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Scottsdale's Museum of the West Management Agreement

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Item 17 CITY COUNCIl REPORT Meeting Date: February 26, 2013 General Plan Element: Economic Vitality General Plan Goal: Sustain Scottsdale as a tourist destination ACTION Museum Management Agreement for the Scottsdale's Museum of the West. Adopt Resolution 9307 authorizing Museum Management Agreement 2013-025-COS with Scottsdale Museum ofthe West, Inc.; and. Adopt Ordinance 4071, which waives certain financial policies and governing guidance related to municipal financing of Scottsdale's Museum ofthe West. BACKGROUND On May 25, 2012 staff Issued a Request for Qualifications (RFQ) seeking experienced and qualified persons to present proposals for a downtown cultural park that would include a western themed museum and an additional cultural venue that complements the museum. The RFQ approach was to look at the development of the entire Loloma site in establishing synergy with various arts and cultural uses. The RFQ closed on July 24, 2012 with a single submission by the Scottsdale Museum ofthe West, Inc. At the October 2, 2012 City Council Work Study Session staff presented to the City Council results from the May 25, 2012 RFQ process. As a result of the Work Study session. Council directed staff to: • Develop financial plan scenarios for capital and tenant improvement cost estimates; • Extend the ten-percent (10%) allocation ofthe city's portion ofthe Tourism Development Program funds as long-term debt support for a western museum project until July 31, 2013; • Begin development of a city design/build solicitation for construction of a western museum, contingent on City Council financial plan approval; • Initiate the development of an operating agreement with Scottsdale Museum of the West, Inc. (SMoW) for the operation of a western museum, contingent on City Council financial plan approval. Subsequent to the Council direction of October 2, 2012, SMoW representatives submitted a more detailed definition of their vision forthe downtown cultural park, suggesting it will include, in addition to the western themed museum, a venue that complements the museum and enhances the overall cultural experience on City-owned real property identified as the "Loloma Parcel." Action Taken City Council Report | Museum Management Agreement To this end, the existing Loloma Transit Station building is planned as a vital cultural facility including a sculpture garden and a terraced seating amphitheater to accommodate up to two hundred guests for outdoor events such as storytelling, speaker forums, campfire circles, live reenactments, cross- cultural programming and musical performances. An update and request for a recommendation to the City Council will be presented to the Tourism Development Commission on February 19, 2013 and the Economic Development Subcommittee on February 21, 2013. The concept of a Scottsdale western museum dates back to the 1980s when community leaders created a vision of preserving and promoting Scottsdale's western heritage. Over the years the western museum vision has evolved into a variety of efforts and actions. ANALYSIS & ASSESSMENT Recent Staff Action Third Partv Independent Evaluation Staff contracted with ConsultEcon, Inc., an independent consulting company that provides economic, feasibility, management and planning services to non-profit organizations, public agencies and private agencies to evaluate SMoW's statement of qualifications. The purpose of the study was to review proposed operating plans and market conditions and to provide an independent evaluation of SMoW's market potential. ConsultEcon conducted their study based on information contained in SMoW's statement of qualifications, the 2006 AMS Feasibility Study, and additional research, interviews and analysis. Key items noted in the report include: • Market Context - SMoW is expected to attract visitors from both resident and tourist markets. The overall resident market area is defined as the Phoenix Metropolitan Area, which is projected to increase 5.8 percent, from approximately 4.25 million in 2011 to 4.5 million in 2016. • Visitation Potential - Depending on the final size and program ofthe facility, preliminary attendance potential is estimated at 87,000 to 118,000, with a mid-range estimate rounded to 103,000 in a stabilized year of operation. • Stabilized attendance levels are expected to be achieved in the fifth year after project opening. During the first few years after opening the project is expected to build up to its stabilized attendance level based on word of mouth advertising, staff and volunteer competency growth and reputation. • Operations - A multi-year organizational ramp up from initial opening until a stable year of operations in year 5 is assumed based on SMoW's proposed organization development approach. • Operating Potential - Total current dollar revenue in a stabilized year (Year 5) is estimated at $2.8 million, including operational revenues and non-operational revenues. Page 2 of 6 City Council Report | Museum Management Agreement • Operating Expenses and Staffing-Total estimated operating expenses in current dollars would grow from $2.2 million in year one to $2.8 million in stable year 5. • Benchmarking Analysis ~ Benchmarking SMoW operations against comparable museums contributed to the development ofthe operating plan. The benchmark museums indicate that there is a good opportunity for operating success for SMoW based characteristics and the experience of comparable museums. Museum Management Agreement The Management Agreement serves as the contract between the City of Scottsdale and the Manager of the Museum. The city will maintain ownership of the facility and SMoW will provide management services for the museum. Key responsibilities of each party are further defined as follows: SMoW (Manager) responsibilities 1. Participate in museum design and construction 2. Contract and manage exhibit and graphic consultants to develop western themes 3. Art Collection: Ownership ofthe Manager's collection to be conveyed to city if SMoW ceases to operate. 4. Naming Rights: Initial name ofthe museum shall be "Scottsdale's Museum ofthe West". City has sole and absolute discretion as to name, payments for naming rights, payment of all or a portion of naming rights payment to the City. 5. Management 8i Operation - Open for 300 days a year minimum Open during downtown events like Art Walk Establish business operations and gift shop retails outlet - Comply with federal, state and local tax requirements - Board Membership- City has right to appoint and replace not less than 15% ofthe voting members on Manager's governing board 6. Term of Agreement: 10 years with three (3) additional ten (10) year extension options. 7. Financial Commitments Engage in Fundraising to provide new shows - Develop program for five year city matching donation program Pay all museum staff salaries contractual service and utility bills - Letter of Credit- establish $500,000 within first five years City of Scottsdale responsibilities 1. Selection and contract contract award to Design Build Manager 2. Design and construction ofthe building shell, tenant improvements and Specialty Work 3. Submittal and approval of necessary city planning and Plan Review 4. Resolve ownership of Loloma Transit Center 5. Provide payments up to $400,000 annually to match funds donated to the museum. Page 3 of 6 City Councii Report | Museum Management Agreement RESOURCE IMPACTS Capital Funding Support: On September 20, 2011 the Tourism Development Commission unanimously approved the recommendation that a ten-percent 10% allocation ofthe city's portion of Tourism Development Program funds to be reserved as long-term debt support for a western art and history museum project. On October 18, 2011 the City Council directed staff to work toward a lease to be brought back to City Council for approval and directed staff to reserve a ten-percent (10%) allocation ofthe city's portion ofthe Tourism Development Program funds as long-term debt support for a western art and history museum project and on October 2, 2012 extended the allocation until July 31, 2013 pending negotiation ofthe Management Agreement. Staff recommends that Scottsdale Municipal Property Corporation (MPC) bonds be issued in FY 2013/2014 to fund: (a) the estimated $13.6 million in museum and cultural plaza development costs (capital and tenant improvements), (b) $1 million as a debt service reserve required by financial policy #37 (requiring a reserve of one times annual debt service), and (c) the costs of issuing the bonds. Annual debt service on the bonds is estimated at $1 million per year for 20 years. Financial Policy No. 29 requires dedicated, non-general fund financial support for payment of MPC bond debt service and Financial Policy No. 21A limits tourism capital project commitments to $600,000 per year per project. Because the two projects (the museum and the garden/amphitheater) are complementary and supportive of one another, staffs advice is that council may consider allocating $1,000,000 in annual bed tax debt support for this combination project. A second option would be for Council to waive financial policy #37 which otherwise requires a reserve for debt service purposes—doing so would reduce the annual debt service and bed tax support requirement to an estimated $900,000 per year for 20 years. Should Council wish to move forward on the Scottsdale Museum ofthe West project, as expressed in the related Resolution, then Council will need to waive Financial Policy No. 21A and may choose to also waive Financial Policy
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