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HomeMy WebLinkAboutFCS-14-103 - Centre in the Square Deferred Capital Maintenance Staff Report rTC.�r R finance and Corporate Services Department www.kitchener.ca REPORT TO: Finance and Corporate Services Committee DATE OF MEETING: June 9, 2014 SUBMITTED BY: Ryan Hagey, Director of Financial Planning 519-741-2200 x 7353 PREPARED BY: Ryan Hagey, Director of Financial Planning 519-741-2200 x 7353 Cynthia Fletcher, Director of Facilities Management 519-741-2600 x 4424 WARD(S) INVOLVED: All DATE OF REPORT: May 27, 2014 REPORT NO.: FCS-14-103 SUBJECT: Centre in the Square Deferred Capital Maintenance RECOMMENDATION: That the Centre in the Square be granted an additional $350,000 from the General Capital Contingency account to fund the costs of deferred capital maintenance. BACKGROUND: The Centre in the Square (CITS) conducts its operations within a building owned by the City of Kitchener. In addition to operating within the building, CITS also maintains the facility. Each year CITS is provided a grant from the City of Kitchener to help fund operating and capital needs. In 2013, the operating grant provided to CITS was $1.4M, while the capital grant was $246,000. The City of Kitchener has received a written funding request from CITS (see May 21 letter attached) with regard to deferred capital maintenance costs from 2012 and 2013. The remainder of this report will: • summarize the request from CITS • provide analysis of the request and rationale for staff's recommendation REPORT: Summary of the request from CITS CITS has recently addressed a number of capital requirements based on an analysis of capital needs. Funding for these capital projects came from a number of sources including: • CITS reserves • CITS capital reserve fund revenues (CRF) • City of Kitchener capital grant • Corporate Donations 6 - 1 Even though a significant number of capital priorities have already been addressed, CITS is requesting additional capital funding in order to maintain the facility in good operating condition. In 2013, CITS spent nearly $1.6M on capital improvements including facility upgrades (e.g. roof repairs) and equipment upgrades (sound console upgrade). Nearly $1 M of the capital funding came from CITS reserves, and has essentially depleted their reserves. To this end, CITS is requesting $350,000 from the City of Kitchener to help fund capital priorities. Analysis of the request and rationale for staff's recommendation As noted above, the City of Kitchener owns the facility operated by CITS and provides a capital grant each year to CITS to help ensure the facility is maintained in a state of good repair. Providing a capital grant has been a longstanding arrangement between the City of Kitchener and CITS, and in 2010 the amount was doubled (from $122,000 in 2009 to $246,000 in 2010) in recognition of the fact that the facility was aging. In addition, in 2009/2010, $1.2M ($400,000 each from Federal, Provincial and City of Kitchener) was invested in CITS as part of the Infrastructure Stimulus Fund (ISF). The ISF project included items such as creating a new access road for patron drop-off, upgrades to the water/drainage system, replacing lighting with more energy efficient models, and upgrading the seating in the main performance space. Failure to properly maintain the facility will ultimately cost the City more, as minor maintenance items will become more significant and more costly to repair. Based on the information provided by CITS, staff recommend providing the additional capital grant funding of$350,000. A number of the capital expenses incurred in 2013 and planned for 2014 directly benefit the facility, which is the City's asset. Examples include roof repairs, mechanical system upgrades, and accessibility improvements to comply with Accessibility for Ontarians with Disabilities Act (AODA). Looking ahead, CITS is currently involved in an operational review, which will provide additional clarity into the ongoing needs at CITS. Providing this additional capital funding to CITS should be seen as a one-time event and not setting an ongoing funding precedent. The relationship between CITS and the City of Kitchener can be further examined once the operational review is completed. ALIGNMENT WITH CITY OF KITCHENER STRATEGIC PLAN: Goal: Asset Management Strategic Direction: Dependable Services FINANCIAL IMPLICATIONS: Funding for this will come from the General Capital Contingency account which has an unencumbered balance of nearly $400,000 prior to considering this request. COMMUNITY ENGAGEMENT: Inform—This report has been posted publicly as part of the agenda to inform the public. ACKNOWLEDGED BY: Dan Chapman, Deputy CAO (Finance and Corporate Services) Attachment: • Letter from Centre in the Square to Mr. Jeff Willmer, dated May 21, 2014 6 - 2 4D: IN THE SQUARE May 21, 2014 Mr. Jeff Wilmer CAO City of Kitchener Mr. Wilmer, The Centre In The Square ("The Centre") is requesting an allocation of $350K from the City of Kitchener ("City") to cover a portion of the capital expenditures for The Centre in FY2013. The Centre generates capital funding through the Capital Reserve Fund ("CRF"), which is a per ticket charge (currently $2.25 per ticket, including HST) levied on every ticket purchased to an event held at The Centre. The City of Kitchener matches funds generated through CRF. However, given the increasing levels of repairs required to sustain this aging City owned building and the extent of required maintenance and capital replacement deferred in previous years, a significant gap exists between CRF and City funding and the required level of capital expenditure. This was especially problematic in FY2013. The City of Kitchener allocated $246K towards capital expenditures. This was combined with $282K generated by The Centre through CRF and an additional $109K obtained by The Centre through corporate donations. In addition to this funding, The Centre then invested a further $962K from its reserves to respond to the level of deferred maintenance and capital upgrades undertaken in FY2013 which could no longer be delayed. Of the further $962K invested by The Centre, we are requesting a supplementary allocation of$350K from the City of Kitchener to cover a portion of funds invested in this facility. 6 - 3 As requested, we've included an attachment which outlines each 2013 capital asset expenditure, along with the decision process used to validate the organizational impact and priority rating in 2013. All potential capital expenditures were assessed based on the following criteria: • Each item was categorized using a Health & Safety rating (A to D, D being a failing grade). The risk assessment for Health & Safety is based on the likelihood and impact of identified hazards in the workplace, which could impact employees, patrons and external parties (artists, promoters, rental clients). • Priorities were then established based on items which were not meeting code or which placed the organization at risk, given the extent to which the item had been deferred over the years. • As The Centre relies on revenue generated from external promoters to operate, items were further assessed to determine The Centre's ability to respond to contractual obligations and production requirements. • Items were then assessed based on a cost analysis should they not be replaced in the short-term (i.e. In FY 2012, The Centre replaced the boilers which had been deferred for 9 years and on an annual basis cost The Centre upwards of$60K in ongoing repairs. Analysis of the payback period for the increased expenditure to replace in 2012 vs continued deferral of replacement and significant ongoing annual repair costs justified the expenditure in FY 2012). • Finally, each item was reviewed against the technical and building audit, in consultation with the staff, to prioritize critical items and to ensure that The Centre followed a logical approach for certain capital expenditures. For example, certain expenditures are eligible for grants that The Centre is pursuing and which are subject to funding timelines, processes and assessment against stated criteria. In other cases, such as lighting of the stage, The Centre must approach this project when resources exist to fully complete the project, as a phased approach is not ideal and could result in higher costs to The Centre in the long run. It is important to note that technical audits for performing arts centres are critical to the integrity of the stage production and preservation of these major cultural assets. In the case of The Centre, the technical audit not only navigates the areas of building infrastructure, such as boilers and roofing, but it also ensures the integrity of the acoustic quality of the venue including preservation of its international ratings and standards. As each venue is unique, it is a valuable resource and is a significant input to the capital expenditure planning process. 6 - 4 Also included with this letter is the list of capital items which have been approved for 2014 by the Board. While the requirements for FY2014 exceed $2M, only those items highlighted have been approved due to financial constraints. While The Centre does not own the building, The Board and employees of The Centre make every effort to operate and maintain the facility and the grounds in most effective manner possible for the City of Kitchener. The growing financial obligations of this aging building require us to request additional financial support. We appreciate the Council's consideration of our request. Please do not hesitate to contact me if you have any further questions. Sincerely, r Sandra Bender CEO Cc: Dan Chapman, Deputy CAO, City of Kitchener 6 - 5 Overview of Capital Requirements for CITS FY 13 and FY 14 ABBREVIATIONS BUDGET SUMMARY BE Building Exterior EL Electrical Systems FY 2013 IN Interior Finishes Request for CoK $ 350,000 LIGHT Lighting Systems Total Capital Spent $ 1,599,491 ME Mechanical Systems CoK Annual Allocation $ (246,000) SND&COMM Sound and Communication Equipment Capital Reserve Fund Revenue $ (282,356) Corporate Donations $ (109,000) SITE Grounds/Landscaping Amount paid by CITS Reserves $ 962,135 THTRE Theatre/Auditorium XX Miscellaneous Item/Unclassified FY 2014 CoK Annual Allocation $ 252,000 HEALTH &SAFETY RISK ASSESSMENT Capital Reserve Fund Revenue $ 258,700 A not reported on the current audits Subtotal $ 510,700 B not reported on the current audits Projects Confirmed for 2014 $ 510,200 C 2nd priority Contingency $ 500 D 1st priority Note: H&S risk assessment is based on likelihood and severity to identify hazards in the workplace. 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