STAFF REPORT
Meeting Date:
December 9, 2025
BUSINESS
23 SUBJECT: LAGUNA PLAYHOUSE FUNDING ASSISTANCE
RECOMMENDATION: It is recommended that the City Council:
1. Following the development and review of an acceptable Lease Amendment, authorize the expenditure of $500,000 in two installments to the Laguna Playhouse for operational support in exchange for greater access by community organizations to the Playhouse venue for more expansive performance art opportunities for the public‘s enjoyment;
2. Direct staff to return to the Council with a proposed Lease Amendment to the 2003 Playhouse – City Lease that memorializes the terms of the payment as well as the community organization access agreements; and
3. Find that these actions do not constitute a “project” within the meaning of the California Environmental Quality Act. (Public Resources Code Section 21065; 14 CCR Section 15378(b)(5).)
SUMMARY OF THE MATTER
At 104 years young, the Laguna Playhouse located at 606 Laguna Canyon Road is attempting to remain sustainable even as other regional theaters have struggled or closed in recent years. Playhouse leadership has proposed a retooling of their business model in what they assert will be sustainable, including more opportunities for community use of this City-owned facility, but have asked for $500,000 in support within the City’s Fiscal Year (FY) 25-26 budget year to allow time to transition to the new model.
DISCUSSION
According to a March 12, 2025 New York Times article about theaters (and music and film) both on Broadway and in various communities, “the picture (of theater survivals since COVID) is decidedly mixed…. Non-profit theaters, both off Broadway and in cities across the country, are struggling. Having burned through the government assistance that came at the height of the pandemic, many regional theaters are now reporting budget deficits and are programming fewer shows and attracting smaller audiences than they did previously.”
The Laguna Playhouse, which traces back its community roots to October 1920 and the Laguna Beach Community Dramatic Club, operates on City-owned land at 606 Laguna Canyon Road. The Playhouse leases property (both the building and the parking lot) from the City via a 40-year lease (which began in 2003 and expires June 30, 2043 – see Attachment A). The lease includes provisions that the Playhouse:
• Has sole use of the premises for theatrical performances (including film). The premises can be used under contract by other local organizations for “concert, ballet, and opera…” • Pay for utilities, janitorial and landscaping, building repair and maintenance, and insurance. • Pay rent starting at $8,500/year, increased by CPI or 4% per year, whichever is less (rent is now $15,000/year – see page 29 of the adopted City FY 25-26 Budget under “rent – Moulton”). • Has access to the back parking lot (Parcel 2).
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• Must cooperate with the Festival of Arts, especially regarding parking.
The City can terminate the lease if, during any period of 90 consecutive days between September 1 and June 30th, no theatrical plays occur.
Today, the Laguna Beach Tourism and Marketing District (TMD) provides roughly $300,000 a year to support the Playhouse. This amount varies given that it is set at 10% of the total amount of Transient Occupancy Tax (TOT) revenue that is generated by a 2% TOT charge on nightly rentals in Laguna Beach.
With the most recent 10-year renewal of the TMD in July 2025, the share going to the Playhouse will fall to 8% of total TMD TOT revenues (estimated at $240,000 per year starting in FY 26-27 after a one-year transition period). This new 8% of TMD TOT per organization also applies to the other recipients in the TMD program – including LCAD, the Laguna Art Museum, the City’s cultural arts grants, and programming for the Arts Commission.
The reduction from 10% of all TMD TOT revenues to 8% of all TMD TOT revenues allowed a total of 10% of all TMD TOT revenues to be assigned to the new Cultural and Environmental Stewardship program.
In March 2016, the City ended up providing $1,000,000 to the Playhouse (and $1,000,000 to the Laguna Art Museum) in grant funds for “facility improvements”. The guidelines with that agenda item directed that it be provided via a 1:1 matching program. News items for that period suggested that the City’s grant was a catalyst for a second $1,000,000 donation from the Moulton family.
Playhouse Meeting. Board members and staff from the Laguna Playhouse met with Council Member Whalen, Mayor Rounaghi, and the City Manager in late October 2025 to express three main points:
1. That the Playhouse’s most recent model – theatrical productions (about seven per year), with an emphasis on dramatic productions versus musicals, including staff and production costs – appears to be unsustainable.
2. That a new model – one that still has theatrical productions but changes the mix to consider more known productions and musicals with longer runs and utilizes the Playhouse for less rehearsal time to in part increase the amount of time available for other cultural arts uses, including community cultural arts uses – could be sustainable.
3. That rapid intervention on the Board’s part, with a similar request to the City, is vital to ensuring the longer-term viability of the Playhouse. As such, Playhouse officials asked for the Council’s consideration of granting $500,000 to the Playhouse, allocated in two separate $250,000 payments.
Mr. Whalen and Mr. Rounaghi told Playhouse leadership that the City would review the request and discuss it with the Council on December 9, 2025, provided that the Playhouse provide the City with a cash flow analysis (discussed below) and provided that the Playhouse would adopt the new operational model that expands the use of the Playhouse for affordable community-based rental performances – for dance, music, other theatrical presentations, lectures, and other performances.
About Cash Flows. Playhouse leadership proposed a cash flow model for the remainder of FY 2025-26 and for all of FY 2026-27 that, among other things:
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• Reduces the Playhouse’s monthly operating expenses by roughly 45% as soon as January 2026. This is done in large part by rightsizing the amount of staff, including combining duties into single job classifications.
• Reinvests in fund development, with a qualified professional assigned to this role. This would include expanding corporate sponsorships, regular fund drives, and subscription-based fundraising. • Proposes selling two condominiums in Aliso Viejo that are owned by the Playhouse and used to house visiting actors. Instead, visiting actors will be housed in local hotels or short-term lodgings. • Proposes hosting – for pay – various new productions (referred to as “enhancements” and generally at least one per year) that are having “out of town tryouts” before being considered for formal bookings in larger venues. These can provide revenue to the Playhouse plus bring innovative – albeit untested – performances to town for local audiences.
• Proposed a move to more musical productions than dramatic productions, based on national data. • Proposes rethinking theater rehearsal time and spaces, which is intended to add new availability at the Playhouse for rental use by existing Laguna Beach community groups in search of similar space – like Laguna Dance, Opera Laguna, Laguna Live, and more. • Asks for pledges from the Board and other donors to match other donations, as well as show the Board’s commitment to the new model.
• Opens up the Playhouse’s theatrical runs to at least one proven favorite production per year versus being entirely based around first-run events not seen in other locations. • Reduces the amount of theatrical performances at the Playhouse from seven to four per year, but include more proven favorites and potentially longer show runs.
With these changes, the Playhouse projects that it could maintain a relatively healthy operation with solid cash in the bank through June 2027. As with any cash flow modeling, the success of the Playhouse operation is dependent upon multiple variables that may or may not come to pass.
City Considerations. The Laguna Playhouse is clearly an important Laguna institution – for the community as well as for the arts and cultural scene across the region. Its survival likely means addressing the aforementioned trends in community theater by adopting a different model of serving the community and region. City team members who considered this proposal liked the following:
• A willingness on the Playhouse’s part to change, including to rather dramatically adjust ongoing operational expenses;
• A willingness on the Board’s part to put personal resources and effort into the change; • The Playhouse leadership’s apparent commitment to opening up its venue to more extensive community use; and
• A willingness on Playhouse leadership’s part to be transparent with us and with the community as to what it might take to remain on a fiscally sustainable path.
Should the City Council wish to proceed further down this pathway, the internal team (Whalen, Rounaghi) asked for the following:
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• That the Playhouse agree to amend the 2003 lease to include the community venue commitments, including pricing and quantity of time, and that the Lease amendment be brought back at the January 13th Council meeting even as the Council takes a straw vote commitment to pledge the $500,000 (in two installments) at the December 9th, 2025 Council meeting; • That the Playhouse regularly report to City staff progress as to achieving its transition goals – including meeting (or not) projected cash flows.
• That the Playhouse Board at least verbally commit to a sustainable model akin to what they are describing now – with an approach that prioritizes the Playhouse’s business survival. • That the Council consider two sources of funds for this grant – $250,000 from FY 24-25’s $500,000 for Cultural and Environmental Stewardship TMD funds, and $250,000 from about $927,000 that is held in reserve for a future expenditure related to the arts – such as a permanent art piece or improvements to (for example) the Forum Theater.
One challenge may be how to describe the commensurate community use commitment from the Playhouse.
At a preliminary level, City officials and Playhouse leadership discussed having up to twelve (12) weeks per year of the Playhouse’s schedule made available to community-based performing arts organizations (i.e. about 23% of the schedule). A later follow-up discussion showed that this might be too expansive a time commitment – from the Playhouse’s point of view and possibly from a cost perspective for community based performing arts organizations as well as actual need – and that eight (8) weeks may be more aligned with community needs and Playhouse operational goals.
Community use time involves Playhouse costs – set-up, take-down, rentals (such as chairs, stands, risers), and Playhouse staff hours to ensure proper safety during events (such as fire safety). The cash flow model assumes that these community events will at least not result in a loss per event. But will community organizations find these costs – even provided at the Playhouse’s actual costs – to be too high? (Playhouse leadership believes not – in preliminary communications, concerns from other organizations have been about scheduling). During a normal production week, the Playhouse says that it nets about $65,000 – as such, during local group rentals, it can lose money if local rentals otherwise replace a week of ticketed productions.
Lease Amendment. As such, should the Council wish to proceed with this grant, we propose language similar to the below for consideration as a lease amendment to the 2003 City-Playhouse lease:
(NEW) Section 6.5 - Community Venue Space and Collaboration. From FY 2025-26 onward, and in exchange for the one-time $500,000 in funding support provided by the City of Laguna Beach during FY 2025-26, the Playhouse shall use its best efforts to provide venue space, at the Playhouse’s actual and direct costs or less, for community-based, performance-based, art organizations (“Organizations”) such as (but not limited to) Laguna Dance, Opera Laguna, Laguna Live, and related groups. In some cases, rather than providing venue space, the Playhouse shall use its best efforts to collaborate with these Organizations on rehearsal space, community arts education, and other programs that benefit the Laguna Beach arts community.
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Similarly, the Playhouse shall regularly coordinate in advance with the Organizations to align on a calendar that determines appropriate days or time periods during which the Organizations will be able to rent the Playhouse venue at the Playhouse’s actual direct cost rate for the Organizations’ signature events. To the maximum extent feasible, the Playhouse shall endeavor to provide up to __ weeks (or __ days) of venue space per year for these Organizations and for other community-based programming.
There are other limits or protections that the City could apply to these funds via a Lease Amendment. The City could:
• Tie the funding to specific outcomes, like meeting a cash reserve target, the Board’s adoption of a revised budget, or completion of a consensus-based community use calendar. • Consider offering a forgivable loan – i.e. if the Playhouse is unable to meet a net income target in 5-10 years, then the loan or portions of it do not have to be paid back. • Ask the Playhouse to include a city liaison on the Board (as a non-voting member). • Add a reporting requirement to the City as to fund development and remaining within expenditure projections, for example.
Should the Council approve this proposal in concept at its December 9, 2025, meeting, staff will return on January 13, 2026, with proposed amendments to the 2003 Playhouse-City lease agreement.
FINANCIAL ANALYSIS
The fiscal impact is $500,000, made in two installments across the remainder of FY 2025-26 via budget amendments. Staff proposes utilizing $250,000 from the Cultural and Environmental Stewardship fund (from FY 24-25 commitments) and $250,000 from the current reserve of $927,000 set aside for cultural arts facilities. As noted, this could be done via a grant or a loan.
ENVIRONMENTAL ANALYSIS
The recommended action consists of organizational or administrative activities of the City that will not result in a direct or indirect physical change in the environment and therefore does not constitute a “project” within the meaning of the California Environmental Quality Act. (Public Resources Code Section 21065; 14 CCR Section 15378(b)(5).)
ATTACHMENTS
1. 2003 Playhouse – City Lease Agreement
Submitted By: David A Kiff Approved: David A Kiff
Dave Kiff, City Manager Dave Kiff, City Manager
Report Prepared By: Coordinated With:
Dave Kiff, City Manager
Gavin Curran, Assistant City Manager
Michelle Bannigan, Finance Director
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Mayor Rounaghi
Council Member Whalen
Jane Abzug, Assistant City Attorney