Over the last week we’ve received feedback and inquiries from a number of patrons about the recommendations presented to Kitchener City Council on August 25. The external review provided information across a range of issues for consideration by City of Kitchener, KWS and CITS. From this information, there were four key recommendations which City Council approved: revisit the mission and mandate of CITS; review existing plans for the city’s funding relationship with CITS specifically as it relates to the city’s arts and culture strategy; review existing plans for physical improvements to the facility; and, analyze the costs and make recommendations to council regarding the proposed improvements.
We wanted to share a few of these questions and answers with you.
Q: Can you please explain exactly how the current deficit situation arose?
A: For almost a decade The Centre has managed a precarious operating gap. In past years, the gap was managed through various strategies including infrastructure grants, deferred maintenance and capital expenditures and summer layoffs. In 2013 decisions were made with the Board’s approval to address a number of ongoing issues despite the short-term discomfort. The organization invested heavily in building maintenance and repair.
We covered losses from the previous 2012-13 season and we continued forward with the launch of our strategic plan that included restructuring, improving business operations, market research, new branding, and programming activities for the fall of 2014. These costs – operational and capital – were paid for out of The Centre’s accumulated reserves because they relate to long-term investment in the organization. It is important to note that The Centre’s reserves were a gift from a generous private donor in the late 90s. That means it is a private donation that funded much of the recent capital work at The Centre.
CITS is a not-for-profit arts organization that operates and maintains a city facility. Our funding from City of Kitchener represents 30% of our operating costs and has been the level of grant allocated to CITS for last number of years.
Q: Did these costs come as a surprise?
A: Our Strategic Plan, which has been available online since 2013, highlights the need for new capital funding to maintain the building. Kitchener City Council approves The Centre’s budget every year. Kitchener City Council also reviews The Centre’s audited financial statement. These statements quantify the depreciation of the building and equipment every year, and also show that new investments in these areas have not kept pace.
Q:Does that mean we can expect more repairs?
A: Yes. In his presentation to City Council on August 25, CITS Board Chair Marcus Shantz stated that while The Centre has made a good start by investing over $1.8 million in capital improvements and maintenance over the last 3 years, technical audits have identified an additional $2 million that should be addressed. The Centre has taken steps to secure federal support for further improvements which we hope will impact plans for 2015-16.
Q: The report recommends a number of ideas for new revenue streams. Can you explain why you would consider “at-risk” programming given the financial situation?
A: About two years ago CITS determined that the safest way to generate new earned revenue was to increase its rental business to commercial artists. Why? When an artist rents our venue, they accept the risk of selling tickets and promoting the show. The Centre is paid whether or not the show is a success. This is not a complete solution to the problem but it is an important part.
With at-risk presenting, where The Centre hires performers and takes the risk of promoting the show and selling tickets, it is just as possible to make money as it is to lose it. While CITS programming has been identified by some in the media as the culprit for the deficit, this is not the case. The focus on “at-risk” programming in the last two years is to attract new audiences from the region to the venue and to strengthen and diversify revenue options longer-range for the venue, as strictly relying on rentals can fluctuate from one year to next.
Q: What is calendar management and why does it matter?
A: Calendar management means maximizing the revenue earned on key days of the week, referred to as premium dates. Premium dates are Thursdays, Fridays and Saturdays. CITS works to place content on these dates to maximize earnings from rent, ticket, and concession and bar sales. This was a key strategy in our Strategic Plan to address the need to increase revenue to reduce the operating gap and to also secure a means longer-range to potentially reduce our operating grant from the City of Kitchener. The intent was to transition a portion of weekend dates currently held by KWS back to CITS for commercial rentals. The original proposal in 2012 was to transition 6-8 weekends back to CITS over a 3-year period.
KWS was critical and key to the establishment of CITS 35 years ago. They have been the primary resident of CITS from the beginning. Unfortunately, contrary to local media reports, KWS does not represent a solid rental profit or recouperable costs for CITS on these premium dates. Moving forward, the balance will be to find a compromise, which recognizes KWS, their audience and financial realities with our need to generate stronger revenue from premium dates to respond to CITS requirement to improve revenue to cover the operating and maintenance costs of the venue.
Q: What is the current relationship to KWS?
A: Prior to the review CITS had provided KWS the same rental terms as 2011 without changes to premium dates or rental rates, and these terms were set through until 2016. Now with the review completed, we will start discussions this fall for 2017. The review has put some context around the utilization of the venue which has shed some light on the realities for both organizations, which will inform future discussions.
Q: What are the next steps?
A: Prior to the review, CITS was considering alternative models to address the revenue issues. One option to reduce the operating gap is by making changes to the calendar management to improve overall revenue from performances longer-term but other options will need to be reviewed to manage short-term issues. In consultation with the City of Kitchener, CITS will review and prioritize the building requirements.
Further discussions and collaboration between all three organizations will continue in order to analyze and choose the best course of action. The main focus is to continue to build the partnership between KWS and CITS. Both organizations are committed to working through the next stage of the process together.