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Item 5.1 - PCPA Workshop to Discuss Operating ModelsNovember 5, 2019, Item # 5.1 DATE: TO: FROM: CONTACT: SUBJECT: Summary: City of Poway COUNCIL AGENDA REPORT November 5, 2019 Honorable Mayor and Members of the City Council Wendy Kaserman, Assistant City Manager~- Brenda Sylvia, Community Services Direct (858) 668-4585, bsylvia@poway.org Belinda Romero, Community Services Mana~er: (858) 668-4592, bromero@poway.org Kelcie Kopf, Recreation Supervisor \I~ (858) 668-4691, kkopf@poway .org ~ Poway Center for the Performing Arts (PCPA) Workshop to Discuss Operating Models As part of the presentation of the FY 2019-20 budget on June 18, 2019, both staff and the Budget Review Committee (BRC) recommended that the City Council hold a Poway Center for the Performing Arts (PCPA) workshop to provide an opportunity for a holistic discussion about the operations of the facility, including ongoing maintenance costs, as well as planned capital projects. The approved FY 2019-20 budget includes a General Fund operating subsidy of approximately $667K and the planned capital projects are estimated to cost between $4M-$5M . As staff began preparing for the workshop , City Management and PUSD Administration continued their regular discussions about use of and access to the facility and potential updates to the joint use agreement between the City and PUSD. In learning about the workshop and potential options to be presented to the City Council, PUSD expressed interest in potentially taking over the PCPA and its operations . Poway High School is the only high school in PUSD that does not have a dedicated performing arts facility. PUSD is interested in acquiring the facility to have increased access for educational programming, as well as student performances. While the PCPA workshop was tentatively scheduled in December, staff moved the date up in light of the potential opportunity with PUSD. This report begins with a history of the PCPA including information about the evolution of the current operating model. It then touches upon different operating models that could potentially increase revenue and/or decrease expenditures. Staff recommends that the City Council provide direction for City staff to enter into more detailed discussions with PUSD about its interest in taking over PCPA and its operations. Depending upon Council 's direction, it is anticipated the PUSD Board will also discuss this at an upcoming Board meeting in November or December. PUSD's Associate Superintendent of Business Support Services will be in attendance at the November 5 , 2019 C ity Council meeting. 1 of 13 November 5, 2019, Item # 5.1 Recommended Action: This is a City Council workshop; therefore the City Council will not be voting on this item. However, staff recommends that the City Council provide direction for City staff to enter into more detailed discussions with PUSD about their interest in taking over PCPA and its operations and maintenance and pursue Option 2b described later in this report. Discussion: Introduction The City of Poway first started discussing a performing arts center in the early 1980s following a citizen survey in 1982 that indicated a strong community interest in a performing arts facility. The City awarded the contract to build the facility in 1988 and the PCPA opened in 1990. It is a unique facility in that it is located on PUSD property at Poway High School, yet operated by the City through a Joint Use Agreement (JUA) with PUSD. In addition to the JUA, there is also a lease agreement in place between the City and PUSD since the facility is on school district property. The construction of the PCPA was primarily funded through debt issued by the former Redevelopment Agency (RDA), with a limited amount of funds raised through a capital campaign and PUSD contributed $500,000 toward the approximately $8.6M in construction costs. There is no remaining debt on the construction costs of the facility. While there is no debt on the construction, based upon the current operating model, there are serious concerns about the General Fund's ability to continue to sustain the annual operating subsidy of approximately $667K as well as fund upcoming capital maintenance projects estimated to be between $4M to $5M. As discussed during the presentation of the FY 2019-20 budget, overall General Fund expenditure growth is outpacing revenue growth. Without a change to the operating model, the General Fund's operating subsidy to the PCPA is expected to continue to grow in future years as employee pension and medical costs increase and there are inflationary adjustments to service contracts. Below is a brief history of the PCPA that includes information about how the City arrived at the current operating model and discussions with prior City Councils about the operation of the PCPA. As illustrated through this history, this workshop is far from the City's first discussion about how to best operate the facility. For the past several years, the annual BRC letter to the City Council has expressed concerns about the General Fund subsidy of PCPA operations and suggested the City re-evaluate its operating model. As part of this report, staff is providing information about alternative operating models. The options provide high level pros and cons, as well as points for consideration. Based upon Council direction, staff would bring back more details about the selected option/s at a future City Council meeting. It is staff's recommendation that the City Council direct staff to engage in more detailed discussions with PUSD about their interest in taking over operation of the PCPA as described in Option 2b later in the report. Initial Operating Model Prior to the facility opening, staff was directed to develop a proforma for potential operating costs and revenues for the PCPA. As part of that analysis, they reached out to cities with similar venues. In November 1988 staff presented three potential operating models. Scenario A reflected initial startup costs after which staff would be minimal and facility rentals would be limited. 2 of 13 November 5, 2019, Item # 5.1 Scenario B reflected typical operations of the PCPA with additional personnel and the number of facility rentals increased. Scenario C reflected full scale operation of the PCPA, including limited City productions. All three options reflected an annual operating subsidy from the General Fund, Scenario C showed the highest subsidy level. At the time, the General Fund subsidy for Scenario C was projected to be $170,000 per fiscal year. The City moved forward with Scenario C as the operating model. As part of the capital campaign to raise funds to bridge the funding gap between RDA funds and construction costs, in December 1988 the City Council authorized the creation of the Poway Foundation (Foundation) for the Performing Arts as an independently incorporated non-profit 501 (c)(3) designated organization. The Foundation's purpose, with the assistance of a fundraising consultant, was to conduct a capital fund-raising campaign to complete the financing of the PCPA, and also to ensure the PCPA's long-term financial stability. The capital campaign concluded at the end of 1990, as did the contract with the fund-raising consultant. Roughly $600,000 in cash and pledges was raised. Of that amount, $339,000 was to be returned as direct reimbursement to the City. On October 30, 1990, the City Council agreed that all amounts above and beyond the reimbursement, would be placed into a City controlled Performing Arts Trust Fund. The interest from this Trust Fund would be pledged to offsetting the annual operating costs of the PCPA. At the time, the Foundation tentatively projected a goal of raising $250,000 annually in support for the PCPA within five years through membership drives, special events, corporate and foundation grants, and interest from a proposed endowment fund. Following the conclusion of the contract with the fundraising consultant, the Foundation had no office facilities, clerical or other staff support of its own. In addition, since all receipts from the capital campaign remained with the City, the Foundation had no source of operating funds. In February 1991 the Council supported a proposal by the Foundation to place $25,000 in General Fund dollars in a Certificate of Deposit for a period of one year. The Foundation would use the Certificate of Deposit as collateral for a loan in the same amount to pay for membership campaign expenses, insurance, and temporary office rent and a part time employee. Within one year, the Foundation would repay the principal and interest from fund raising proceeds. In June 1991, the President of the Foundation (then referred to as ARTS ALIVE! Foundation for the Performing Arts) presented the City Council with a five-year business plan encompassing the periods of FY 1991-92 through 1995-96. The Foundation's mission was long term financial stability of the PCPA and advocacy for quality programming of the arts at PCPA. The Financial Objectives were as follows: 1) Self Sufficient Operations by the end of FY 1991-92. Adequate cash reserves. 2) Direct Operating Support to PCPA in FY 1991-92 increasing steadily to level of $100,000 a year within five years. 3) Build an endowment fund with ultimate objective of self-perpetuating performing arts support. Balance of direct operating support and the indirect support of endowment building during five-year plan. As illustrated by these objectives, the Foundation's focus was fundraising to support PCPA operations, maintenance, and capital expenses. Under the original operating model at PCPA, the City earned revenue through a combination of 3 of 13 November 5, 2019, Item # 5.1 facility rental revenue, cost sharing with PUSD for their joint use of the facility, ticket sales, staff support services charged to facility rentals, and concessions. At the time the facility opened, concessions were contracted out to the third party and the City received a percentage of sales. In later years, the City took over providing concessions and currently retains all concessions revenue. In 1992, the City entered into an agreement with Theatre Corporation of America/Pasadena Playhouse (TCA) to present a series of professional theatre productions at the PCPA. This arrangement lasted until the summer of 1994, when TCA ran into financial difficulties and cancelled a season of productions for which it had already sold over 1,100 tickets without refunding its ticket holders. In FY 1994-95, the Foundation decided that it should make good on the performance season promised by TCA and for the first time produced three plays. In 1995-96, the Foundation presented a second season of plays, which was marketed and promoted together with the City presented performances. This was followed in 1996 by the City Council approval of a proposal from the Foundation for a three-year agreement in which the Foundation assumed all of the presenting responsibilities for the professional programming at the PCPA. The Foundation would finance this plan with earned revenue from ticket sales, an annual fundraising plan, and assistance from the City. The plan was presented as one that would save the General Fund operating costs associated with presenting performances, the City would instead make a flat annual contribution to the Foundation. It was also proposed that there would be an opportunity for the Foundation and the City to share in revenue from ticket sales. As part of the proposal the Foundation would hire its own marketing and production manager. In 1998, the City Council approved a modification to the agreement that included an extension of the term, as well as an increase to the City's annual contribution (subsidy) to the Foundation. Another notable change was moving away from using the City's Performing Arts Manager as the Executive Director of the Foundation. The Foundation hired its own full-time executive director. Additionally, the Foundation requested, and the City agreed to waive a return of earned ticket sales revenue to the General Fund. Part of the justification for this waiver was the Foundation's assertion that it could deter potential donors to the Foundation if they saw in the budget that revenue was being shared with the City. It was at this point in 1998 that the Foundation moved away from its original fundraising effort to offset PCPA operating and capital expenditures and began to fundraise primarily to offset its own employee salaries, consultants, governance, marketing, professional performance contracts, and Arts in Education. In 2002, the Foundation experienced a dramatic decrease in ticket sales and depleted almost all of its financial resources while significantly reducing its budget. In order to keep the Foundation solvent, the City provided additional financial support. In FY 2009-10, based on direction from the City Council and in an effort to identify operating efficiencies and reduce General Fund expenditures, the Community Services Department established a FY 2009-10 goal to complete a study of the PCPA operations. Staff identified opportunities to reduce staffing costs and other operating expenditures, and also reduced the subsidy to the Foundation. Additionally, revised fees were approved to recover a greater portion of staff support costs associated with facility rentals and ticket purchases. In FY 2013-14 the Foundation secured the Doing Business As (dba) as Poway OnStage designation. In recent years, the Foundation has successfully obtained grant funding from both the County and City of San Diego based upon the regional draw of the PCPA. 4 of 13 November 5, 2019, Item # 5.1 While the City's annual contribution to the Foundation has varied over the years, in total the City has provided $3. 7M dollars in contributions to the Foundation. Current Operating Model and Challenges Fast forwarding to present day, the PCPA operates under a model, prescribed by a City Council adopted Use Policy, that allows events and activities conducted by the Foundation, dba Poway OnStage (POS), to have first-priority use of the facility after any City of Poway uses. This priority use reflects the focus of PCPA as a venue that provides community access to arts and culture programming. In order to contract out professional performances, that are often booked many months in advance, POS needs maximum flexibility in available dates. Events and activities conducted by PUSD have second priority use and community rentals retain third priority use. The City Council adopted Use Policy will need to be revisited and revised should the City Council pursue any of the alternative operation models outlined later in this report. While POS does pay for the direct staff support and technical services associated with its performances, it does not currently pay to rent the facility for its performances or for the office space it occupies at the PCPA. In fact, the fees paid to the City in FY 2018-19 fell short of the City's annual contribution to the Foundation, therefore the City saw no net revenue as a result of the fees paid by the Foundation. With POS staff physically located at the PCPA, they regularly ask for and receive City staff assistance for which they are not paying. The Foundation, with continued financial support from the City, is currently achieving their goal to present professional performances and educational art programming. However, it has not assisted with the long-term financial sustainability of the PCPA as was originally envisioned when the Foundation was established. The City is currently in a position in which the annual operating subsidy at the PCPA is just under $700K (this includes an annual contribution/subsidy to POS of $113,350) and the facility is due for capital maintenance projects estimated to cost between $4M and $5M based on the 2016 facility needs assessment. Staff is currently analyzing the capital project list to develop more precise cost estimates and the project timeline. Interestingly, while the City of Poway General Fund is subsidizing PCPA operations and POS, ticket sale data for the FY 2018-19 POS season shows that only 20% of the ticket purchasers have Poway mailing addresses. Based upon the long established operating structure of the Foundation, the City does not receive any offsetting revenue either through the Foundation's fundraising efforts or the Foundation's ticket sales to assist with operations, maintenance, or capital projects costs. In 2019, the Foundation did add a surcharge on to its tickets to contribute toward the City's capital project costs, however this is projected to generate less than $30,000 a year in revenue. The City does generate a very limited amount of revenue from concession sales during POS events. Total concessions income for all events, not just POS events, for FY 2018-19 was just over $60,000. Per the JUA between the City and PUSD, PUSD has access to 35% of the available programming days at the PCPA for PUSD programming. However, as mentioned earlier in the report, POS has first access to dates. Based upon PUSD's 35% usage of the facility, they reimburse the City for 35% of the operating costs at the facility and each school pays staffing fees for staff necessary to facilitate their event. The 35% does not encompass all operating line items, though has been adjusted in recent years and is reflective of a greater portion of all operating line items within the PCPA budget. There are exclusions to the cost sharing in the agreement. PUSD does not currently contribute toward major capital project costs and as part of the agreement between the City and PUSD to allow for solar panel installation on PUSD property to serve the PCPA, the City is currently responsible for all electricity costs at the facility. The City entered into a long-term power purchase agreement for the solar project, transfer of the agreement to PUSD would need 5 of 13 November 5, 2019, Item # 5.1 to be part of the negotiations were PUSD to take over PCPA and its operations. The City is also currently working with a consultant to resolve the issue of why the solar system has not produced the cost savings that were expected. Community rental groups are charged hourly for rental of the theatre and pay for staff support for their events. The City Council approved increases to the rental rates in 2016 however; the current fees structure does not represent full cost recovery in current dollars for any of the user categories. As adopted in 2016, the City has started to implement a series of increases beginning in FY 2017- 18, and again in FY 2019-20 and in FY 2020-21. Through these changes the City will incremental move to 55% cost recovery for non-profit rentals and 65% cost recovery for for-profit rentals. Unlike other City facilities, there are not separate rates for Poway based groups and non-Poway based groups. Rental client data for 2017-18 and 2018-19 season shows that the majority of the rental groups are not Poway based. So, the City is subsidizing rates for non-Poway non-profits, as well as for-profit entities. It should be noted that it has been a number of years since the City conducted a comprehensive cost allocation plan and fee study. Staff does plan to request the City Council approve funding this fiscal year to update the City's cost allocation plan in FY 2020-21. Should the City Council want to move toward fees that reflect higher cost recovery, staff would strongly recommend an outside consultant be hired to complete a comprehensive study to ensure the accuracy of current costs and cost recovery percentages. Alternative Operating Models for Discussion Prior to learning about PUSD's potential interest in taking over the PCPA and its operations, City staff had started to map out alternative operating models for the December workshop. Given the potential opportunity with PUSD and staff's recommendation, this report focuses on models that either the City or PUSD could implement. The options are presented in a high-level outline format that describes both the pros and cons of each option and points for consideration. Depending upon the direction provided by the City Council as to which option(s) the City Council wants to pursue, staff would return at a future City Council meeting with significantly more detail about the selected option/s. For those options that involve reduced operations or elimination of City operations, the fiscal impact could vary depending upon what happens to 5 Full-Time Equivalent positions and numerous part-time, temporary positions working at the PCPA. Ideally, employees would have the opportunity to fill vacancies elsewhere in the City. Staff did internally discuss more alternatives than are presented in this report. Each option presented can be further modified. Only one of the options presented is reflective of an operating model where the City would incur the financial risk of professional performances not recuperating costs and generating a profit. Option 1a No change to the current model. Continue to operate PCPA based on existing agreements and programming model. 6 of 13 November 5, 2019, Item # 5.1 Details • PUSD receives 35% of available days; Cost-sharing agreement for 35% of selected line items. • POS receives annual City subsidy of $113,350 (actual FY 2019-20 PCPA budget). Subsidy will be reduced to $93K in FY 2020-21. Staff would likely recommend further reductions beginning in FY 2021-22. • Rentals are booked on remaining available dates after POS and PUSD select use dates. Fiscal Impact (based on FY 2019-20 approved budget) • Annual General Fund subsidy of approximately $667K remains and continues to grow annually based on increasing employee medical and pension costs, as well as inflationary adjustments included in service contracts. • Funding would need to be identified for the projected $4 to $SM in capital maintenance projects. Pros • Continuity of operations and access for City, Poway OnStage, PUSD, and community rentals. Cons • Does not address the current and future financial obligations (i.e. CIP projects, operating deficit). • Limited to no potential for long-term, impactful revenue solutions. • Does not provide PUSD an opportunity for additional access to the facility. ·option 1b Retain current operating model but negotiate new use agreements with Poway Onstage and PUSD and establish new user fee schedule. Details • Renegotiate PUSD's access to the facility, this may result in more dates available to PUSD for school programming. Revise the cost-sharing to include a portion of capital costs and greater cost recovery for city operations. • Renegotiate the facilities use agreement with POS. Continue to reduce or eliminate annual subsidy. Incorporate revenue sharing from POS performances into the agreement and also pursue cost recovery for POS's use of the facility for both performances, as well as office space. Depending upon the terms negotiated, there may also be consideration for reducing the number of dates available to POS to provide for other uses that generate more revenue. • Revenue producing rentals are booked on remaining available dates after POS and PUSD select use dates. • Following completion of an updated cost allocation and comprehensive fee study, a revised fee schedule would be presented to the City Council for consideration that would reflect significantly higher cost recovery, particularly for non-Poway individuals, non-profits, and for- profit businesses. 7 of 13 November 5, 2019, Item # 5.1 Fiscal Impact (based on FY 2019-20 approved budget) • This model would likely reduce the General Fund operating subsidy, however, identifying funding for the projected $4 to $SM in capital maintenance projects could still prove challenging. Pros • Continuity of operations and access for City, Poway OnStage, PUSD, and community rentals. Cons • May not fully address the operating subsidy and likely would not generate sufficient revenue for the upcoming capital maintenance projects. • POS and PUSD may not agree to the proposed revisions to agreements. • May impact programming and the cost of programming offered by POS if they are required to share revenue and incur higher operating costs. • May impact rental income and community access to the facility if new fees are cost prohibitive. Option 2a End operations at the PCPA with Limited Access for PUSD Details • The City would need to negotiate with PUSD regarding their level of access to the building. It is likely the City would allow PUSD to have use of the Drama Room only and need to restrict access to remainder of facility for legal and safety reasons, however, the land lease is unclear as to the City's abilities to do so and/or obligations in this case. • PUSD would be responsible for all costs associated with using the Drama Room, including (but not limited to) utilities, janitorial, maintenance and capital improvement. The HVAC system would need to be altered to service solely the Drama Room; currently the HVAC unit in the Drama Room is tied into the building's system. • Amend or eliminate the City's Use Policy to accurately reflect operational model. Fiscal Impact (based on FY 2019-20 approved budget) • The current subsidy for operating the PCPA would be saved, approximately $667K annually. • Capital maintenance projects may be deferred, however as noted below, should there ever be a desire to reopen the facility, there would likely be major capital projects required before the PCPA could be reopened for broad public use. Pros • Highest level of cost-savings. • City is relieved of operating, programming and managing PCPA. • Maintains relationship with PUSD, though whether there would still be access to performance space is uncertain. 8 of 13 November 5, 2019, Item # 5.1 Cons • Loss of large, professionally equipped performance space for PUSD. District would need to find an alternate venue for 27 events and 4,400 student performers. • Loss of performance space for community rental groups (i.e. 40-50 community rental clients and approximately 30,000 attendees). • Loss of professional performances/performing art offerings in the community. • Potential for building damage due to vacancy (i.e. graffiti, loitering, etc.). Considerations • The land lease is not exhaustive so the limited language surrounding what would transpire should this option be selected is unclear. • Any future consideration to reopen the PCPA may involve substantial start-up costs. Option 2b End City operations and maintenance of the PCPA. City negotiates with PUSD for PUSD to acquire the facility and assume all responsibility for operations, maintenance, and capital expenses. Details • Terms of acquisition would need to be negotiated, as would the timing of the acquisition to accommodate existing rental clients, as well as POS contracts for performances and events. • PUSD would assume all operating and maintenance costs, and would have full control of the programming of the facility, therefore providing greater opportunity to PUSD for educational programming, as well as student performances. Fiscal Impact (based on FY 2019-20 approved budget) • The General Fund would no longer subsidize the operations of the PCPA and the City would not need to identify funding for future capital maintenance projects. The City would no longer incur costs to operate the facility. Pros • Highest level of cost-savings. • City is relieved of operating, programming, managing and maintaining facility. • Significantly more access to the facility for Poway High School students, as well as all PUSD students and faculty. • PUSD has an established relationship with the community and would likely continue to make PCPA available for rentals to the Poway community. Cons • Potential loss of performance space for local rental groups, contingent upon PUSD's operating model. • Potential loss of professional performances/performing art offerings, contingent upon PUSD's operating model. 9 of 13 November 5, 2019, Item # 5.1 Considerations • Should this option be selected, Council could direct staff to specifically negotiate with PUSD to offer reduced rates to Poway residents, non-profit organizations, and/or for-profit businesses. • Council could also direct staff to negotiate a commitment from PUSD that some form of a performing art professional series will continue. • The City could potentially offer PUSD some form of funding to facilitate one or both items described in this section. Option 3 Terminate POS agreement and issue RFP for contracted services to operate and manage the PCPA. Relationship with PUSD would remain the same (35% use of facility, 35% cost-sharing). Details • Based upon the current use agreement and land lease with PUSD, this option may not be feasible, as the City would need to negotiate this change with PUSD. • Should the City successfully negotiate this change, with the exception of PUSD use, contracted management would determine all other facility use including performances (type, number, scheduling), programs and rentals. • Responsibility for building maintenance and capital expenses and oversight would be pre- determined by the City and reflected in the RFP. • Amend or eliminate Use Policy to accurately reflect operational model. Fiscal Impact (based on FY 2019-20 approved budget) • Unknown cost to contract services to operate/manage theatre. • Annual savings of $93K from terminated POS subsidy (FY 2020-21 ). • Annual personnel cost savings. • Potential for revenue share with contracted management company should performances result in a net revenue (i.e. percentage of ticket sales). • City may still be responsible for building maintenance and capital expenses. Pros • Community would still enjoy diverse art programs and programming. • City is relieved of daily operations and management of PCPA. Cons • Unknown interest in and costs to contract out operation and management of theatre. • Onus for capital improvement expenses is uncertain but could be dictated in RFP, otherwise the City would retain financial responsibility for those costs. • Companies may not be willing or interested in operating/managing PCPA due to: o Relationship/agreement with PUSD (may be too restrictive) o Location of PCPA (remote/far from freeways and lack of dining options in vicinity may be undesirable) o Smaller seating capacity creates a revenue ceiling (e.g. 809 seats versus 1,500 seats) • Limited potential for long-term, impactful revenue solutions. 10 of 13 November 5, 2019, Item # 5.1 • Competition in the market (an example would be the Magnolia venue in El Cajon) Considerations • Could potentially reach out to several contract management companies to gauge interest. • Would need to determine who would have oversight of the contract. Option 4 Terminate POS agreement. Restructure POS and revert their operations to a Foundation; establish new agreement with Foundation where all efforts and revenue are directed to the City. City issues RFP for booking agent services for professional performances (w/reduced frequency). Foundation would operate with Executive Director and limited support staff paid for through their own fundraising efforts (not City). Relationship with PUSD remains the same (35% use of facility, 35% cost-sharing). Expanded facility availability will be designated for revenue-generating use including rentals and contract classes (i.e. drama, art, music, tech). Details • As described earlier in this report, PCPA Foundation's original charter reflected a model designed to focus on fundraising to support PCPA operations, maintenance, and capital expenses. The charter was later changed to redirect efforts and revenue to the Foundation and include professional performances. • Annual $93K subsidy for POS (FY 2020-21) would be used to pay for booking agent. • City would determine number, type and budget of professional performances. • POS would need to remove dba "Poway OnStage" and return to operating as the Poway Center for the Performing Arts Foundation (as originally established). • POS would need to amend their 501 (c)(3) information to reflect a change in mission and operations. • Foundation would now be responsible for raising funds (over and above their salaries and operating expenses) for professional performance artist fees, annual City donation, art programs and performances, and capital improvement expenses. • City would set a pre-determined annual donation amount that Foundation is responsible for fundraising as a way of indirectly managing and controlling their operation costs and salaries. Fiscal Impact (based on FY 2019-20 approved budget) • New booking agent fees may be less than annual $93K POS subsidy (per FY 2020-21 ). Potential savings if booking agent fees can be negotiated at a lower rate. • City would determine annual expenditures budget for professional performances. • Foundation would be responsible for all artist/associated fees. • City would retain all revenue from ticket sales. • Foundation would be required to make annual donation to the City (amount TBD). • Approx. $32K to $65K (conservatively) increased revenue by replacing POS use with paying rentals. • Contract classes are based on 60/40 revenue split (lnstructors/60% -City/40%). Cost recovery could vary between $200 and $2,000/day depending on type, and number of offerings/registrants. 11 of 13 November 5, 2019, Item # 5.1 Pros • Potential for long-term, impactful revenue solutions • Leverages the relationships Poway OnStage has built with patrons, donors, sponsors and artists for the benefit of the PCPA • City ownership/oversight of creative decisions, programming, and facility use (i.e. more efficient scheduling) • City would be relieved of the tasks and mandates associated with the POS agreement. May result in moderate staff cost savings. • Foundation would actively raise money to help offset operations and capital improvement expenses • Increased rental use availability • Increased contract class offerings Cons • POS may not be motivated to restructure their organization, and change their mission and operations for the benefit of PCPA programs and capital improvement expenses • The City incurs the liability of professional performances not recuperating costs and generating the expected revenues. Considerations • Cost-benefit analysis of a volunteer foundation including revenue potential, efficiency, and staff oversight time commitment and requirements. • If POS chooses not to restructure, City still could choose to implement this model by creating a new foundation. • Increase rental fees to maximize revenue based on demand and days of use. • Renegotiate use, cost-sharing percentage, and potential capital expenses with PUSD As illustrated through the options provided above, there are many different potential operating models for the PCPA. The City Council could direct staff to further pursue one or more of the options highlighted above and bring back more detailed information at a future City Council meeting. Given PUSD's interest in potentially acquiring the PCPA, prior to pursuing the other operating models described in this report, it is staff's recommendation that the City engage in further discussions with PUSD and explore Option 2b and report back to the City Council as soon as practicable on the status of the discussions. Should Council provide this direction, it would also be staff's recommendation that the City temporarily pause accepting new facility reservations for the 2020-21 performance season until discussions with PUSD are complete. This would require formal notice to POS, PUSD, and rental groups of the temporary change to the reservation policy as spelled out in the current Use Policy. As previously mentioned, future changes to the operating model, may require updates to the City Council adopted Use Policy for the PCPA. Environmental Review: This action is not subject to review under the California Environmental Quality Act (CEQA). 12 of 13 November 5, 2019, Item # 5.1 Fiscal Impact: As this is a workshop with no specific action, there is no fiscal impact. However, future decisions made by the City Council as a result of the information presented in this report, may have a fiscal impact which will be described in detail when Council action is requested. Public Notification: This item has no legal notification requirement. Though informal notification of this report and this City Council workshop was provided by Community Services Staff to PUSD, the Foundation Executive Director and Board , as well as repeat rental groups who use the facility frequently. Attachments: None. Reviewed/Approved By: Assistant City Manager 13 of 13 Reviewed By: Alan Fenstermacher City Attorney Approved By: City Manager