BROOKINGS – The Brookings City Council voted last week to have Swiftel Center Executive Director Tom Richter report on the facility’s finances during the Dec. 10 council meeting.
The move came after Richter reported the Swiftel Center is behind $65,000 for the year and Councilor Dan Hansen pointed out that’s a fraction of the money that the Swiftel Center is losing, which Hansen said comes to more than $300,000 annually.
The issue came up during the Nov. 26 meeting while Chief Financial Officer Erick Rangel explained a supplemental appropriation to the 2019 budget during a first reading.
Rangel presented the changes his office was proposing to the 2019 budget and the allocation of the contingency fund.
One of those changes was to the Special Revenue Funds, including using third-penny reserves to support the operation of the Swiftel Center. Rangel then handed the presentation to Richter for a more in-depth explanation.
“The Swiftel Center team has been working diligently to mitigate a tough financial operating year,” Richter said. “We started the year off pretty bad with the first four months weather-wise.”
He said the facility over-spent on three budget line items:
• ground maintenance for snow removal,
• building repairs and maintenance because the HVAC system is approximately 20 years old and staff needed to keep it operating; and
“We are forecasting to be over our targeted budget by $65,000,” Richter said.
Rangel said later in the meeting that the $65,000 is a worst-case scenario estimate. If the Swiftel Center doesn’t need that much, what’s left over will go back into the reserve fund.
“We are hopeful that we will be awarded a FEMA grant (because of snow events) of approximately $10,000 to bring that number back to $55,000,” Richter said.
Swiftel staff has been reducing costs, including doing the lawn care in-house, “that saved us an additional $10,000 this year,” Richter said.
“Not only have some of our fixed operating expenses been higher than historical levels, our revenues have fallen short from what we budgeted for 2019 as well,” he said.
“To get this projected loss number, we have utilized our event risk fund. This loss is largely due to the fourth quarter of the year and it really is predicated on three events,” he said.
A concert in October under-performed in ticket sales, which negatively impacted income the night of the event. A December show is under-performing, too, but he said there’s still time for people to purchase tickets.
The third event was a country concert originally scheduled for late November, but it was postponed due to changes with the artist’s management.
“Fortunately, we did get the concert, but it’s not in this fiscal year. … It’s on sale and will play in February,” Richter said.
“It was too late in the year for us to book another event to replace it, so that really put us in the tailspin when that occurred,” Richter said.
“We’ll continue to minimize our expenses and optimize our revenue opportunities for the remainder of this calendar year,” Richter promised, adding they will implement their 2020 operating budget come January.
“Once January starts, we start managing to our budget and what I mean by that is we have several fixed line items that we have to pay attention to, but a lot of our budget is predicated on the variable line items that are predicated on the events that we have booked, so we manage to our budget,” Richter said.
He presented some potential revenue streams to replenish the event risk fund, including adding a risk management fee to each ticket sold, adding a surcharge to non-ticketed events, renting a portion of the office space to a non-conflicting third party, and allocating a percentage of third-penny tax annual surplus for challenging years.
Richter offered to come back to a January meeting for another update.
He said 75% to 85% of the Swiftel Center’s revenue comes from the business that the facility generates, and 15% to 25% comes from the third-penny tax.
The business at the Swiftel Center generates about $25,000 that goes to the third-penny fund and about $75,000 that goes to the first- and second-penny funds.
Richter offered to give a quarterly update to the council, if the councilors wanted.
Hansen wanted some clarification.
“First, I think it’s important to point out that $65,000 is in addition to an already budgeted shortfall of, I believe, $300,000, not including CIP funds,” Hansen said.
“And the only reason we got to $65,000 is we did use our risk fund to get there, right? So it’s actually a lot more than $65,000,” Hansen said.
“I think it’s important for the community to realize that $65,000 isn’t what was lost, isn’t the shortfall, it’s really $365,000, plus the risk fund that was established. It’s a lot more than what we see here on this piece of paper,” Hansen said.
Hansen pointed out business owners in the audience.
“I pretty much guarantee that if they managed to a budget as well as we’ve managed to a budget at the Swiftel Center, they’d all be out of business,” Hansen said.
“I recognize that places like the Swiftel Center don’t break even,” Hansen said. “But I also think that budgeting to a $300,000 loss every year isn’t a good way to do business or should be our goal heading into a year. It should be to do better than that.”
Hansen did appreciate finding out about the money before the end of the year, as opposed to after the fiscal year had ended, but he was still frustrated.
“If we’re managing to a budget, how do we lose so many times year after year after year?’ Hansen asked.
He made a motion that Richter come back to the second reading of the ordinance on Dec. 10 with a proposal to mitigate further loss going into 2020.
“I don’t want to wait ’til January, ’cause the fiscal year’s already 1/12th over by then and you should already have implemented everything at that point,” Hansen said. “I don’t want to see possibilities or ideas any more; I want to see an actual plan of this is what we’re doing, starting Jan. 1, so that it can be implemented Jan. 1.”
Dana Andersen asked what kind of impact the shows at the Swiftel Center had on the rest of the community, such as hotels and restaurants.
“I mean, that’s a large part of the community, also, is getting those people to come here and the other businesses bringing in that money, too,” she said.
“I think Tom mentioned that in some of his report, the amount of revenue that comes in from the 3B pillow and sales tax,” City Manager Paul Briseno said.
Richter said the Swiftel Center stopped giving an economic impact report about 2014 and hired an outside agency to study the economic impact that the Swiftel Center has on the community.
“At that time, it was approximately $20 million a year,” Richter said.
“If you take the $20 million a year times 3%, pretty much everything we do there is subject to the third-penny tax. That’s about $600,000 a year that comes back to this city general fund and the 3B tax,” Richter said, adding those numbers were from five or six years ago and they could do the study again.
“Economic impact is critical because when a city invests in a building like the Swiftel Center, really what they’re doing is investing in the businesses in their community to create people coming to our community for events or activities to spend money here and keeping the people that live in our community here for entertainment needs so they’re not going to another community for entertainment,” Richter said.
“That’s why cities build ’em – and Dan is correct – operationally, public assembly facilities like the Swiftel Center are typically owned by a city or a county for those reasons, because operationally, they just don’t operate in the black; but hopefully, the economic impact is substantial enough,” Richter said.
Councilor Ope Niemeyer asked if other facilities were having the same problems as the Swiftel Center, with not having enough events.
Richter said making money on just one more event could have brought them to within $20,000 of their set budget, and then “we’re probably not having this conversation.”
“There’s an awful lot of uncontrollable things in the entertainment touring business,” Richter said. “The competition is quite stiff.”
The amendment to have Richter come back with a budget plan on Dec. 10 passed unanimously. Councilor Nick Wendell was absent.
Contact Jodelle Greiner at [email protected]