The KTW arts centre fact checker looks at finances

Leading up to the April 4 referendum, Kamloops This Week has fact-checked online comments and reader queries to help set the record straight

These days, false information can spread faster than the curtain falls at a Western Canada Theatre performance.

As such, Kamloops city council has indicated a need to quell misinformation in advance of an April 4 referendum that will ask voters for approval to borrow up to $45 million to build the proposed Kamloops Centre for the Arts.

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Leading up to the referendum, Kamloops This Week has been fact-checking online comments and reader queries to help set the record straight. Find our Arts Centre Fact Checker in this and previous editions of KTW and online at kamloopsthisweek.com. 

It appears some Kamloops residents are concerned about financing of Kamloops Centre for the Arts.

Some concerns raised include the city taking on additional debt, property tax implications and what happens should fundraising for the project fall short.

Therefore, the final topic to be examined prior to referendum day via KTW’s Arts Centre Fact Checker is that of finances.

We posed questions to the city about how the arts centre will be funded and how it will impact your pocketbook. The questions below were asked by KTW and the answers were provided by city staff:

Q: How was the cost breakdown between the Kamloops Centre for the Arts Society and city decided upon?

A: The cost breakdown was based on the estimate of fundraising and grants that would be available to the project. In consultation with KPMG (which wrote the business case for the project) and in conversations with various granting agencies, it was determined that $22 million was an attainable estimate. If the fundraising goal is exceeded, then the borrowing amount could be reduced.

Q: Why does the city believe it can afford this facility?

A: While the cost to build this facility is a very large number ($70 million), the city is well-positioned to pay for its share of the loan/mortgage payments. With the Tournament Capital program debt coming to an end, the city is in a strong financial position to take on new debt without increasing its current debt repayment budget. Additionally, amenities like Kamloops Centre for the Arts enhance the livability of our community and help to attract new residents and businesses. This growth in our community specifically increases the tax base, which will offset budget increases in future years.

Q: Can you compare the city’s debt load to a reference understandable to the average person?

A: The current debt-servicing costs (principal and interest payments) are $6 million annually, which is approximately five per cent of the annual taxation budget. This would be the same as a $250 monthly ($3,000 annual) mortgage payment for an annual household with an income of $60,000.

Q: How is the city’s financial position different from 2015, when voters turned down a different arts centre proposal?

A: In 2015, the city was still paying for debt on the Tournament Capital program loans, so any new borrowing would have had to be paid for with new taxation dollars. In 2022-2023, when Kamloops Centre for the Arts is proposed to be completed, the city’s debt for the Tournament Capital program will be fully repaid and the city is able to shift the money allocated to this expense to a new KCA loan. This allows the city to borrow up to $45 million without having to increase taxes for the mortgage/debt payment.

Q: What would the city tell someone concerned about the cost of Kamloops Centre for the Arts?

A: Large community facilities are expensive to construct. While Sandman Centre cost $18.5 million when it was built in 1992, it is estimated that it would cost well over $50 million to build today. The Kamloops Centre for the Arts project has several factors that help offset the city’s capital costs, such as the personal donation from Ron and Rae Fawcett and the fundraising, sponsorship and potential funding from other levels of government. These factors allow the community to gain a valuable asset at less expense to taxpayers. While there will be an ongoing operating subsidy for this building, it is anticipated to be lower than the following subsidies for other public facilities: Sandman Centre (2018): $752,197; Tournament Capital Centre (2018): $1.27 million; arenas (2018 combined): $2.17 million; Kamloops Centre for the Arts (Year 1): $703,000; Kamloops Centre for the Arts (Year 5): $383,000. Investing in livability supports the vibrancy of our community and helps ensure the city continues to grow, which in turn supports the tax base.

Q: What would this facility cost to build in 10, 25 and 50 years?

A: It is impossible to predict what the future construction costs may be for a facility like this.

What we do know is that construction materials and labour costs never decrease over time. For example, Sandman Centre cost $18.5 million to build in 1992 and, based on similar new builds in other communities, it would cost over $50 million to build the same facility today.

Q: Are the numbers realistic? What meaningful fundraising initiatives are underway to keep the city’s capital investment down?

A: Once Kamloops Centre for the Arts is approved by voters, the KCA Society — a non-profit organization — will focus on building a strategic, multi-year fundraising plan in support of the project. Fundraising efforts will include applying for federal and provincial grants, as well as seeking support from the corporate community, private foundations, and individuals in our region who are passionate about what a new arts centre will mean to our community.

Q: Why can’t the society raise all of the money to build Kamloops Centre for the Arts without the city having to borrow?

A: Facilities like arenas, pools and theatres are city-owned assets and ultimately the responsibility of the city. The arts community and the KCA Society are working toward providing a significant contribution for the construction of this facility, but ultimately, as a city asset, it is the responsibility of the city to construct the KCA. All of the other recreation facilities within the community have been built and funded almost entirely by the city.

Q: The city approved spending $35,000 on a communications budget for the referendum. What is that money going toward? Did the city pay for street signs seen around town promoting a “Yes” vote? If not, who is paying?

A: The $35,000 budget council approved was for sharing factual information about the Kamloops Centre for the Arts project, finances and referendum, such as information contained on the Let’s Talk website. For example, ads will be running this month with information on voting dates, voting locations, voter eligibility, ID requirements, etc. The “Vote Yes” signs you see around town are paid for by the Kamloops Centre for the Arts Society, which is in no way funded by the City of Kamloops.

Q: Will ticket prices be affordable? If they are too high, people paying for KCA will not be able to use it.

A: The KCA will be used by a variety of groups for many different types of events. The ticket prices for events are set by the promoter or the entity that is bringing in the show. It is anticipated that ticket pricing will be similar to what is currently being set for events in the Sagebrush Theatre and Sandman Centre.

Q: Could the building design be scaled back to save money? If not, why not? If so, how?

A: Detailed design has not been completed for the project; however, while it would be possible to change the scope of the project, doing so would require additional design and architectural costs. In addition, the building has been designed to support the city’s growing population, which is expected to reach 120,000 people within the next 20 years.

Q: The city is currently spending millions of dollars to upgrade the 40-year-old Canada Games Aquatic Centre. What capital costs are expected for Kamloops Centre for the Arts in 10, 25 and 50 years? Will the society be expected to help pay? If not, why not?

A: The Kamloops Centre for the Arts would be a city-owned asset and, as such, it will be the city’s responsibility to maintain the facility to a standard that is safe and that supports delivering the needs of the facility. While it’s impossible to predict the actual costs, the industry standard for building maintenance costs is approximately one per cent of the building’s value for the first 10 years, increasing to 1.5 per cent for the 10- to 25-year term. Once built, the KCA would be added to the city’s asset-management program, which tracks the useful life of components with known life spans, such as roofs, HVAC systems, etc. With an asset-management plan, the city plans for maintenance and repairs and is able to build the funding into its financial planning process, similar to how a household plans for its home’s eventual furnace or roof repairs.

Q: How much will it cost the city on an annual basis to pay for additional staff, managers, maintenance, cleaners, advertising, heat, hydro and water to operate the facility?

A: The recommended structure of the management and oversight of the theatre is for a not-for-profit organization to run the facility on behalf of the city. This group would collect the revenues as well as pay for the operating expenses. The business case prepared by KPMG for the Kamloops Centre for the Arts Society projects the total operating cost of $2.6 million for the first year of operation, of which $703,000 would be subsidized by the City. By year five, the costs and subsidies are projected to be $2.99 million and $383,000, respectively.

Q: How much has the city spent on this project to date, including purchasing of the Kamloops Daily News property, demolishing the building, paving the lot, staff hours, etc.? From where did that money come? Has it resulted in any tax increases?

A: The city purchased the property in 2014 for $4.8 million. To date, the city has spent $1.1 million on the proposed site, including the costs for building demolition, site security during demolition, removal and proper disposal of building materials, construction of the surface parking lot and site landscaping. This money came from reserves, including the parking reserve.

Q: Who pays for Kamloops Centre for the Arts if it goes over budget?

A: If the project were to go over budget, the funding would need to come from other levels of government, grants, donors or other city sources, such as reserves. The referendum will set the maximum amount the city can borrow for the project. Alternatively, if costs were to escalate, the scope of the project could be reconsidered to ensure it fits within the available funding.

Q: What would the city do with the money currently going toward the TCC loan repayment if Kamloops Centre for the Arts is not realized? By how much could the city reduce taxes if it does not borrow more money when the TCC loan repayment is complete?

A: If the referendum is not successful and no additional debt is incurred before the TCC debt is retired, the savings would be passed on to taxpayers on their property taxes. The savings on annual property taxes would be a one-time reduction of approximately $48 for the average house.

Q: If Kamloops Centre for the Arts will lose the city money, by way of subsidizing the facility, why should the city build it? Isn’t that bad business?

A: Most community facilities — such as pools, ice rinks, parks and theatres — are built by municipalities because they are valuable to the community but are not profitable. If these venues were profitable, communities would likely see them built by private entities. If the city were to operate these facilities at a profit, they would need to charge significantly higher usage fees that would greatly reduce the accessibility for many residents.

© Kamloops This Week

 


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