DATE: May 31, 2022
DEPARTMENT: office of the City Manager
FROM: ANDREW MYRICK, SR ECONOMIC DEVELOPMENT MANAGER
TITLE: SALINAS PLAN RECOMMENDATION MC03 – SHERWOOD HALL RECOMMENDED MOTION:
No formal action is required; however, feedback from the Committee Members is welcome.
DISCUSSION:
Overview
Sherwood Hall is a City-owned facility that has been used in the past to host private events as well as community and recreational programs. The Salinas Plan (presented December 2018) identified a likely ongoing operational deficit in the operations of Sherwood Hall and included a recommendation to explore the sale or leasing of the facility to a private party to continue to operate programs, thus allowing the City to conserve resources to support its “core” functions. Staff has done an analysis to further explore the situation and the City’s options and is seeking direction on how to proceed from the Committee.
Background
The City is the owner of the Sherwood Hall, located at 940 North Main Street in Salinas. The main building includes an auditorium, which is approximately 6,650 square feet in size and has a maximum capacity of 1,330 persons (standing). The Community Center building (attached to the main Sherwood Hall building through an elevated enclosed hallway) includes several smaller rooms ranging in size from 408 square feet to 2,450 square feet. These facilities are available for rent, with most users being local individuals or organizations. The facility also includes a parking lot and a park. The facility is managed by the Library & Community Services Department.
Operations
Historically, Sherwood Hall has been operated partially through a Trust Fund (funded through fees collected) and partly through General Fund revenues. When events are booked at the site, a deposit to cover the City’s projected costs are placed within the Trust Fund. Following the event, those funds are used to cover the City’s actual costs. The buildings (or portions thereof) have also been leased out to other entities in the past, most recently Millennium High School from 2014 – 2019. The facility was largely shuttered during COVID and has only recently begun hosting events again. Fees charged for events vary depending on the type of user, the type of event, the time of day, and the length of the event. A fee schedule is attached.
Staff has reviewed financial records and has confirmed that the revenues received from Sherwood Hall’s operations do not cover the costs of operation. City staff has examined the prior five fiscal years (FY17 through FY21) for which financial data is available. Staff also examined records from FY05 through FY07 to see if historical operations were significantly different. Staff’s findings are summarized in the chart below (additional charts are attached to this Report):
There are no examples in any of these years of a “normal” year that could be used as a straightforward predictor of future operations, as each of the years reviewed included key differences from future operations:
During FY05 – FY07, three full-time employees were dedicated to Sherwood Hall.
During FY17 – FY19, a portion of Sherwood Hall was occupied by Millennium Charter School, which paid $15,000/month in rent but also utilized significant utilities.
The final quarter of FY20 and all of FY21 were marked by the impacts of COVID, which significantly reduced both revenues and expenditures.
Although an exact baseline is difficult to identify, it is clear that the facility does not, and for many years probably has not, recover its full cost of operations. Please note that the expenditures do include the cost of any maintenance that was performed during that year, but do not include the cost of any long-term deferred maintenance to the building or site. The Public Works Department recently retained AEI Consultants to perform an inspection of Sherwood Hall to examine outstanding maintenance issues. The Report from AEI identified over $8 million (excluding inflation, prevailing wage, or recent escalations in construction costs) in repairs that would need to be performed over the next twelve years, including over $500,000 in repairs that should be performed over the next year. There is currently no funding source identified to cover these costs.
Operational Analysis
Staff has reviewed expenditures at the site and does not believe significant savings can be made under current operations. City costs due to staff of events are covered by the event fees. There are no full-time employees dedicated to the site – management and administrative functions are handled by Library & Community Services employees who also provide similar support for a number of different facilities (in addition to other duties). Other ongoing costs are related to utilities, security, and facility maintenance and cannot be responsibly reduced (and in fact may need to be increased to prevent larger repair expenses in the future).
There may be opportunity to affect operations on the revenue side. City staff has done a preliminary analysis of the potential to increase the amounts charged by the City and there may be some opportunity for growth. For example, the Salinas Sports Complex, located on the same property in the area leased by the Rodeo Association, leases out spaces with lower capacity for significantly more money (although there may be other factors, such as facility condition, that may account for this discrepancy). The City could consider charging more for the use of its facilities.
Another possibility for increasing revenue would be to attempt to attract more and larger events to the site. The facility has not, in recent years, been aggressively marketed or promoted, and it is possible that more commercial users of the site could be brought in. At the City’s request, a representative of the Monterey County Convention and Visitor’s Bureau (MCCVB) conducted an informal assessment of the property, and her opinion was that it could be a suitable facility to host commercial events if some moderate cosmetic work was performed at the facility (particularly to the building exterior and the landscaping and driveway areas in front of the building) to make it more attractive. However, staffing for an aggressive marketing and promotion campaign would likely entail additional costs for the City, as existing staff would not be able to assume that workload. Any additional revenues would need to cover those costs as well as the existing operational shortfall.
Options
As noted previously, the Salinas Plan recommends that the City sell or lease Sherwood Hall so that money spent on the current operational deficit could be reallocated to other uses. Staff is aware of several actions it could take in order to attempt address the present operational shortfall at Sherwood Hall. However, determining the appropriate next steps raises fundamental questions regarding the City’s vision and desired use for the property. Staff is seeking feedback and input from the Finance Committee regarding the next steps. Staff has identified the following potential options for next steps, which vary based on the City’s priorities:
Make the facility self-sufficient. The City could conduct a more thorough review of the operations of the facility, likely utilizing an outside consultant. This would identify the feasibility of raising the amount charged for the use of the facility and/or what actions would be necessary for the City to market/promote the facility in order to attract more clients. The advantage of this approach is that if actions are identified and successfully implemented it could free up funding in the General Fund, which could then be used for other purposes, while allowing the City to maintain or expand operations at Sherwood Hall. However, raising rates could impact the ability of smaller users to use the facility, and increased marketing/promotion efforts and facility improvements could result in additional costs to the City.
Sell or lease the facility. The Salinas Plan recommends that the City sell or lease the facility to an operator that would provide similar programs. The City could prepare and issue an RFP to identify potential buyers/operators for the site, and work with any respondents. The advantage of this approach is that it could resolve the operational deficit, and would insulate the City from future expenditures related to the operation and maintenance of the site. However, the City would also lose a degree of control over the facility, and it is unknown at this time what services would continue to be operated out of the facility. If the property is sold and the new owner/operator is unsuccessful then the City could be forced to either reobtain the property or risk losing it to private use.
Maintain the status quo. The City could determine that using the General Fund to supplement operations at Sherwood Hall is an acceptable use of those funds. Many services provided by the City collect fees that do not fully cover the cost of providing the service. This approach is the simplest as it requires no action except what staff is already doing. However, it would also represent an ongoing cost to the General Fund that would need to be made up through reductions elsewhere.
FISCAL AND SUSTAINABILITY IMPACT:
Any actions taken in response to this recommendation could have positive or negative financial impacts, depending on the course of actions taken.
ATTACHMENTS:
Sherwood Hall Fee Schedule
Sherwood Hall Operating Revenues and Expenditures Summary Page | 2
Page | 1
Although the facility actually consists of two buildings (Sherwood Hall, consisting of the auditorium, and the Community Center, which has several meeting rooms), when this Staff Report refers to “Sherwood Hall,” it is referencing both of those buildings as well as the grounds around them, including the adjacent parking lot, driveways, lawn area (including the hat sculptures), and other nearby areas, but excluding the Aquatic Center, Tennis Club, Tatum’s Garden, and the area leased by the Rodeo Association.
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