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CR2002-089 - Loan to HCA CITY Or May 17, 2002 ~ Council Report 2002-89 HOPK1NS . Loan Request-Hopkins Center for the Arts, Inc. Proposed Action Staff recommends adoption of the following motion: Move to approve a loan reQuest to the Hopkins Center for the Arts. Inc. in the amount of $17,000 to be repaid over a two year period. Adoption of this motion will result in a loan being provided to the Hopkins Center for the Arts, Inc. to accomplish duties and tasks associated with HCA, Inc. operations as per their loan request. Overview The Hopkins Center for the Arts, Inc. is in its third year of operations. HeA, Inc. operates as the programming arm for the Hopkins Center for the Arts and has an understanding with the City Council over its operations and its mission. At a recent work session the City Council and HCA, Inc. discussed the status and progress they have been making, with indications that the programming is progressing well and progress is being made. HCA, Inc. is requesting funds to assist in their cash flow for operations and to provide them with working capital for the coming year's scheduled programming. . Primary Issues to Consider . What will be the source of funds? The loan will originate from the Economic Development fund and be repaid to the same. Supportin~ Documentation . Request for cash flow assistance from the City of Hopkins, Hopkins Center for the Arts, Inc., April 25,2002 $f~~ -Steven C. Mielke City Manager .inanCiallmpact: $ 17,000 Budgeted: Y/N ~ Source: Economic Development Fund I Related Documents (CIP, ERP, etc.): N/A Notes: . . Hopkins Center for the Arts, Inc. Request for Casb Flow Assistance Ir.. the City .f Hopldns Apri125,2002 HeA, Inc. is projecting that it will face a deficit at its fiscal year end (June 30, 2002) of $15,995 and has $16,600 in outstanding payables which require immediate attention. We ask the City of Hopkins to extend a loan in the amount of $1 5,000 this spring to help with immediate cash flow needs. This, and our existing $5,000 loan, will be paid back over the next two years as outlined in the attached budget. A number of factors contributed to this critical financial situation. During fiscal year 01/02 (July, 200 1-June, 2002), we dealt with the negative impact of the September 11 tragedy on ticket sales, memberships and donations, and the loss of an anticipated grant ($8,500). In November we began to take additional actions to offset the slow fall. We organized a special fundraising drive raising $5,000 from individuals in the community and are currently working on a similar drive aimed at local businesses. However, in January a serious situation escalated into a critical one when on a single concert event (St. Paul Chamber Orchestra) we lost $14,657 due to less than expected ticket sales and lack of underwriting (only $1,000 in sponsorship support and no grant support was raised). . As a new organization of less than two years, we do not have the cash reserve, nor do we qualify for a business loan, to deal with a loss of this magnitude. Therefore, we ask the City of Hopkins to extend a loan so that we may pay our vendors. The following report includes the following: . Fiye-year Buelset including a City loan this fiscal year (01/02) and proposed repayment over the following two years . BUdsee: lotes outlining assumptions and providing clarifications to the five-year budget plan . larrative summarizing accomplishments and disappointments of this past year and outlining concrete steps being taken to avoid a similar financial challenge in the future . Key Financial Crowth Indicators providing a quantifiable baseline against which to measure progress . rev 4/18/02 00-01 Budget 01-02 Budget 02-03 Budget 03-04 Budget 04-05 Budget (actual) (projected) (estimated) (estimated) (estimated) INCOME . Earned Income Membership Dues $7,735 $6,500 $9,000 $10,500 $12,000 Exhibition Fees 2,045 1,889 2,100 2,200 , 2,200 Art Sales (net) 1,188 2,400 2,500 2,600 2,700 Heritage Series Ticket Sale 28,816 38,500 43,000 45,000 48,000 Special Performances 0 0 8,870 8,800 9,000 Film Ticket Sales 0 0 2,000 2,500 3,000 Lit. Event Ticket Sales 0 0 3,500 3,600 3,700 Merchandise Sales (net) 982 645 900 950 1,000 Fundraiser (gross) 14,346 16,000 20,000 23,000 25,000 Interest 42 10 40 50 55 Total earned income $55,154 $65,944 $91,910 $99,200 $106,655 Contributed Income Individual Gifts 1,173 14,000 6,000 6,500 7,000 Business Gifts 100 1,000 1,500 2,000 2,500 Matching Gifts 585 125 150 200 225 Sponsorships 6,775 3,500 15,000 17,000 18,000 Grants-Corporate 1,000 0 3,000 3,500 4,000 Grants - Foundation 0 0 6,000 10,000 12,000 Grants - Government 5 12,000 9,000 16,000 18,000 Total contributed income $9,638 $30,625 $40,650 $55,200 $61,725 TOTAL INCOME: $64,792 $96,569 $132,560 $154,400 $168,380 EXPENSES Artist Fees . Heritage Series $24,130 $37,525 $30,575 $34,000 $40,000 Special Performances 0 0 7.750 8,000 8,500 Film Series 0 0 1,500 2,000 2,500 Visual 1.000 1,000 1,000 1,500 2,000 Literary 0 90 2,700 3,000 3,200 TraveVAccommod. 112 1,459 3,330 4,000 5,000 Total Artist $25,242 $40,074 $46,855 $52,500 $61,200 Advertising 14,504 27,914 16,000 21,000 24,000 Bank/Card Fees 331 869 900 1,000 1,100 Contracted Services 2,300 3,585 1,640 2,640 3,640 Dues/Subscriptions 180 325 325 350 350 Equipment Rental 1,737 1,775 1,300 1,500 1,800 Fundraiser 14,676 10,000 11,500 13,000 13,500 Insurance 1,396 1,539 1,650 1,800 2,000 Licenses/Permits 80 50 100 100 150 Nwsltr/Season Broch 2,274 6,186 8,000 8,200 8,400 Office Supplies 1,163 985 1,000 1,000 1,100 Postage/Delivery 3,638 5,200 5,500 5,700 6,000 Printing 4,703 7,900 7,475 7,600 8,000 Space Usage Fees 0 7,696 4,250 5,000 8,000 Supplies 2,137 2,701 1,600 1,800 2,000 Board/staff Dav. 143 102 200 500 500 TOTAL EXPENSES $74,504 $116.901 $110,295 $123,690 $141,740 BALANCE ($9,712) ($20,332) $22,265 $30,710 26,640 Coop. Revenues to City 0 0 (11,133) (15,355) (13,320) . Cash forwarded 9,049 (663) (995) 137 5,492 NET BALANCE ($663) ($20,995) $10.137 $14,492 $18,812 Cash "ow loan from City 20,000 (10,000) (10,000) 0 CASH RESERVE (995) 137 5,492 18,812 . . . . Hopkins Center for the Arts, Inc. BUDGET PROCESS 02/03 Fwe-year BUdS" .otes 01/02 BUDCE' ASSUMPlIOIS/CLARlFICATIOIS . assumes a minimum of $1,140 net income from Big Walter ticket sales (ticket sales less box office and tech fees) . assumes $16,000 gross proceeds from FIESTA ($5,000 raffle; $1,000 silent auction; $8,300 concert tickets -- 30 @$50, 300 @$20, 100 @$8; $200 fees/misc., $1,500 donations) . assumes a minimum of $1,000 received in 01/02 in business memberships . assumes $10,000 in FIESTA expenses (on track for this) . space usage fees includes rent for 00/01 paid in 01/02 . assumes additional $15,000 cash flow loan from City of Hopkins (note: we have received a total of $10,000 in loans from the City to date and have paid back $5,000 --1hls report only shows the unpaid balance of $5,000 from these earlier transadions plus a new request of $15,000 for a total of $20,000 owed to the City; we also received a $5,000 event loan which, paid back the same fiscal year, does not show on this report) . the Board approved budget for 01/02 included earned income in the amount of $75,704 (as compared to the revised projection of $65,955) and contributed income of $42,100 (compared to $30,625) for a total of $117,804 (major differences: membership dues originally budgeted at $10,000, the fundraiser originally budgeted to gross $20,000, sponsorships originally budgeted at $12,000 and govemment grants originally budgeted at $16,000) . 02/0J BUDCE' ASSUMPlIOIS/CLARlFICAIIOIS . assumes addition of three new programming tracks: Special Performances (includes Michael Johnson holiday concert and pilot for a 'club-type' series for young adults); Film Series; Literary Arts events (first full season) . re: Special Performances income -- assumes 400 tickets sold for Michael Johnson holiday concert and "club" pilot assumes 4 events with 80 $7 tickets sold per event . Film Series income and expense figures only include a 3-part series with Bob DeFlores already contracted (have reserved 3 additional dates in fall and 4 in spring where we can add 2 more film series on a breakeven basis if needed) . Heritage Series ticket sales, as all ticket sales, are shown as net figures (total ticket sales less box office and tech fees) . assumes significant increases in income from: grants ($5,000) and sponsorships ($11,500 anticipating 2 $5,000 season sponsors) . individual giving in 02/03 is lower than in 01 f02 due to special one-time gifts received in 01{02 . Heritage Series artist fees in 02/03 are lower than in 01/02; SPCO inflated the 01/02 figure . Heritage Series includes one event with travel and hotel costs . advertising assumes a carefully targeted approach developed with marketing consultant . budget does not include postcards for performing arts events but retains them for exhibitions; budget does include the cost of developing a new take-away piece and new membership brochure General I.tes: . 02/03 Budget is based on detailed project budgets for all events and is as accurate as possible. 03f04 and 04/05 budgets are based on estimated growth in income and expenses as programming for these . years is not yet set . budgets do not include any costs associated with additional staff - -- -- --- .--- -- ~-------- -0 lU c:- tl~8, ._ -0 "t.~.B R8-Q) g- 8.-S g V'l:!t"U ;1 sa :-< ~ I -0 II) lQ ....~ IJ) (1)~C N 1 c: ro Ol:l.. \..0 r--- CI) o u c: .Vi -0 Q) .\0 a vi ~E <II V'l s::. e ..Q~'%0l ro \1"1 0 '0 ~ 'a, a m~- Q) c: .~:s \..0 ~ . u ~l Q)g~m N _ (1) IJ) ~ ~ c: E I v6~ ME' ~ :Qx..gB Ol:l.. ..,. l.O I.D f)"';i)ro-D ... ~.-.- ~3:~~ .,;..>0.-..... ~~R.s = ..... lQ -fa 'E ~ ~ .-- <II ~ lQ Q) C> -c: Q) c: g QQ).....= .n . 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IARBATIYE At its recent retreat, the Board of Directors outlined areas in which progress has been made over the 20 months of HeA, Inc.'s existence: . created the Heritage Series (nine high quality petiorming arts events; subscription sales; increasingly diverse audience) . presented a full season of visual arts exhibitions (12 per year not i neluding those of the school district; improving quality; active volunteers; diverse work) . piloted life drawing studio which will become ongoing next fall . piloted literary arts events and planning for full schedule of events next year . planned for film series to start next September and a special performing arts mini-series for young adults . increased peer recognition by artists and arts organizations; increased partnerships with other organi zations . developed working committee structure and defined Board's role and responsibilities more fully . created annual fundraising event . strengthened communications -- especially print image in newsletter and brochures . doubled membership, obtained first sponsorships and first grants . operated within the scope of a strategic planning process At the same time, we recognize we have a lot of work to do to create a solid foundation. The Board has identified 6 . critical challenges for the coming years: (1) marketing events more successfully, (2) obtaining grants and sponsorships, (3) increasing membership, (4) increasing community awareness, (5) expanding the volunteer base and strengthening the volunteer program (including the Board) and (6) developing and increasing staft. The Board has divided into task forces to actively address each of these critical issues. In addition, we are currently working with a marketing consultant to develop a marketing plan for next season and to focus our limited marketing resources more wisely and effectively. All six issues affect the financial stability of HeA, Inc. and its capacity to fulfill its mission. Some of the actions coming out of our activities to address these issues are especially pertinent to avoiding another cash flow crisis in the future; these are summarized in the three sections below: 1. PERFORMING ARTS PROGRAMMING 02/03: . next season's line up. although still of high quality, will cost $5,450 less in artist fees than last year . next season is balanced in tenns of fees, with no one concert containing the same amount of risk as that of the SPCO (most expensive event has a $7,000 artist fee compared to SPCO fee of $13,000) . we have better dates next year (avoiding holidays, summer and all except one on Saturday evening) . we are working with a consultant to increase ticket sales next year, to use limited marketing dollars most cost-effectively and to refine our subscription program . we are seeking sponsorships and presenter grants more aggressively so that the season is adequately underwritten before it starts and does not rely on ticket sales . we are developing partnerships with civic organizations to help promote concerts and will continue to after . discounted tickets to bring new people in the door . we are exploring how to use e-mail more effectively and hope to strengthen our web presence . . 2. FUNDRAlSING: . we are refining our membership program with input from our marketing consultant and will do another individual membership drive next fall . we are also doing a business membership drive to increase the support of the Center by local businesses and will continue to seek sponsorships as mentioned above . we are applying for operating and project grants in addition to those sought in support of our performing arts series . we are being more aggressive at exploring multiple sources for revenue 3. ADMINISTRATION/MANAGING CASH FLOW: . we will improve reporting procedures so that projected challenges can be dealt with in a more timely basis . we will seek new Board members with financial and fundraislng expertise . we have applied for a cash flow line of credit on our checking account and were approved for $2,500 in April (limited due to our lime in business, nonprofit status and modest deposit history); this will be reviewed in 9 months . we will develop a cash reserve over the next three years We have charted our course and now we must renew our efforts to address the challenges listed above. While the . growth depicted in the budget included in this report is achievable, it will not be easy. Our most precious and limited resource is time. We are just now reaching the place where we are working out ahead of events and not playing a continual game of "catch-up," We still face the problems inherent in increasing the already demanding workload of our hard-working and relatively small band of volunteers and one staff person. .