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HomeMy WebLinkAbout2003-08-29 MemorandumTO: KENAI CITY MANAGER CITY ATTORNEY CITY COUNCIL FROM: FRED BRAUN RICKY GEASE, KENAI CVB DATE: August 29, 2003 RE: ORIGINAL GRANT FOR KENAI VISITORS AND CULTURAL CENTER AND ISSUES OF PROFESSIONAL MANAGEMENT CONTRACTS Meeting to discuss management issues. On August 26, Fred Braun, board president of the Kenai CVB, and Ricky Gease, its executive director, met with city manager Linda Snow and city attorney Cary Graves to discuss the original grant for the construction and operation of the Kenai Visitors and Cultural Center. Issues discussed were the professional management contract with the Kenai CVB and the city of Kenai for operations of the facility and the current revenue shortfall; the terms of the original grant and limitations liabilities with the Department of Commerce Economic Development Administration; and any legal concern with reorganization, consolidation and or expansion of the current Kenai CVB organizational structure. Lack of gaming revenues. The Kenai CVB requested the meeting because at the present time it is facing financial difficulties with a shortfall of charitable gaming revenues, which has put a strain on its resources for proper management of the Kenai Visitors and Cultural Center. Such revenues have historically been the mainstay of the organization. Over the past three years the net revenues from gaming have ridden a wave of higher than expected profits, which crested in 2001 with earnings of $210,000 (mainly due to the very large CIRI dividend to its shareholders) and $140,000 in 2002. In 2003 we project having less than $80,000 in revenues from charitable gaming. Reasons for the precipitous decline in revenues from gaming include the current national recession and increased competition from other non profit organizations going into pull -tab operations. Although our revenues from bingo are actually up this year compared to other years, it is the large drop in pull -tab revenues than is hurting net gaming revenues. Non profit gaming may be in jeopardy altogether. In addition to a forecast of continued limited revenues from gaming in future years (it doesn't look like the trend for more pull -tab parlors will abate any time soon), the state of Alaska has proposed a series of charitable gaming proposals that may seriously jeopardize future revenues. One issue is the proposed 5% state gaming tax on gross proceeds, which would effectively tax half of all pull -tab profits. We estimate our net revenues would be decrease by 40 to 50% if this change is passed. Currently the legislation has passed the House and is sitting in the Senate Finance Committee for consideration. Another proposal is for electronic gaming to be introduced in liquor establishments exclusively how this will affect non profits is an open question at the moment because there are many questions about its implementation. However, one can be reasonably sure it will even reduce further pull -tab sale revenues to non profits. Another proposal being discussed is a statewide lottery this would also have an effect on pull tab revenues. Overall, the outlook for being able to continue to rely on charitable gaming to fund a majority of the operations at the Kenai Visitors and Cultural Center seems shaky at best. Review of original grant. In review of the original grant for the construction of the Kenai Visitors and Cultural Center, the city of Kenai and the Kenai CVB were co- applicants to the U.S. Dept. of Commerce Economic Development Administration (EDA). The grant award was for $800,000 from EDA with the city of Kenai providing matching funding. The useful life of the building is scheduled for twenty -five years (we are in year 12 of operations in the facility). The city of Kenai had the financial and management responsibility of building the facility and it is the responsibility of the Kenai CVB to manage and maintain the facility. Should the Kenai CVB be unable to operate the facility for any reason, the city of Kenai will assume the responsibility for management and maintenance of the facility. It would be my understanding of the grant requirements that the facility be used in accordance with the stated mission of the grant as a visitors and cultural center until 2016, at which time the EDA primary lien against the facility will expire. To date the mission of the facility has been successfully accomplished and the Kenai Visitors and Cultural Center has served as a visitor attraction for the city of Kenai and has added value to the visitor industry of the greater Kenai area. Uses of facility. In the grant it states the facility will provide a visitor information center, a multi -use area for cultural and historical exhibits, and an audio- visual room and a meeting room to accommodate small conferences. The facility is to be open on a year -round basis. Of interest in the initial programmed areas for the facility there was to be space for reception gift shop area, visitor information storage, a director's office, a chamber of commerce office, a conference room, artifact storage preparation, cultural exhibition and additional museum exhibit areas, central exhibition hall, video viewing area, prep kitchen, restrooms and other mechanical uses. Staffing levels. Staffing projections for the facility were an executive director, an administrative assistant, two visitor services specialists, one museum coordinator, and three seasonal summer employees, at an estimated starting salary payroll of $90,000 (which adjusted for just inflation would be about $132,000). For the most part this is consistent with the current staffing structure of the Kenai CVB an executive director, one part-time office manager (accountant office manager), one visitor services manager, one museum manager and three summer seasonal employees. The current payroll for such staffing is about $165,000 (includes payroll taxes). We recently have had a staff reduction of a second museum personnel, that of the curator of the permanent collections. The projected maintenance budget (utilities, janitorial services, maintenance and supplies) was at about $25,000 (adjusted for inflation this number would be about $36,000). The current budget for utilities and maintenance by the city of Kenai is about $40,000. Proposed facility revenues. In the original budget projections, revenue monies were expected to come from exhibit area entrance fees, gift and souvenir sales, Federal State Municipal and Borough grants, membership patron fees and lease of space staff assistance to the Greater Kenai Chamber of Commerce. Currently we do receive monies from entrance fees, gift and souvenir sales, state and municipal grants, and monies from corporate patrons (but not from membership or other individual patron fees at this time). We do not at this time lease space or give staff assistance to Kenai Chamber of Commerce. Museum store. It is interesting to note, in light of comments during the past summer concerning sales from the museum store, that embedded into the original grant document submitted by the city of Kenai and the Kenai CVB is that the facility will sell gifts, souvenirs and other sales items to visitors. Also, in the supporting documentation of how it will benefit employment in the region is that local artists will be able to sell their crafts in the facility. In 1994 Bernie Richart stated in regards to this issue that he could not see how a reasonable person could fault the Center for offering items for sale which, in fact, help defray some of the expenses of the operation, noting that "this is a common and acceptable practice in which virtually all such centers engage." Museum status in regards to the facility. Another issue of interest is the museum services portion of the grant. The museum collection at the old Fort Kenay was moved into the center to be the core around which an expanded permanent collection would develop. The museum collection was moved out of Fort Kenay for security reasons, proper care of artifacts and space considerations. The center was designed around the concept of being a museum facility and the majority of floor space was specifically reserved for this purpose. Ricky Gease brings this up because over the course of his tenure here since 1998 he has suggested that the Kenai Visitors and Cultural Center work towards becoming an accredited museum through the American Association of Museums. Museum accreditation has not been actively pursued thus far through the mistaken belief that this would somehow be against the original purpose of the grant. Museum is a core component of center. Upon reading through the grant, we find that the concept of a museum within the facility is a core component and the major reason why the facility was approved of as a project in the first place. We can find no reason in the original grant why the Kenai Visitors and Cultural Center should not proceed with the course of action of becoming an accredited museum. Such a course of action, when completed, would allow the center to apply for Federal grants on a competitive basis with other accredited museums. In the grant, there are at least three primary reasons for approval based upon the museum concept: 1) the central peninsula lacked a cultural facility along the lines of the Pratt Museum in Homer; 2) the Kenai Visitors and Cultural Center would not be duplicating the mission of the Soldotna Visitor Information Center, a mere ten miles away, because it had embedded into a museum exhibition area; and 3) local native organizations, such as the Kenaitze Indian Tribe, Salamatof Native Association and the CIRI Foundation, spoke of needing a museum facility to display culturally significant artifacts and do cultural performances. Thus the notion that the Kenai Visitors and Cultural Center is not portrayed as a museum in the original grant is mistaken.. The concept of being a museum is one of the core "use" rationales of the multi -use concept for the facility. Additionally, the expansion areas designated for future use, which were indicated as areas added on to either end of the facility, would be for primarily for museum uses. Implications of revenue shortfalls. hi light of the shaky foundation for a continuing reliance on gaming revenues being a primary funding mechanism for operations at the Kenai Visitors and Cultural Center, the Kenai CVB board of directors will be examining possible action plans to deal with this shortfall. The success or failure of these possible action plans is of concern to the city of Kenai because if the Kenai CVB does not succeed for any reason in being able to operate the facility then the full burden of that responsibility falls on the city of Kenai. At such point the city of Kenai would be solely responsible for funding the visitors and cultural center on a year -round basis. If the city did not or could not meet that obligation, then it would fall in default of its grant obligation to EDA of operating the facility over the course of its twenty -five year useful life expectancy. Possible courses of action. Closure of the Kenai Visitors and Cultural Center in response to the revenue shortfall is a risky course of action, in that such a move would put the facility in default of the original grant. Significantly deviating from the original mission of the facility to provide visitor and cultural services to visitors and residents is also a risky course of action for the same reason. In reviewing the original grant, two potential pathways noted in that grant are under consideration now by the Kenai CVB: 1) start a 501 c 3 non profit organization to facilitate fundraising and operations of the museum portion of the facility; and 2) look at consolidation and/ or partnership with the Kenai Chamber of Commerce. 501 c 3 non profit organization for the museum. In the proposed budgets of the original grant, memberships and patronage is listed as a revenue stream for the facility. Currently, the Kenai CVB is a 501 c 6 membership based organization and does have 190 paying business members, but their dues go primarily to services provided to them as members, only a portion of which is to promoting their business brochures in the center. One benefit of a separate 501 c 3 organization would be to set up a separate membership base for the facility for individuals. Corporate in -kind and cash sponsorship to the facility last year was over $20,000, so that has been a successful avenue for revenues. Another benefit of the 501 c 3 designation is that it would allow for more access to charitable grants from private foundations, such as the Rasmuson Foundation, which do not give funding to 501 c 6 organizations. Such a course may realize $2,000 to $5,000 in individual memberships and an unknown amount of money through grant requests. As a grant comparison, the Pratt Museum, an accredited museum, recently received a $125,000 grant through the Rasmuson Foundation for one permanent exhibition display. The Pratt Museum has a long history of receiving grants as an accredited 501 c 3 museum organization. The Kenai. CVB has been awarded a VISTA volunteer for 2004 and one of the areas for the work program will be to research and set up a 501 c 3 museum organization and map out the management structure between the Kenai CVB and the new organization with regard to the operations of the Kenai Visitors and Cultural Center. Consolidate or partnership with the Kenai Chamber of Commerce. There has been recent discussion of the Kenai CVB and the Kenai Chamber of Commerce looking at the pros and cons of consolidating back into one organization, which would save on overhead and potentially save on payroll costs. Both organizations are 501 c 6 membership associations with an overlap in missions to promote economic development for the greater Kenai area. A thorough analysis has yet to be made as to potential cost savings, if any, would be realized through a merger of these two organizations. The Kenai CVB and the Kenai Chamber of Commerce will be reviewing this issue over the course of the fall. In the original grant proposal, the Kenai Chamber of Commerce is listed as having office space within the facility and operated as one organization prior to the Kenai CVB's incorporation in the 1980's as a separate organization. It is a common organizational structure in smaller communities for both the chamber and the visitor bureau to be under one organizational structure. Continuing dialogue necessary. As the Kenai CVB deals with the revenue shortfalls in its charitable gaming activities, continuing dialogue between the city and the bureau will be necessary to formulate a workable action plan. The Kenai CVB is willing to meet at the convenience of the city of Kenai during the upcoming months to take proactive measures to ensure that the Kenai Visitors and Cultural Center remains one the premier visitor and cultural attractions on the Kenai Peninsula. Currently the funding shortfall from charitable gaming is placing a large strain on the budget of the Kenai CVB and will, if ignored for too long, impair the ability of the organization to carry out its contractual duties to professional manage the Kenai Visitors and Cultural Center on behalf of the city of Kenai. We are willing to work in step with the city to avoid that unfortunate situation from becoming a reality.