September 21, 2006

City Council holds marathon session

Discussing emergency preparedness, loan to Rep

By Carol Rosen
Staff Writer

The City Council spent 5 ½ hours at its Tuesday afternoon meeting discussing a number of subjects, including its possible loan to the San Jose Repertory Theater, the state of the city’s emergency preparedness and acceptance of the Evergreen East Hills Vision Strategy status report and revised work plan.

Laurel Prevetti, the deputy director of the city’s planning department, spoke on behalf of the task force noting the group has two more meetings on Sept. 25 and Sept. 27 to iron out final details. Planning department staff hopes to have the report to the council by Dec. 5, she said. “We hope to have most aspects of the package completed by then. It’s a very complex document.”

The task force, she said, is still grappling with what to do with the Pleasant Hills Golf Course and considering the amount of growth for housing, commercial office and retail. Residents hope to keep the golf course more as open space, she added, since many moved to that area because of the open space.

“We’re working on the ground rules for parks and amenities,” she told the council, “with the goal being a package of open space improvements.”

Developers acknowledged the correlation between the number of homes versus parks and amenities, said Prevetti, adding that they have indicated “far more [land] than the park ordinance requires.”

One question could be answered after the November election, with a state bond measure up for a vote. The measure provides opportunities to generate state funding for Highway 101, which could definitely lessen the area’s traffic congestion.

The council accepted the status report and revised work plan unanimously.

Emergency preparedness
The going was a bit tougher for the emergency preparedness plan. Presented by Kimberly Shunk, director of emergency services, who has been in office just a bit over five months, it delineated funds received from the Urban Area Security Initiative (UASI) and how these have and will be spent.

Shunk’s first job here dealt with the spring rains and potential flooding and soon moved into the heat wave, noted City Manager Les White. In August, she began working on just how to spend the UASI funds.

Vice Mayor Cindy Chavez presented a memo delineating a plan for citizen protection from disasters and emergencies. Chavez asked that the department provide spending deadlines, a budget document and include a number of items and activities for the city’s emergency preparedness plans.

Her memo delineates funding, interoperability with neighboring cities and increasing staff to prepare for any emergency or disaster. She also thinks the city should hire a full time emergency services employee responsible for identifying, applying for and securing available state and federal funding for San Jose’s preparedness activities.

Chavez also suggested the plan include increased readiness of emergency response including drills for school districts, senior centers and community organizations. The memo also listed increasing communications to be more effective.

The council voted unanimously for Shunk to return within 90 days to present a finished ordinance for emergency preparedness.

Rep loan
In its final action of the afternoon, the City Council discussed options for a possible $1 million loan to the San Jose Repertory Theater. Besides listing loan options, City Auditor Gerald Silva presented his report on the Rep’s solvency.

In a unanimous vote, the council agreed to White’s suggestion that all action be deferred until Silva completes a full financial analysis. It included an amendment from District 8 Councilmember Dave Cortese to look into bankruptcy and structural reorganization to put the Rep into a stronger financial position. The council will again take up the matter on Oct. 3.

Kay Winer presented four options for the ailing theater company. Three included variations of the loan with different paybacks and six conditions for monitoring and reporting requirements.

No loan, meaning the Rep would be unable to operate for the 2006-07 season.

A one-year loan to the Rep based on their expenses and projections. It would require close monitoring and principle and interest would be paid back at the end of the year.

Monthly disbursements with tight controls and payback beginning the third year. Interest would be paid back in a lump sum at the end of five years.

A 15-year loan providing the Rep with a $1 million disbursement at once and a 10-year payback—no remittances until the fifth year and then annual payments.

Staff recommended the option with a five-year payback. The Rep, Winer said, will be out of business without the $1 million loan, but that loan won’t remedy its financial situation. The city hasn’t budgeted for the loan, and it will have to come from the general fund. She suggested that the city use the Rep payments to establish an arts general fund for could assistance to other nonprofits in dire straights.

Auditor’s report
According to Silva, the Rep held two major endowment drives in 2002 and 2004, raising about $3.8 million. The goal was to have an $11 million endowment funding for operations from the interest. Unfortunately, as of Sept. 15, the endowment contained $885,000, which is being used as collateral for a line of credit. In addition, the board of directors did not have full knowledge of how the Rep spent those reserves.

Silva’s report indicated significant long- and short-term debt including the open line of credit. The Rep is making minimum interest payments and the line of credit is payable on demand. The theater also has a $34,272 loan payable a year from now with monthly payments of nearly $3,000 in addition to a $150,000 loan from the Silicon Valley Arts Fund. That agreement doesn’t call for repayment until the Rep is able.

Because the Rep spent $1 million of its permanent cash reserve on operating expenses and debt reduction, requirements force it to repay that money back into its cash reserve account. Finally, the theater has $485,000 in bills at least half of which is 90 days past due. The Rep’s current budget indicates payments of $62,000 per year for the accounts payable. Some vendors apparently made verbal agreements with the Rep’s controller for payback, although one has hired a collection bureau.

This season, the Rep has a goal to raise $1.7 million from individual, corporate and foundation donors. The auditor’s office feels that target is ambitious based on previous contributions. Last year, the theater received contributions of nearly $1.5 million. However, last year’s foundation contributions included stabilization grants to pay off operational deficits and bridge loans to board members.

Philanthropic funding has decreased in the San Jose area, according to a recent report from the Silicon Valley Community Foundation. Besides individuals contributing to disaster relief, the sale of Knight-Ridder and Calpine’s bankruptcy will decrease this year’s community funding by about $2 million.

Silva’s report indicated that the Rep started deficit spending a few years ago, and some of its reports “contained conflicting and/or contradictory information.” In addition, the report said that projected 2006-07 indicated “expenditures ranging from $4.8- $5.2 million with contributed income of $1.9 to $2.2 million.” It already spent income from its season ticket sales held in March, April and May.

The report concluded that “…limited in-house professional financial capacity, historical deficit spending, and significant long- and short-term debt, create significant challenges to the long-term viability of the San Jose Repertory Theater.”

Council members comments ranged from a list of fund raising options from District 10’s Nancy Pyle to a statement from District 8’s Dave Cortese, that it would be “difficult for me to approve new money when there’s no plan to pay off [the old debts], and the Rep will fall back into the same hole.”

“We need to receive a scenario that addresses the points that the audit raised,” said White. “Does $1 million really bale them out especially based on previous years?”

During the public comment phase, acting chair Nick Nichols, who joined the Rep about six months ago, said the loan will enable the Rep to make changes. “We’ve already changed our organizational structure and our business mode,” he said. “We’re making internal changes and collaborating with the [AMT] American Musical Theater,” and he claimed they may be asking the board to have Team San Jose organize and run the theater company.

White finally suggested staff take a couple of weeks to get a better angle on the entire picture. “We need to take a look at the model. Lay out the auditor’s findings and put down the Rep’s responses. We need to check out the bankruptcy option and the reorganization, defining the cost implications.”

Other business
In other business, the City Council unanimously passed a recommendation for City Attorney Rick Doyle to draft an ordinance implementing recommended changes to the lobbying ordinance. It also directed the staff to develop a work plan for greater financial overview of all financial data including audits, the monthly financial report and the comprehensive annual financial report.

The council unanimously adopted a resolution amending the city’s pay plan to provide cost of living salary increases of 3.75 percent for council appointees as of July 2. It approved a resolution establishing the High-Rise Design Review Process citywide for high-rise development 100 feet or greater in height. District 6’s Ken Yeager was the only dissenting vote.

Finally, council members rejected all the bids for Fire Station 17 relocation project in District 9. All of the bids came in too high. Staff will evaluate the best strategy for rebidding the project.