HomeMy WebLinkAboutFIN-09-132 - Centre in the Square Long Term Capital Funding StrategyREPORT
REPORT TO:
Councillor B. Vrbanovic, Chair, and Members of the Finance
and Corporate Services Committee
DATE OF MEETING:
October 26, 2009
SUBMITTED BY:
Dan Chapman, General Manager of Financial Services and
City Treasurer
PREPARED BY:
Roger LeBrun, Manager of Financial Planning
WARD(S) INVOLVED:
All
DATE OF REPORT:
September 16, 2009
REPORT NO.: FIN-09-132
SUBJECT:
CENTRE IN THE SQUARE LONG TERM CAPITAL
FUNDING STRATEGY
RECOMMENDATION:
THAT, subject to final 2010 budget approval, the City’s annual general provision for Centre in
the Square capital projects be increased from the current level of $124,000 per year to
$248,000 per year, indexed for inflation across the ten-year capital forecast.
BACKGROUND:
In 2008, staff from the Centre in the Square (CITS) made representations to the Finance and
Corporate Services Committee seeking clarification of the City’s commitment to participate in
funding of the Centre’s capital requirements over the long term. It is estimated that, over a 20
year period, there is a requirement for approximately $20 million worth of capital investment in
the Centre. On November 24, 2008, staff were directed by the Finance and Corporate Services
Committee to form an ad hoc committee in comprised of City staff and representatives from the
Centre in the Square to develop a long term capital funding strategy.
REPORT:
In 1979, Bill PR 16 was passed which established the corporation of Centre In the Square. The
mandate of the Centre’s board includes objectives to maintain, operate and manage the facility.
Responsibility for the Capital Program
As a result of new tangible capital asset accounting standards (PSAB 3150), which requires the
reporting of the investment in assets net of accumulated amortization, a review was undertaken
by the City’s Accounting Division to resolve the issue of control of the assets at the Centre in the
Square. It was determined that the City of Kitchener owns the land and building however the
Centre in the Square has control over the assets and is the beneficiary of future economic
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benefit. The indicators of control led City and Centre staff to conclude that all assets, including
land and building, should be reported as the Centre’s assets on the financial statements of the
Centre in the Square. These statements are still included in the City’s consolidated financial
reporting.
Capital Requirements
Periodically, the Centre in the Square performs a technical audit of all of the assets at the
Centre which encompasses the repair, maintenance and rehabilitation schedule costed over a
20 year time period. The latest report covers the projected capital repair and maintenance costs
from 2009 to 2028 which equates to $20,159,782. The various categories of repair are broken
down into various categories such as:
Additions
Building
Electrical systems
Interior finishes
Front of house
Mechanical systems
Landscaping items
Sound and communication systems
Theatre/Auditorium
Funding Sources
Capital expenditures have historically been funded through the Centre in the Square Capital
Reserve Fund, ticket surcharge revenue, fundraising initiatives along with an annual capital
general provision from the City of Kitchener. Appendix A provides a breakdown of the proposed
20 year capital program summary. The current projections for revenue streams along with the
proposed capital replacement program indicate a shortfall in funding over the 20 year horizon.
Limited capacity exists to generate funding beyond the amounts currently reflected in the capital
projection, as explained below:
CITS Capital Reserve Fund – this primary source of revenue for this fund has been
previous fundraising initiatives. The balance in the reserve fund will decline as the
Centre funds its 1/3 share of the recently-approved $1.2M stimulus project;
CITS Ticket Surcharge Revenue – the Centre currently charges a ticket surcharge for
capital investment in the amount of $2.25 per ticket which is among the highest known
rates in the industry. The Centre recommends against further increases at this time in
light of the already high rate;
CITS Fundraising Initiatives – the current capital projection includes a fundraising target
of $7.5 million (net) between now and 2028; and
City of Kitchener Capital Provision – in order to fully fund the capital requirements of the
Centre over the 20 year period, an increase in the City’s capital provision from $124,000
to $248,000 is being sought by the Centre.
The City of Kitchener has recently received, on the Centre’s behalf, approval for an $800,000
capital grant through the Infrastructure Stimulus Fund. Grant funding is an unpredictable
funding source but it has the potential to advance the Centre’s capital program considerably.
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Given the uncertainty related to future grant potential, no provision has been made for grant
funding in the capital program
Rationale for Increase in City Contribution for Capital
As outlined above, the City provides a capital provision of $124,000 annually with increases
each year for inflationary impacts. The Centre in the Square has requested an increase in that
provision of an additional $124,000 annually plus inflation. The three significant factors
supporting this request are as follows:
Notwithstanding the Centre’s control of the asset, the building is a municipal asset in the
end analysis and it is in the City’s interest to ensure the building is maintained in a state
of good repair to the extent other funding sources are insufficient to meet the capital
requirements;
In a previous fundraising campaign, the City increased the contribution to the Centre’s
capital program in order to match the equivalent funds received as a result of their
fundraising efforts. This increased contribution was phased in over a period of several
years.
An increase in core municipal funding will allow the Centre to demonstrate the
municipality’s commitment to providing funding for basic facility investments, thus
allowing the Centre to focus a fundraising campaign on investments in the facility that
are potentially more appealing to donors (e.g., theatrical components such as seating,
lighting, sound systems, etc.).
In view of these factors, the findings of the detailed technical audit and the Centre’s commitment
to aggressively pursue funding internally for capital investment, staff is satisfied that the request
for additional municipal funding is justifiable.
FINANCIAL IMPLICATIONS:
If the City of Kitchener annual capital provision were to be increased by $124,000 plus inflation,
the impact of the 20 year program would be an additional funding source to the Centre in the
Square capital program of approximately $3.0 million. If supported by Council, this amount will
be included in the draft capital forecast for consideration as part of 2010 budget deliberations.
It should be noted that the Centre’s capital balance is projected to fluctuate significantly over the
20 year time horizon. Updates to the technical audit and the advancement or deferral of
projects will affect this cash flow. In the view of staff, it is preferable for the City to commit to a
general provision rather than funding specific initiatives through the City budget as this allows
the City to smooth out the budget impact and avoid taking responsibility for managing a capital
program that has been delegated to the Board of the Centre in the Square.
COMMUNICATIONS:
N/A
ACKNOWLEDGED BY:
Dan Chapman (General Manager of Financial Services and City
Treasurer)
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