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Item 9 - PCPA WorkshopDATE: TO: FROM: :'."!}· · .. -. -) J ::lY CONTACT: SUBJECT: Summary: AGENDA REPORT CityofPoway CITY COUNCIL April 6, 2021 Honorable Mayor and Members of the City Council Wendy Kaserman, Assistant City Manager/Acting Director of Community Services W ~ Belinda Romero, Community Services Manager/Acting PCPA Supervisor (858) 668-4592 or bromero@poway.org Poway Center for the Performing Arts (PCPA) Workshop The City Council held a workshop on November 5, 2019 to discuss the Poway Center for the Performing Arts (PCPA). During the workshop staff presented information about the evolution of the current PCPA operating model, the primary user groups and existing use agreements, as well as the budgetary challenges with maintaining the ongoing annual operating subsidy (approximately $700k/annually) and funding upcoming capital projects (approximately $3.3m) including HVAC work, roofing, and seat replacement. Staff presented several alternate operating models for City Council's consideration and recommended the Council consider directing staff to meet with Poway Unified School District (PUSD) to further explore their interest in potentially purchasing the PCPA. Council directed staff to engage in discussions with PUSD. Within a few months of the workshop, the pandemic hit and responding to the pandemic became the focal point for both the City as well as PUSD. During and after the 2019 workshop, the City Council heard from multiple user groups, as well as Poway residents that there is a strong interest in the City maintaining operational control of the PCPA. At the July 21, 2020 City Council meeting, Mayor Vaus appointed Deputy Mayor Leonard and Councilmember Grosch to a new City Council PCPA ad hoc committee intended to meet with user groups and report back to the City Council on future operations and options for the PCPA. At the December 1, 2020 City Council meeting the PCPA ad hoc committee provided a brief report out in which they recommended the City pause negotiations with PUSD for their potential acquisition of the PCPA and directed staff to work with the ad hoc committee and user groups to develop a more financially sustainable operating model with the City maintaining ownership and operational control of the PCPA. Both Deputy Mayor Leonard, as well as Councilmember Grosch indicated that all user groups should expect changes if the City is going to retain ownership of the facility and reduce the operating subsidy. Since December, both the ad hoc committee members, as well as City staff have had multiple meetings with user groups and stakeholders to discuss ideas and opportunities to transition to a more fiscally sustainable operating model, as well as fund future capital improvements and improve operational efficiency while also providing more equitable access to the facility. The focus of this 1 of 10 April 6, 2021, Item #9 workshop is for the City Council to provide direction on several critical decision points. Based on City Council direction, staff anticipates returning to Council at a future date for action/adoption of the items discussed. Recommended Action: It is recommended that the City Council provide staff with direction regarding the decision points outlined in this staff report. Discussion: The PCPA is a unique performing arts venue in the City of Poway. As described in the previous workshop, there are three primary user groups of the facility. These groups are Poway OnStage (POS), the 501 (c)(3) non-profit responsible for the annual professional performance series at the PCPA. PUSD utilizes the theater for some student instruction, student rehearsals, performances, and other PUSD functions. Community user groups including theater groups, dance companies, and other performing arts groups rent the facility for rehearsals and performances. Each of the three user groups has different priority access to reserve the facility, as well as different fee structures. The current operating model is the major contributing factor toward what the City Council, the Budget Review Committee, and staff have identified as an unsustainable annual operating subsidy. Looking at both projected revenues and expenditures (pre-pandemic), the current annual General Fund operating subsidy is approximately $700k. The subsidy appeared lower for FY 20-21 due to the City leaving two positions (notably the PCPA Supervisor) unfilled and unfunded as negotiations with PUSD for their potential purchase of the facility were ongoing. As described by City staff in multiple budget presentations, and most recently at the March 2, 2021 City Council meeting, General Fund expenditure growth is outpacing revenue growth. The City is projecting General Fund deficits over the next several years unless action is taken to either grow revenues or reduce expenditures or a combination of both. In order to transition the PCPA to a more financially sustainable operating model, staff has identified several core decision points outlined below. While the initial decision points are foundational in terms of the use policy, user group access and cost recovery levels, the remaining decision points are randomly ordered. They are not ordered based upon one decision point being more important than another. Staff acknowledges that some of the decisions will be difficult and do have the potential to impact the operations of some of the City's user groups. The core decision points, are followed by ancillary decision points. Use and Use Policy The current use policy focuses on the PCPA being utilized primarily for arts and education. The calendaring policy gives first priority access after the City to POS. After they secure performance dates with artists, dates are then released for PUSD, and then once PUSD makes its selections, dates are then made available to community user groups. This structure provides maximum flexibility to POS to book professional performances and work within the artists' tour schedules, however it also reduces how far in advance PUSD (9 months) and the community groups (6 months) can secure their desired dates. Through meetings with PUSD and community groups, the ad hoc committee and staff have heard these groups would like earlier access to secure dates. We have also heard concerns from POS about how changes to calendaring may impact their ability to secure artists. The current calendaring process is also extremely staff/time intensive and fees do not reflect this. 2 of 10 April 6, 2021, Item #9 Decision Points: Does the City Council want to maintain the current policy that the priority use of the PCPA is arts and education programming? Does the City Council want to revise the existing use policy to allow all three user groups more equitable access and more advanced confirmation of calendar dates? Does the Council want to expand the use policy to allow for uses outside of arts and education programming including private social functions, business, and religious uses? Anticipating these uses would have last priority in terms of calendar access, there are questions about how frequently they would rent the PCPA for functions. As an example, would a church rent the facility for services on Sunday mornings if they couldn't book the facility every Sunday for an extended period of time? While the PCPA has been closed since March 2020 due to the pandemic, in normal times the facility is open for public use and rental roughly 220 days a year between late September and June. There are periods of closure between September and June for annual maintenance and the facility closes during the summer, additionally the box office is only open on certain days of the week. Many of the closure dates were established by the City over time in an attempt to contain costs since generally speaking fees have not been set to fully recover the cost of opening the theater for public use. To put that another way, it often costs the City more to open the theater for use than the City collects in revenue. The PCPA staffing model in last full year of operations pre-pandemic (FY 18-19) included the following regular/benefitted full-time equivalent (FTE) staff members: PCPA Supervisor (currently vacant}, 2 Technical Theater Coordinators, ¾ FTE Front of House Coordinator, ¾ FTE Box Office Coordinator (currently vacant) and a part-time Administrative Assistant Ill (currently vacant). The pandemic (and corresponding closure of the PCPA) has allowed for extended vacancies, however when health orders are lifted and we begin to prepare for re-opening of the PCPA, we will need to determine the appropriate organizational structure and ensure we have the staff necessary to operate the facility and provide services to user groups. Decision Point: Cost Recovery Does the City Council want to expand the number of days the PCPA is available for public use, including opening in the summer? It is still anticipated that there would be some limited closures for annual maintenance and the major capital projects that need to be completed in the coming years and have the potential to require extended closures as well. As both the City Council Ad Hoc Committee and staff have met with user groups, the number one question has related to fees and cost recovery and impacts to user groups. While the City Council has said a greater level of cost recovery is needed, it has not yet defined what an acceptable level of cost recovery is. The current fee structures for all user groups are intended to recover some portion of costs, however expenditures currently exceed revenues by approximately $700k annually. For some perspective, the daily cost for the PCPA can fluctuate from $2,500 to $5,400 based on the formula utilized for cost-recovery and the City Council decisions on subsidy parameters. If we utilize the FY 18-19 (the last full year of operations pre-pandemic) expense total of $1,191,487 and divide it by the current 220 days available, the daily rate is $5,415, yet if you spread the costs equally over 365 days, the result is $3,264 per day. Although it is feasible to expa~d use and utilize the theater more days 3 of 10 April 6, 2021, Item #9 per year, it is important to remember that a portion of these dates may not be rented out. In FY 18- 19, 86% of the 220 available dates were used. Staff is intentionally seeking policy direction on the acceptable level of cost recovery versus presenting fee schedules. Council's direction on the cost recovery will drive the fee structures staff brings back to the City Council for consideration in the future. Based on the anticipated timing of bringing changes back and allowing all groups time to plan and adjust to changes, staff would recommend most changes take effect beginning with the 2022-23 performance season which starts in August 2022. Decision Point How much does the City Council want to reduce the approximately $700k annually subsidy by and by what time frame? For example, does the City Council want to reduce the subsidy by 50% in Fiscal Year 2022-23 Uuly 1, 2022 through June 30, 2023)? The current fee structure has different rates for private businesses and non- profits. It does not distinguish between Poway and Non-Poway user groups. Due to the fact the PCPA has a regional draw, whether the user group is physically in or out of Poway, does not necessarily indicate where audiences are coming from, nor does it indicate the residency of participant performers. Does Council want to maintain the two existing categories? If there is direction to expand the use policy to include other functions, does Council want to have different rates for arts and education programming vs. religious uses and private functions (i.e. a wedding or a corporate type event)? Should new fees also include a capital component to help offset a portion of major capital projects that are on the horizon? Does the City Council want to engage a professional fee consultant to develop fees consistent with the cost recovery and capital funding direction provided to staff? If the City Council is interested in engaging a consultant, does the Council want a consultant who focuses exclusively on fees or a consultant that perhaps has expertise in the area of performing arts venues? This likely depends on Council's goals with the fees, a financial consultant would likely be more focused on cost recovery, whereas a consultant with performing arts expertise may be more focused on the market and competing venues. In either approach, staff does anticipate doing a market check, to ensure the proposed fees are not so far out of market that we lose clients and rental revenue. Agreements wl User Groups The City has agreements in place with POS, as well as PUSD. POS is responsible for booking the professional performance series offered annually at the PCPA and enjoyed by Poway residents, as well as individuals throughout the San Diego Region. The current agreement between the City and POS expires in June 2021. The agreement is structured in such a way that in return for booking and facilitating the professional performance series, the City provides POS with multiple benefits, including a direct cash subsidy ($93,350 in the current fiscal year), free office space at the PCPA, free use of the theater for performances, and free and reduced staff support charges. Within the last two years POS did add a $3 fee to their tickets that is being transferred to the 4 of 10 April 6, 2021, Item #9 City to put toward capital projects but POS, like all other users, retains all other revenue, minus handling fees, from their performances. The City and PUSD entered into a Joint Use Agreement UUA) at the time the PCPA was built 30 years ago. The facility is unique in that it is on PUSD property but the City owns the building. Generally, per the terms of the agreement, PUSD has access to 35% of the available annual dates at the PCPA and in turn pays 35% of specific operating costs. There are however notable exceptions to shared costs including electricity and major capital projects. The JUA also provides for PUSD paying discounted hourly rates for staff support of their events. In recent years City staff and PUSD staff have discussed the need to update theJUA. It was in fact these discussions in 2019 that initially led to PUSD expressing an interest in purchasing the facility. Decision Points: 5 of 10 Does the City Council want staff to negotiate a new agreement with POS? Alternatively does the Council want to explore other options for booking professional performance series at the PCPA beginning with the 2022-23 performance season (e.g. issuing an RFP for booking services)? POS would have the opportunity to submit a proposal. If the City Council does want staff to negotiate a new agreement with POS, should the new agreement include any direct or indirect subsidies or should POS be subject to all of the same fees and charges as all other user groups? Staff conservatively estimates the combined value of the indirect and direct subsidy to POS as over $300k/annually. This does not include a contribution to the major capital projects mentioned in previous sections. In order to fully realize this additional revenue, either the agreement with POS and/or the PCPA fee structure would need to be revised to eliminate the cash subsidy, require POS to in some way pay for their proportionate share of operations and maintenance and all staff support before and during their season, and pay rental charges for their use of the facility. Given that the current agreement with POS expires in June 2021 and staff likely will not return to Council for action on all fees, agreements, and other related matters until after June 2021, does the City Council want staff to negotiate a one-year temporary contract extension with POS? Should that agreement include any direct cash subsidy? At this point no subsidy is included in the proposed FY 2021-22 budget due to the fact the current agreement expires at the end of this fiscal year. Does the City Council want staff to negotiate a new agreement with PUSD? If yes, should the agreement include any direct or indirect subsidies or should PUSD be subject to all of the same fees and charges as all other user groups? As an alternative to PUSD directly paying the same fees and charges as other user groups, is the City Council open to alternatives that could include direct cost sharing of positions or other expenditures. Examples could include PUSD hiring staff to directly support PCPA operations, and/or collaboration related to other operating expenses. Staff estimates that if the PUSD agreement was amended to require them to pay the full 35% cost share (excluding major capital projects) plus full loaded staff rates, they would be paying the City approximately $122k more annually between operating and staff expenses. Major capital projects were excluded from this number due to the fact that ideally funding for major capital projects would be collected in smaller April 6, 2021, Item #9 Fund raising increments over a number of years. Based on the projected $3.3m in major capital projects, PUSD's 35% cost share would be $1.1 Sm. PUSD has expressed an interest in more access to the PCPA during both school days and for evenings. Is the City Council open to providing more access and under what conditions? During both ad hoc committee and staff meetings with user groups the concept of fundraising to help offset both capital and operating expenses, as well as potentially help fund new City programming, has been raised multiple times. The fundraising discussions can be characterized into two distinct ideas. Establishment of an Endowment and/or Capital Campaign In order for an endowment to generate significant enough interest to meaningfully offset either operating and/or capital expenses at the PCPA, staff estimates $8-1 Om would need to be raised. Through one of POS's long-time donors (who also contributed funding toward the construction of the PCPA), there is the potential of $1 min seed money to the City to establish a new endowment, however to grow that to $8-1 Om will require a serious commitment by all stakeholders, including City Council members. Should there be an interest in pursuing this, the first logical step from staff's perspective would be to engage a professional fundraiser to conduct a feasibility study to see if it is plausible and if there's commitment to carry out this effort. It is anticipated City staff would serve in a lead role in coordinating the feasibility study. The POS donor who has indicated the willingness to provide the endowment seed money is willing to allow some of those funds to be used toward funding the feasibility study. While it is a POS donor, it would be made abundantly clear that the feasibility study is being conducted for the City of Poway, it is not in any way a potential fundraising opportunity for POS. An alternative to the endowment that theoretically would generate annual interest payments to offset operation costs, would be a capital campaign solely focused on generating funds toward the $3.3m in projects that will be needed over the next 3-5 years. The City has identified approximately $1 m in previously set-aside funds for capital projects that is available for these projects, so a capital campaign would require significantly less one-time funding (approximately $2.3m) than forming a new endowment to help with ongoing operating costs. Decision Point Does the City Council want City Staff to engage the services of a professional fundraiser to conduct a feasibility study to explore the feasibility of either a capital campaign and/or fundraising for a new endowment, including the formation of a stakeholder committee? The feasibility study is anticipated to cost approximately $30k. Arts Advisory Committee Concept Separate from the discussion about an endowment and/or a capital campaign, the ad hoc committee and staff have also heard from a number of stakeholders that there's an interest in potentially forming an Arts Advisory Committee. This committee could serve in an advisory capacity to the PCPA similar to the existing Parks and Recreation Advisory Committee (PRAC). Staff would envision the committee potentially meeting quarterly or as needed to provide input on best practices and PCPA operations, as well as potentially plan and support a limited number of special events to promote the arts in Poway and generate revenue for marketing the arts and potentially funding new family oriented programming geared toward younger audiences than a professional performance series. 6 of 10 April 6, 2021, Item #9 Decision Point: Best Practices Research Does the City Council want staff to pursue the formation of an advisory arts committee? The PRAC is comprised of 5 residents, as is the Budget Review Committee. Should the Council want to form an Arts Advisory Committee, staff would recommend that it too be limited to a relatively small number of members with performing arts knowledge and experience that are either residents or representatives from PCPA user groups. Staff does not intend to propose the addition of any new staff positions as part of this report or future action, so it is important as direction is provided on follow up actions and roles and responsibilities associated with this workshop, to consider the impact of new and expanded duties that may be assigned to existing staff. In addition to the valuable input both the ad hoc committee and staff have received from user groups and stakeholders, staff also sees benefit is reaching out to similar venues to learn more about their organizational structure, fee structure, and overall operations. This research may help inform decisions related to multiple topics including but not limited to, calendaring/scheduling processes, staffing, and ticketing and fee structures. It is worth noting that with the pandemic and many arts facilities being temporarily shutdown with limited staffing, this research may take longer than it would have pre-pandemic. Decision Point: Next Steps Does the City Council want staff to research similar performing arts venues to research best practices in place at other facilities that may help improve the efficiency of PCPA operations, reducing the operating subsidy, and generate funding for major capital projects? Should the City Council provide direction to form an Arts Advisory Committee, staff would envision discussing their findings with the Arts Advisory Committee, to get feedback from committee members, prior to bringing forward recommendations to the City Council. This workshop represents an important milestone for future PCPA operations, as the direction provided by the City Council recognizes the value of the arts in Poway and the value of keeping the PCPA under City control while charting a course for more financially sustainable operations in the future. Based on the direction provided by the City Council on the decision points, staff will begin the work necessary to bring back items for future City Council consideration. With the exception of specific items denoted in the report, the intent would be for most changes to be implemented prior to the 2022-23 performance season beginning in July 2022. Environmental Review: This report is not subject to review under the California Environmental Quality Act (CEQA). Fiscal Impact: There is no direct fiscal impact associated with this report. However, based on City Council direction on the decision points, follow up items staff will bring back to the City Council for future consideration have the potential for significant positive fiscal impact to the General Fund. 7 of 10 April 6, 2021, Item #9 Public Notification: None. Attachments: A. Summary PCPA Decision Points Reviewed/ Approved By: Wendy Kaserman Assistant City Manager 8 of 10 Reviewed By: Alan Fenstermacher City Attorney Approved By: Ch~ City Manager April 6, 2021, Item #9 Summary of PCPA Decision Points Use and Use Policy 1. Does the City Council want to maintain the current policy that the priority use of the PCPA is arts and education programming? 2. Does the City Council want to revise the existing use policy to allow all three user groups more equitable access and more advanced confirmation of calendar dates? 3. Does the Council want to expand the use policy to allow for uses outside of arts and education programming including private social functions, business, and religious uses? 4. Does the City Council want to expand the number of days the PCPA is available for public use, including opening in the summer? Cost Recovery 1. How much does the City Council want to reduce the approximately $700k annually subsidy by and by what time frame? 2. Does Council want to maintain the two existing fee categories (private business and non- profit)? 3. Does Council want to have different rates for arts and education programming vs. religious uses and private functions (i.e a wedding or a corporate type event)? 4. Does the City Council want to engage a professional fee consultant to develop fees consistent with the cost recovery and capital funding direction provided to staff? If yes, the City Council does the Council want a consultant who focuses exclusively on fees or a consultant that has expertise in the area of performing arts venues? Agreements w/ User Groups 1. Does the City Council want staff to negotiate a new agreement with POS? Alternatively does the Council want to explore other options for booking professional performance series at the PCPA beginning with the 2022-23 performance season (e.g. issuing an RFP for booking services)? 2. If the City Council does want staff to negotiate a new agreement with POS, should the new agreement include any direct or indirect subsidies or should POS be subject to all of the same fees and charges as all other user groups? 3. Does the City Council want staff to negotiate a one-year temporary contract extension with POS? Should that agreement include any direct cash subsidy? 4. Does the City Council want staff to negotiate a new agreement with PUSD? If yes, should the agreement include any direct or indirect subsidies or should PUSD be subject to all of the same fees and charges as all other user groups? 9 of 10 ATTACHMENT A April 6, 2021, Item #9 5. Is the City Council open to allowing PUSD more access to the PCPA, if yes, under what conditions? Fund raising 1. Does the City Council want City Staff to engage the services of a professional fundraiser to conduct a feasibility study to explore the feasibility of either a capital campaign and/or fundraising for a new endowment, including the formation of a stakeholder committee? 2. Does the City Council want staff to pursue the formation of an advisory arts committee? Best Practices Research 1. Does the City Council want staff to research similar performing arts venues to research best practices in place at other facilities that may help improve the efficiency of PCPA operations, reducing the operating subsidy, and generate funding for major capital projects? 10 of 10 April 6, 2021, Item #9