Dear Piedmont City Council Members,
In addition to questions of propriety and potential tricky First Amendment issues with the City being the Landlord for a press organization, and the potential optics of the Council being seen to essentially provide a subsidy to a news organization, both of which are very important to consider, I have some core public policy concerns around the decision to allow the Piedmont Center for the Arts (PCA) to sublet City space to any commercial entity at market rates.
- The PCA has apparently stated to the Council that it cannot survive without this Sublet Rent
This in itself raises some very troubling questions about the financial stewardship and oversight by the Board of the PCA. If this is true, it begs the question of whether the City needs active oversight of the PCA. Here are the facts sourced from the Form 990 filings of the PCA, all which would seem to indicate that it is more than financially viable:
– In its first 4 years of operations, the PCA was more than self-sustaining with income of $10,000 – $33,000 a year (average of $19k a year from 2012 – 2015)
– Since its inception, the PCA has had an annual fund raising campaign with active solicitation letters and mailers sent out broadly to residents; the most recent one that I am aware of was in Oct/Nov 2015
– The PCA has raised, on average, approximately $20k a year in donations from the community, separate and distinct from any revenue from program events, i.e. pure charitable contributions
– During these years, its rental income from subleasing the space, was not that substantial: Bay Area Children’s Theater was paying $7,200/ year (through 2015)
Therefore, if something changed dramatically in 2016 that no longer makes the PCA financially viable, it begs the question as to what has changed so dramatically in programming and/or community support (donations)? Either should be cause for concern for the City because one of the main contentions of the PCA when it was established was that it would be self-sustaining and would require no further support from the City.
- The PCA received a very generous donation of $100,000 in 2012, which more than guarantees its financial independence
In 2012, the PCA received $100,000 from the Thornborrow Foundation, in the form of an unrestricted grant. This grant was invested and, to the best of what I can gather from the 990s, has over the years grown to $135,000 plus.
Given this more than generous endowment, and the fact that most of the PCA’s programming is self-sustaining (and if it is not, that raises the question of what has changed in the PCA’s mission), does it not raise the question of why the City of Piedmont should be further subsidizing the PCA to the tune of $50 – $70k a year?
In other words, if the PCA needed $x a year to be financially viable, they should have put that in the original lease and the City would then have considered the implications of giving that additional subsidy to the PCA. The whole reason that was not necessary was that it was part of the original deal that the PCA made with the City, and what the City’s (and the public’s) understanding of the terms were: give us the building, we will raise funds to renovate it and then we will be completely independent from the City and self-sustaining.
[Extra information on the PCA’s programs: Artists’ rentals (raises revenue), Music recitals (pay for themselves through ticket sales), Juried Art Show (more than pays for itself through entry fees), Theater (??)]
- Allowing the PCA to sublet the space to a Commercial Renter is in effect the City increasing the PCA’s subsidy substantially
The financial terms of the original “contract” of the City with the PCA can best be summarized as: you, the PCA will renovate and maintain 801 Magnolia and use the space exclusively to bring Arts to the community. In return, the City grants you use of the property for 10 years for a nominal rent. Any way you look at it, this was the City subsidizing the PCA, albeit for a very community-beneficial cause, a cause that I fully support. (God knows, there should be more set aside for the Arts everywhere!) The subsidy in this instance being the rent the City could otherwise have obtained from renting out the space itself to a commercial renter for 10 years.
Now the PCA has come to the City and said that the best use for a part of the space is for it to be rented out commercially. The City’s rationale in providing a heavily rent-subsidized property to the PCA was to facilitate the bringing of Arts to the community, which the PCA has done an admirable job of. That was the underlying rationale for the economic subsidy (rent-free for 10 years). Hence the initial sublet clause in the original lease was that any rental would be aligned to the mission of PCA, i.e. bringing arts to the community (and which was the case from 2012 – 2106). If that whole use condition is removed, and the space can now be sublet to any commercial renter, the entire public policy rationale of giving subsidized rent to the PCA, on that portion of the property, goes away. Put another way, by allowing the PCA to sublet out space that it is receiving from the City at a heavily subsidized rate (under one pretext), to a commercial entity (whose purpose is completely unrelated to the PCA’s mission), at market rates, is tantamount to the City providing the PCA a substantial, additional subsidy.
The question for the City Council then is this: shouldn’t the revenue that the City could obtain from itself renting out this portion of 801 Magnolia (and other parts of the building which it has exclusive use of), be part of the City’s overall budget and spending priorities? Why is a decision to grant the PCA a further subsidy of $50k – $70k a year being taken outside of the context of several other more crucial spending priorities of the City?
My issue is not whether or not the City should be subsidizing an arts organization – God knows we need more of that! The issue is that this is taxpayer money, valuable revenue that could be used to defray the cost of other City services. Whether or not it is appropriate for the City to spend that much to subsidize the Arts is a question that is most appropriately considered along with other budget priorities of the City, in a more considered process, open to public comment like any other spending priority. If fact, the very decision by the City to allow a tenant to lease space commercially is an economic decision that the Council and Staff should have vetted no differently than they vet any other spending decision by the City. Secondly, given the size of the subsidy here, if the PCA is no longer financially viable as they now claim, should there not be oversight of how this money is spent? Essentially, the City is handing over $50 – $70k worth of potential taxpayer monies to the PCA Board, without any accounting for how that money will be spent.
- Any appearance that the Piedmont Post is not paying Market Rent implies that the City is Subsidizing a News Organization
Is Council aware of the actual terms of the sublease between the PCA and the Piedmont Post? If the Post is not paying what would be considered “market rent” for use of space in the heart of the city, with two parking spaces, then essentially the City, as the landlord, would be subsidizing the Post, which exposes the City to a potential First Amendment lawsuit and the Council members to potential accusations of conflict of interest. The same holds to a lesser degree to any other commercial lessee, i.e. the City will be subsidizing the entity if it is not paying “market rent”.
Respectfully,
Gautam Wadhwani
