to significant downturns in global equity markets. While endowment funds, by definition, continue to yield a steady outflow of funds, the principal amounts of these funds has been negatively impacted. For reserve funds that are (or were, at the time) not structured as endowments, the reduction in return directly impacted the financial return generated by these funds used to support operations. Poor returns on reserves / endowments from equity marketshave had a legacy effect on the facilities that lingers still.
Capital Replacement Cost Schedule
Fundamentally, the primary concern among management at the facilities reviewed is for the long-term sustainability of the facilities themselves. Due to the nature of the facilities and their use, the facilities require significant capital for maintenance, repairs, and renovations to ensure their long-term sustainability and viability as treasured cultural institutions.
In the next ten (10) years, almost $20million will be required to maintain the Citadel, Winspear, and EdmontonArtGallery. Of this $20million, over 50% is required by the end of 2007 because facilities have been deferring capital expenditure projects in response to resource limitations. Generally, deferring capital expenditures on maintenance and upgrades has the derivative impact of necessitating further expenditure requirements – i.e. deferring a repair, such as a boiler replacement, will often result in damage or wear on the building and therefore force the facility to incur even greater costs in the future.
Forecasted capital replacement costs are outlined in the table and graph below. While the methods used to identify these costs vary across facilities, the figures represent the best information currently available and illustrate the significance of capital replacement needs across facilities.
Table 3 – Capital Replacement Schedule for the Citadel, Winspear, and EdmontonArtGallery
Because it is one piece of a 16-branch operation, the Stanley A. Milner library does not currently have facility-specific information available for inclusion in the aggregate figures above.
Facility Funding Reviews
The Citadel Theatre
Overview
The Citadel Theatre (the Citadel) was constructed in 1976 and expanded to its current size in 1984. The facility’s administrative staff performs 2 core functions:(1) Citadel Theatre productions, which produces 13 plays plus a Teen Festival and Playreading Series, and (2) the Citadel Theatre facility, which has tenants (a bookstore, restaurant, café, offices and cinema) and which rents theatre and lobby space to a variety of community groups and businesses, including Citadel theatre productions.
Through a successful 2001 application to the Province of Alberta 2005 Centennial Legacies Grant Program, the Citadel has been able to proceed with several critical capital projects which had been put on hold for several years. The Centennial Legacies Grant Program is a Government of Alberta initiative aimed at celebrating Alberta’s 100th birthday. The Citadel received $2.5 million dollars through this program for capital projects to help ensure the sustainability of the facility, but must match these funds in order to access them. The Citadel has to date raised an additional $1.5 million through various sources, including individual grants from: Alberta Gaming(via the Community Lottery Board),the Infrastructure Canada Alberta Program (ICAP),and the Canadian Heritage Cultural Spaces Program. These grants are approved individually by separate funding organizations; they can not be counted on, nor budgeted for, on a long-term basis.
Additional revenue streams include:
A grant from the Alberta Foundation for the Arts (AFA) for operations and maintenance.
An annual pedway rental fee reimbursement from the City of Edmonton.
Endowment funds that contribute investment income to operations.
A facility fee is collected on each ticket sold, excluding tickets for children, which is allocated to the general operations and maintenance of the facility.
Donations – which are allocated to general operating revenues and used to fund programming, administration, operations and maintenance.
During years that Citadel productions are profitable, revenues from theatrical productions have been used to offset the operating losses of the facility.
The Citadel is in a unique position relative to other facilities in this review, in that through the Centennial Legacies fund The Citadel has been able to complete many of the maintenance projects scheduled for completion over the last couple years. However, the Centennial Legacies fund will be insufficient to meet the complete maintenance and capital improvement funding requirements of the facility. Upcoming critical repairs and maintenance expenses will place increased funding pressures on the facility. The Citadel is still the jewel of Edmonton theatres; however, it is becoming increasingly difficult to hide the tattered carpets, worn seating, outdated washroom facilities and leaking glass from the paying public. This decay puts the facility at risk of losing audiences and of losing its position as a valued establishment in the downtown arts district.
Biggest Challenges Facing the Facility
2 Core Functions
The Citadel really has 2 core functions: (1) Citadel Theatre productions which produces 13 plays plus a Teen Festival and Playreading Series and (2) the Citadel Theatre facility which has tenants (a bookstore, restaurant, café, offices and cinema) and which rents theatre and lobby space to a variety of community groups and businesses, including Citadel theatre productions. Unlike the Epcor Centre in Calgary, these two businesses are run by one staff most of whom are “theatre production” people, not “facility management” people.
Funding is not sustainable:there is no budget for capital expenditures or contingency funding.
Citadel Theatre Productions has struggled for years to attain a surplus during a time of funding cutbacks and low return on investments. Because all available revenues are focused on achieving a break-even year-end financial result, there is no budget allocated to saving for capital expenditures. Also, facility enhancement revenues are going towards facility maintenance and urgent repairs rather than larger upgrade initiatives.
Lack of sustainable funding earmarked for capital expenditures makes it impossible, from the management team’s perspective, to carry out planned maintenance, repair and replacement in a consistent and methodical fashion. The approach is reactive, not proactive.
Inconsistent funding affects planning
Because much of the Citadel’s funding is applied for annually or is one-time project-based funding and inconsistent year-to-year, management encounters challenges in planning effectively.
Recent Attendance
2003/04 206,899
2002/03 196,526
2001/02 196,700
2000/01 197,129
Notable Revenue & Cost Trends
The Citadel facility operations consistently experience a deficit
From a “bottom line” perspective, The Citadel has a deficit on its facility operations in each of the years under review. This deficit has been partially managed by making The Citadel’s customers pay an additional levy which is added to the price of their tickets. If it was not for this charge the cash deficit in the year ending in 2004 would have been $470,000 and the operating deficit would have been $550,000. The deficit from facility operations for the years 2000 to 2003 was covered by a reduction of Citadel assets (i.e. – cash, investments, etc.) and in 2004 by funds generated by Productions.
Revenues are up marginally
As outlined in the table below, the Citadel has only been able to increase facility revenue by introducing a $2.00 facility fee in 2001 on every ticket sold. All other sources of funds have only had nominal increases and government funding has remained constant.
Facility costs have increased significantly
The Citadel has been impacted financially by facility cost elements. These costs, largely focused on facility maintenance and cleaning, security, insurance, and utilities, have grown 22% from 2000/01 to 2003/04.
2000/01 / 2001/02 / 2002/03 / 2003/04 / % changeFacility Fees / $ 0 / $ 224,884 / $ 215,956 / $ 256,455 / N/A
Facility Rentals / 428,960 / 445,255 / 465,719 / 481,086 / 12%
TOTAL REVENUES / $ 793,198 / $ 975,659 / $ 996,065 / $ 1,049,632 / 32%
Facility Operating Costs / $ 537,031 / $ 517,187 / $ 586,152 / $ 656,922 / 22%
Administration / $ 410,993 / $ 421,421 / $ 450,581 / $ 421,704 / 3%
TOTAL EXPENSES / $ 1,171,815 / $ 1,088,432 / $ 1,188,994 / $ 1,263,587 / 8%
NET DEFICIT from FACILITY OPERATIONS / -$ 378,617 / -$ 112,773 / -$ 192,929 / -$ 213,955 / -43%*
* Note: -43% represents a reduction in the annual shortfall incurred by the facility due to the introduction of Facility Fees
Capital Expense Forecasts
Capital Expenses have been deferred
The Citadel has been effective in managing capital expense costs and minimizing the impact of deferring facility improvement projects. While needed repairs and refurbishments are noticeable, Citadel management believes that they have not had a tangible impact on attendance as of yet. Management is concerned, however, about the sustainability of this situation.
Significant Capital Expenses are required
Capital expenses in the near-term (the next 3 years) and long-term (the next 10 years) are significant. Capital expenses are forecasted to be over $4.6million by year-end 2006 (although the facility still does have revenues of $960k from the Province for these projects), and over $10.4 million by year-end 2014.
Financial Standing Influencers
Citadel theatrical productions
The Citadel’stheatricalproductions are the facility’s primary rent payers (~$250k / year) and exert a major influencer on net Citadel financials. Citadel management indicates that the theatre company is financially sound, and expects income from that side of the business to remain consistent. However, general operations are exposed to risk associated with the success or failure of the production side of the business.
Facility Management – Desired Outcomes
A sustainable multi-level government funding solution
Match city funds with funding from other levels of government and the private community over the long-term.
Creation of a Capital Endowment Fund
Create a capital endowment fund with public and private sector funding.
Strategic Context
Facility upgrades (overhauls & minor touch-ups) are behind schedule due to funding shortfalls
Facelifts and improvements to facility operations have been postponed due to a lack of available resources – see the Strategic Plan 2002-2007 One Page Summary.
Promotion of the Arts a key contributor to regional competitiveness
The Citadel is working to build a community vision that is highly aligned to and cognizant of the value that the arts community generates for the community. Based on principles outlined in Richard Florida’s book The Rise of the Creative Class, this vision is focused on building “creative capital” and evaluating how cultural development contributes to communities that are healthy from a holistic perspective.
40th Anniversary in November 2005
The Citadel is approaching its 40th anniversary (October 2005), and is assessing capital projects to prepare for a campaign to raise funds for both capital expenditures and the endowment.
Active in Government Relations
The Citadel Management and Board recognizes that government funding agencies are an important stakeholder group, and is active in working with the municipal, provincial, and federal governments as an advocate for arts recognition and funding.