An analysis of the new Alerus Center budget

Update 3:59 p.m. July 8, 2010: Looks like there’s no easy way to fix the table below. The HTML coding is already extensive and changing the format to reduce the font size would exceed the capacity of AreaVoices’ blog software. So, here’s a link to the spreadsheet in Google Documents.

Also, I should’ve mentioned that the last two parts of the table are my own categories. With so many line items, I found it hard to understand the budget. So I clumped them together in like categories. They weren’t a part of the budget.

Alerus Center commissioners adopted a balanced budget this morning because, uh, the Grand Forks City Council made them do it. Apparently city policy requires departments to submit balanced budgets and, anyway, the events center task force said that the "commission is strongly encouraged to stay within its annual budget and strive to create a reserve fund." (I quoted the draft report the last time I mentioned this.)

Now if the original budget with a deficit of $134,000 was realistic, what does that make this new budget? I posed the question to Executive Director Roger Swanson and he said:"It’s an aggressive budget. The previous years’ average was six shows a year. Is it aggressive to estimate seven? Yes it is. Does it mean we will be aggressive? Yes, we’ll try to do everything that we can."

Below, you will find the spreadsheet I used for my story. First, I looked at the 2009 budget found in the commission packet from January. Then the actual 2009 spending, which is unaudited. I have an audited financial report from auditors, but it uses different terminology and I think this is good enough.

Next, I looked at the 2011 deficit budget that was approved last month and the 2011 balanced budget approved today.

Then I compared both 2011 budgets with the actual 2009 spending.

The numbers on the left most column correspond to my notes below the table, though the order is sometimes messed up for narrative reasons. Sorry it’s so weird; AreaVoices refuses to save it if I change the font size because there would be too much HTML coding. I’ll figure something out, hopefully soon.

Notes:

1. The number of major concerts and other arena events are expected to drop next year simply because, as I mentioned in the previous Alerus Center budget post, the local market has apparently bottomed out. You can see the effect of this on revenue. (By the way, anything reimbursable is revenue and expenses for services provided during events.)

I don’t have the number of arena events for 2009, but there probably were less than six.The original 2011 budget called for two mid-sized concerts. The revised 2011 budget calls for seven, two at 5,000 attendance, two at 4,000 and one at 3,500.

The reason it’s not all bad news is because the convention side is expected to remain steady or get a little better.

1a. A good indicator of the dearth of events is the precipitous decline in box office revenue as well as parking revenue.

1b. Another good indicator is where revenue from ads, sponsorship and suite leases are going. Advertisers want more eyeballs from arena events and suite holders want more arena events to enjoy. Fewer events mean the Alerus Center will lose some of these customers.

One thing worth noting is the $30,000 increase in ads and sponsorship that was tacked on in the revised 2011 budget. The assumption is the Alerus Center could work with Newman Signs to sell ads on its electronic reader boards.

This is a highly speculative item that depends mostly on what the City Council does.

There’s a law that caps the number of electronic billboards because city leaders fear a wave of garish flashy-thingys all over town. Council member Curt Kreun, who’s also on the Alerus Center commission, spent a lot of time working with those that want to curb reader boards and businesses that want to install more reader boards.

The law creates an exemption for electronic reader boards used by private businesses to advertise their own goods and services. That exemption also extends to sponsors of certain businesses, such as hockey arenas and events centers.

The commission is aware that it could hand out sponsorships for minimal costs and then sell ads to the new "sponsors." Commissioners, however, said they didn’t want to violate the spirit of the law, which is clearly meant to prevent business reader boards from being turned into billboards.

Two council members who were at today’s meeting — Hal Gershman and Doug Christensen – actually encouraged the events center to do that because they felt that any business could do the same and exploit the exemption. They said they’d work to change the law so that the events center wouldn’t have to offer sponsorships to sell ads.

Curt said he just didn’t think it was worth it to open up that can of worms again for $30,000.

I kind of think he has the better part of the argument. Doing what Hal and Doug want would essentially unravel the law or water it down so much that it doesn’t mean anything anymore. Like the law or not, I think to undo a law for the sake of a single entity sets a bad precedent.

1c. What’s puzzling is even as suite leases go down, suite food and beverage are expected to go up. I have no idea what’s going on and forgot to ask Roger when I was interviewing him. Either these suiteholders are getting hungrier and thirstier or the Alerus Center is charging them more, which wouldn’t be such a good way to keep them around.

2. Catering remains strong though not as strong as I heard previously. Roger said conventions run in cycles and the events center can’t expect big increases every year. As I’ve noted before, catering has become a dominant source of revenue for the Alerus Center. In 2009, it made up 29 percent of revenue. Officials had only expected it to make up 21 percent.

3. The other reliable and growing source of revenue is the 1/4-percent hospitality tax, which serves as a built-in subsidy for the building’s operations. Some task force members had wanted the Alerus Center to not touch the subsidy at all and save it for a rainy day, sadly, a completely unrealistic expectation.

4. Even in the original 2011 budget there had been a serious attempt at cutting costs. Full-time labor costs were expected to drop 16 percent. Roger said he did some layoffs, cut some positions and consolidated others to reflect the lack of activity on the arena side. If you’re on the arena side and your day isn’t full, he wants you helping on the convention side.

5. There’s a lot of flux in the part-time labor categories, which Roger said was because jobs were reclassified. Some staff that were previously seen as event-related staff were made shifted to what basically is your standard part-time support staff. For example, someone who cleans up the suites after an arena event wouldn’t be consider event staff, but cleaning staff.

5b. But you can see that, over all, part time staff is down significantly. Between the original 2011 budget and the revised budget there’s some increases because of the arena events that were added to balance the budget.

6. You can see how reimbursed expenses also dropped as a result of fewer arena events. I’m not sure why they didn’t go up the way reimbursed expenses on the revenue side did.

7. Marketing took a slight hit in the original 2011 budget, but it took a blow to the gut in the revised budget. I asked Roger if this was such a good idea. If you want more business, usually you don’t cut your marketing.

He said that the additional arena events would keep the Alerus Center brand name out there. Usually event promoters pay for marketing and they’ll have to at least mention the venue, he said, so that’s pretty good marketing for no cost.

Either I don’t understand what he said or he’s messing with me. I really can’t believe that having your name on the band schedule or the concert flyer, which naturally focuses on the band, not its venue, is anywhere close to a replacement for ads in industry publications.

8. On the expenses side, you also see the impact of stronger catering business and the puzzling strength of suite food and beverage.

9. The massive increase in repair and maintenance is attributable, in part, to the fact that I compared the 2011 budget with the actual 2009 spending. You always have to budget more for these sorts of things in case something breaks down unexpectedly, but usually everything turns out OK so the amount you actually spend is less.

What I don’t understand, and, again, forgot to ask Roger, is why things like the maintenance contract went up so much.

9a. Building repair and maintenance is a special category that the Alerus Center commission discussed this morning. Doug said some of these repairs, provided they’re big enough, could qualify as "capital improvement," which would then qualify them for funding from the 3/4-percent sales tax. The sales tax can only be used to pay off the debt on the building or capital improvements, meaning building improvements.

Curt said the commission would appreciate it if Doug’s finance committee could find a way to reduce the expenses that way.

10. As usual, utilities and energy costs continue to go up, though, again, the difference between the budgeted amount and the actual amount is likely to be very different. The actual amount, in practice, has been lower.

Roger said the events center has undertaken cost-cutting measures, such as turning off the HVAC — heating, venting, air conditioning — system off at night.

11. The management fee is fixed at $175,000 under the new contract, which passed muster with the commission today and is going to the council next. For details, see my last post on the Alerus Center.