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Introduction In March 2007 the South Taranaki District Council (the Council) purchased the Hawera Cinema 2 (the Cinema) complex for $1 million to keep the facility operating. The Council of the day did this because it considered the Cinema was a significant community asset, important in terms of enhancing the district as an attractive place to live, work and visit. On two occasions over the last four years, the Council has provided a cash grant to the Hawera Cinema 2 Trust (the Trust), which is the Charitable Trust that operates the Cinema, so the Trust could pay creditors and continue trading. Based on customer trends over the last 12 years it is unlikely the Cinema will be able to continue functioning without some form of ongoing external support. The Council would like to know if you think it should provide this ongoing support to the Hawera Cinema 2 Trust. Background The Cinema was established in 1997 following a public survey which showed the number one wish of the district s population was to have a cinema. A group of 50 individual investors banded together to build the two-cinema complex at a cost of $1.9 million. During the initial years the Cinema had around 55,000 to 60,000 admissions annually making it one of the most popular recreational facilities in the district. Despite this, by 2006, after eight years of trading, the shareholders had only received one dividend. In 2006 the directors of the Cinema and a group of concerned citizens approached the Council to see if it would be interested in purchasing the Cinema to secure it as a long-term asset for the South Taranki communities. In October 2006 the Council agreed to purchase the Cinema business as a going concern, including the land, building, chattels and stock, for the sum of $1 million that was to be funded by a loan. The sale was completed in March 2007. The Council made this decision for several reasons. Keeping the Cinema meant people would not need to travel out of the district for their movie experience and this would help to keep money in the local economy. Research and anecdotal feedback has shown that if a family/individual travels out of the district to go to the movies, they will make a day of it and also make other purchases at the same time. Importantly, for a district struggling with the issue of population decline, it was seen as a significant community asset in terms of keeping residents in the district. In recent years, successive councils have invested heavily in facilities to make the district an attractive place to live, work, do business and visit. The Council was prepared to be the landlord but did not wish to become involved in running a cinema, so a Charitable Trust, (the Hawera Cinema 2 Trust), was established. The Trust entered into an agreement with the Council to operate the Cinema complex. Page 2 of 8
At the time of purchase, the Council agreed to accept any annual surplus from the year s trading as a contribution to offset the ratepayers $1 million investment. In an effort to create a more business-like relationship, this was subsequently revised and a target return of $80,000 per annum was introduced. This sum was equivalent to an 8% return on the capital invested and was also equal to the sum required to service the $1 million loan. It was anticipated that the targeted return could be achieved through a combination of the existing sub-lease to The Local Sports Bar and rental payable by the Trust. Given its history and the fact that the cinema industry is heavily reliant on the quality of movies available, it was accepted that the Trust would be unlikely to turn the business around in the short-term. A reduced rental of $24,000 per annum was agreed with an understanding that the rental would progressively increase each year and that the Trust would try to top-up the shortfall each year as their net profit allowed. The year ending March 2009 was a difficult one for the Cinema (and the industry in general) and in April 2009, the Council agreed to provide a $20,000 cash payment to the Trust in order to avoid serious cashflow difficulties. It also agreed to waive all unpaid rental fees for the 2008/09 year. It was also agreed that a Working Group made up of Council representatives and Trustees would be established to help with liaison and communication. In March 2011 the Trust advised the Council that it owed approximately $100,000 made up of trade creditors, outstanding rent, the bank overdraft plus other liabilities accumulated over a four year period and, was unable to continue trading. In May 2011 the Council agreed to pay the Trust $68,000 to enable it to clear outstanding creditors and also agreed to write off $34,000 in outstanding rent and $3,500 for staff training which the Trust owed the Council. In return for this support, a range of conditions were placed on the Trust which would enable the Council to have a greater role in the Trust s governance and finances. Councillor Beccard was appointed to the Trust and a senior Council manager was assigned to help with planning, communication and finances. Currently the Trust is implementing a number of initiatives to raise income and reduce costs. These include securing additional funding from corporate sponsorhip and philanthropic trusts, setting up a team of volunteers to assist with events and promotional activities and using social media (Facebook) to increase patronage. Cinema attendance The Cinema has averaged over 47,500 paid admissions per annum for the last three years with approximately 2,000 extra complimentary tickets given out each year. Year Ending Paid Admissions 31 March 2009 47,282 31 March 2010 50,425 31 March 2011 45,310 Total Admissions 143,017 Page 3 of 8
Financial information The table below shows the net cost to the Council for the Cinema since 2006/07. These are mainly the costs associated with being the landlord (ie maintaining the building) together with the interest on the $1 million loan. 2006/07 2007/08 2008/09 2009/10 2010/11 Rental Income Cinema/The -$10,568 -$42,270 -$23,688 -$44,706 -$43,054 Local Misc Income Insurance -$7,284 Claim Maintenance $0 $11,855 $3,072 $25,575 $7,564 Insurance $0 $6,573 $6,236 $4,420 $2,959 Interest $18,865 $74,399 $74,457 $48,319 $61,506 Depreciation $0 $18,130 $18,130 $18,130 $20,596 Reallocated Overheads $0 -$654 $0 $18,128 $26,778 Materials and Services $2,045 $5,405 $601 $1,885 $6,261 Subtotal $10,342 $73,438 $78,808 $71,751 $75,326 Additional contributions in cash $0 $5,000 $20,000 $0 $126,340 or waived rent Total Input from General Rates $10,342 $78,438 $98,808 $71,751 $201,666 The average net input from general rates over the four years and three months that Council has been involved with the Cinema, is $108,471pa. Note: Council currently budgets for (and rates for) a net annual cost of $57,000 per annum. What other Councils are doing While the majority of councils in New Zealand do not own or support a cinema, there are examples where councils have become involved to support these facilities in their communities. Two examples of smaller rural councils follow. Central Hawkes Bay District Council The Civic Theatre is a single cinema complex in Waipukurau managed by an independent person who operates the theatre, provides meeting facilities and operates a restaurant. The Central Hawkes Bay District Council pays the cinema manager a substantial annual fee for operating the theatre. The Council owns and maintains the building and equipment and pays the rates. The Council also provides funding for renewal and replacement of the assets and recently upgraded the theatre to digital and 3D at a cost of around $125,000. The contract has a performance target of 12,000 admissions per year, however last year only 11,000 attended the cinema, well down from the 21,000 admissions about five years ago. With the introduction of digital and 3D there has been a jump in numbers attending. Page 4 of 8
Buller District Council The Buller District Council has operated two theatres in the district since the mid- 1980 s. The Council operates both the NBS Theatre in Westport (which screens in 3D and 2D) and the Reefton Cinema. Both cinemas are managed in-house with a theatre manager employed by the Council. Sixty percent of the theatres expenditure is funded by rates with the remaining 40% funded via cinema income. Options to consider The Council would like your feedback on the following two options: 1) The Council provides additional ongoing financial support to the Cinema 2 Trust; or 2) Council does not provide additional ongoing financial support to the Cinema 2 Trust. Option 1 Based on the actual operating expenditure of the Trust over the last four years, we believe an operating grant of $50,000 per annum would be necessary to ensure the ongoing financial viability of the facility. This is the difference between what the Council has been rating for ($57,000 per annum) and the average actual net cost over the last four years ($108,471). If the Council does provide some ongoing annual financial assistance to the Trust, there are a number of potential impacts: The Trust s (and the Cinema s) future and ongoing viability would be secure. The Trust would still be required to operate the Cinema complex in the most cost efficient way and would need to access external funding for large capital expenses such as digital and 3D. The recent measures put in place to ensure higher levels of accountability to the Council, would be adhered to. Having a cinema could be an additional plus for residents and potential residents considering whether to settle or remain in South Taranaki. Impact on rates Under Council s current Revenue and Financing Policy, this grant would be funded from General Rates. An additional annual grant of $50,000 will have the following impact on rates: Value of Property Annual Impact on Rates Commercial Urban Property Rural Property Property $160,000 $240,000 $400,000 $480,000 $2 million $4 million $1.00 $1.50 $2.50 $3.00 $12.50 $25.00 Page 5 of 8
The Council will be reviewing its Revenue and Financing Policy during 2011/12 as part of its review of the Long Term Plan. This may result in a different funding mechanism being chosen (ie a flat charge per property) which may alter the way it impacts on individual rates. Option 2 If the Council does not provide ongoing annual financial assistance to the Trust there are a number of potential impacts. Based on historical performance and customer trends, it is unlikely the Cinema could continue to operate unless a major sponsor or a new (private) investor was found. The inability of the Cinema to return a profit over 11 of the last 12 years, suggests investment from the private sector is a low possibility. Having the Cinema operated by a Trust allows external funding to be sought from philanthropic trusts, however assistance is usually for capital expenditure. It is very difficult to source funding for ongoing operating expenses. Industry advice is that without the installation of digital and 3D equipment, the number of admissions per year is likely to continue to decrease. Over time this would further impact on the viability of the facility. If the Trust was unable to operate, the Council would be left with a vacant purposebuilt building. Potential re-sale value has not been fully investigated although advice received has suggested that due to the sloping concrete floors, re-sale potential for something other than a cinema, would be low. Losing the Cinema could make it more difficult to retain or attract residents to South Taranaki. It is also likely that people who go out of town to go to the movies will also take other spending out of town. There will be no additional impact on rates if Option 2 was adopted. How to have your say The options in this document are open for public consultation from 6 September 2011 to 6 October 2011. This is your chance to let the Mayor and Councillors understand your views about the Council s involvement with the Cinema and to put forward other ideas, so please take the time to get involved and have your say. This document can be seen at the Administration Building of the South Taranaki District Council and all LibraryPlus sites. Comments and suggestions can be sent to the Council by: Sending us an email to cinema@stdc.govt.nz. Completing the hard copy feedback form at the end of this document and posting it to us (address below), faxing it or dropping it into any LibraryPlus or the Hawera Administration Building. Writing to us at Private Bag 902, Hawera 4640. Faxing us on (06) 278 8757. Phoning us on 278 0555 or toll free 0800 111 323 Going to our website www.southtaranaki.com or our South Taranaki District Council Facebook page. Remember, your comments must be received by 4pm on 6 October 2011. Page 6 of 8
Contacting our Elected Members Our Mayor, Councillors and Council Officers are available throughout the consultation to discuss any issues and provide clarification. Council Officers Phone 06 278 0555 or 0800 111 323 Email contact@stdc.govt.nz Mayor Ross Dunlop Work phone 06 278 0555 or 0800 111 323 Home phone 06 278 5839 Cellphone 0274 470 607 Councillors Ian Armstrong Home phone 06 761 8052 Cell phone 027 2313 216 Bonita Bigham Home phone 06 274 8897 Cell phone 027 4577 400 Peter Johnson Home phone 06 272 8496 Cell phone 027 284 9292 Mike Powell Home phone 06 278 3084 Cell phone 027 4769 355 Alex Ballantyne (Deputy Mayor) Home phone 06 764 7279 Kirsty Bourke Home phone 06 278 7642 Cell phone 027 2298 959 Kelly Judkins Home phone 06 278 1252 Cell phone 027 716 1719 Michael Self Home phone 06 274 8877 Cell phone 027 2809 587 Andy Beccard Home phone 06 272 8028 Cell phone 027 243 1564 Te Aroha Hohaia Home phone 06 278 6598 Cell phone 021 260 4779 Gordon Lawson Home phone 06 764 8189 Cell phone 027 8449 626 Ian Wards Home phone 06 278 4626 Cell phone 027 4482 337 What happens next? Once the consultation period is over the Council will meet on 12 October 2011 to listen to those people who wish to speak to their written submissions. If you would like to do this please indicate on your feedback form or letter/email. You will be contacted by phone to arrange a time so please provide a daytime phone number. The Council will then meet formally to consider all the feedback and make their decision on 19 October 2011. Submitters will be advised of the outcome of their submission by letter. Note: It may be inappropriate to use the information contained in this document for any other purpose. Page 7 of 8
Feedback Form Submissions close at 4pm on 6 October 2011. Contact Details: Name (who is the submission from?) Contact Person (if the name above is an organisation) Postal address Telephone (day) (night) Email address Please tick the option you support: Option 1: The Council provides additional ongoing financial support to the Cinema 2 Trust. Option 2: The Council does not provide additional ongoing financial support to the Cinema 2 Trust. Please write any comments below and overleaf. Attach more paper if needed. I wish to speak to the Mayor and Councillors about my submission at the Council Hearing: Yes No If yes, you will be contacted with the date and to arrange a time. Remember, your comments must be received by 4pm on 6 October 2011 Page 8 of 8