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Home My WebLink About1993 11-15 CCP Work Session CITY COUNCIL AGENDA CITY OF BROOKLYN CENTER NOVEMBER 15, 1993 7 p.m. Council Work Session CITY HALL CCILTNCII CHAMBERS;; . 1. Call to Order 2. Roll Call 3. Earle Brown Heritage Center Operations and Marketing Review Study 4. EDA Budget 5. Truth in Taxation Notices Proposed Pay 1994 Tax Rates 6. Adjournment EARLE BROWN HERITAGE CENTER OPERATIONS AND MARKETING REVIEW FINDINGS, CONCLUSIONS & RECOMMENDATIONS SEPTEMBER 1993 T NEI.\ �Q UEITE Ak S P R O F E S S I O N A L R E A L E S T A T E S E R V I C E S Consulting Services Division 700 Northstar East • 608 2nd Ave. So. • Minneapolis, MN 55402 Phone: 612-333-6515 • FAX: 612-338-2216 PARTNE MAP Q tETM PR.O EE SS ION AL REAL ESTATE SERVICES i Brooklyn Center Economic Development Authority City of Brooklyn Center 6301 Shingle Creek Parkway Brooklyn Center, MN 55430 Pursuant to our engagement letter dated April 30, 1993, we are pleased to present the accompanying report entitled "Earle Brown Heritage Center Operations and Marketing Review: Findings, Conclusions and Recommendations." This report presents a summary of the tasks which we performed in studying the operations and marketing efforts of the Earle Brown Heritage Center; the conclusions which we have drawn from our analysis; and our recommendations to improve future performance. As in any study of the operations of an on -going business, the operating profile continues to change and evolve, even as the study and reporting process are underway. Indeed, operations at the Earle Brown Heritage Center are being steadily improved and refined by management on an overall time line which is largely consistent with the profile of comparable facilities during their initial operating years. As a result, recommendations presented in this report may in several cases, either already be in place or under consideration. Such recommendations are included to reinforce the importance of the actions which management has taken or which they may be about to take. We consider the Earle Brown Heritage Center in its present state to be a high quality, well managed facility of unique value to the community, which is making steady progress toward a stabilized position in the competitive market and a corresponding peak in potential operating performance. Certain characteristics, both of the facility itself and of its ownership by the City of Brooklyn Center, affect the speed with which the Center approaches these goals and its ultimate ability to achieve them at the desired level. We believe that the potential exists to overcome or at least mitigate the limitations which these characteristics impose, together with certain operational refinements, to improve the prospect of achieving the desired performance within the desired time. We would like to thank the management and staff of the Earle Brown Heritage Center and the representatives of the Brooklyn Center Economic Development Authority and the City of Brooklyn Center who provided assistance in this study for their ready cooperation and candor. SPETEMBER 24, 1993 MARQUETTE PARTNERS Stephen W. Sherf James M. Klas Vice President Associate Hospitality Consulting Group 700 Northstar East 0 608 2nd Ave. So. • Minneapolis, MN 55402 Phone: 612 - 333 -6515 • FAX: 612 - 338 -2216 +CI -- netw °k'M". EARLE BROWN HERITAGE CENTER OPERATIONS AND MARKETING REVIEW TABLE OF CONTENTS Letter of Transmittal Page BACKGROUND 1 CONCLUSIONS & RECOMMENDATIONS 2 FACILITY PROFILE 10 PERFORMANCE EXPECTATIONS 13 PROFILE OF BUSINESS 15 MARKETING ISSUES 22 OPERATIONAL ISSUES 25 COMMUNITY IMPACT 31 BACKGROUND Marquette Partners was engaged to study the operations and marketing efforts of the Earle Brown Heritage Center and to develop recommendations in these areas that will improve the financial success of the facility. To accomplish this P P objective, we have performed the following tasks: - Toured the facility; - Interviewed key management and sales personnel; - Reviewed historical operating results and utilization patterns; - Reviewed current staffing levels; - Reviewed event evaluation forms; - Interviewed five former users of the facility to gain greater insight into evaluation form comments; Interviewed seven potential users who have not yet tried the facility; and, - Gathered data on competing facilities to evaluate relative strengths, weaknesses and pricing policies. The recommendations which we have developed are presented in summary form in the following section. A detailed discussion of our findings, conclusions and recommendations for various facility components and operational and marketing issues is presented in the body of this report. -1- CONCLUSIONS AND RECO ATIONS Performance The Earle Brown Heritage Center consists of three components, which operate largely independently of one another. Although management is unified, providing certain operating efficiencies, each component provides, at best, limited support for the others. The Inn: Attractive and popular among users too small to support cost structure - to small to provide effective lodging support for the convention center The Convention Center: - Large, attractive primary space, popular for consumer shows and social functions (particularly with exterior grounds) Lack of lodging limits effectiveness as a convention facility Ancillary meeting space and technical capabilities inadequate for a pure conference center Operating subsidies typically required for facilities of this type The Office Space: - profitable, though not enough to balance losses in other components Tenant mix offers no significant support for other components • -2- Peoormance (continued) The Convention Center is the anchor of the complex. The initial feasibility study for the Convention Center clearly stated that operating subsidies would be required. This is typical for such facilities. This does not mean that a goal of breakeven operations is impossible. However, such a goal must be recognized as, ambitious and difficult to attain. Since various management changes have occurred, first for the overall complex, then for the Inn and most recently the catering arrangements, progress has been steady and encouraging. Certain "expenses" of the Earle Brown Heritage Center are effectively paper transfers within City accounts rather than actual cash costs. Only a fraction of the $42,000 overhead allocation paid by the complex for City administrative services represents actual increased cash costs to the City. In other words, if the Center did not exist, City administrative costs would change very little. In addition, real estate taxes of $63,000 are paid by the complex, some of which accrues to the City. Any payment to the City or expense allocation not based on a cash outlay is a transfer only. The City does not reap any true increase in revenue, nor are any operating costs actually reduced. The Earle Brown Heritage Center, in turn, does not in fact require subsidy for these amounts. Usage of the Center by the City is treated in the opposite manner from the administrative allocations and real estate taxes. The City does not currently pay for use of space at the Center. Payment by the City for space used would be a paper transfer in the same manner as the costs described above. Money would only be moving from one City account to another. However, the lack of payment, is inconsistent with the way that intra -city expenses are handled. Both consistency and a clear understanding of actual cash costs are recommended. Treatment of overhead allocations, taxes and City payment for facility use should be handled on a consistent basis, with either all reflected in the accounts or none. In either case, the difference between transfers and actual cash outlays should be clearly understood. -3- Revenue The Convention Center has a high fixed cost structure typical of such facilities. While the potential remains for further refinements in certain cost components, significant improvement in operating performance will require increased revenue rather than cost reduction. Convention centers have a practical maximum occupancy of 60 to 65 percent. The Carriage Hall achieves occupancy levels of over 70 percent on weekends. Otherwise no space at the Center achieves occupancies over 50 percent. Belgian and Morgan are used 15 percent of the time or less on weekdays. Potential for increased revenue is available from: Increased corporate business (motivational seminars, sales training and other less technical functions) Increased social functions, particularly corporate social functions Increased flat show business, particularly consumer shows • Primary potential for increased utilization comes from corporate and social segments. A 50 percent increase in corporate, wedding and social business would increase room rental revenue alone by over $109,000, based upon current averages. The physical capacity exists for such an increase. Achieving that level of growth will depend largely upon marketing efforts and price positioning. Increases in flat shows are likely to be limited. However, the average revenue per event for such business makes even a small increase valuable. Similarly, an increase in state association business is likely to have little impact on facility performance, although it would increase the economic impact of the Center upon the community as a whole. For the Inn, unlike the Convention Center, increased revenue will not, indeed cannot, yield a breakeven performance level under the cost structure in place. Successful boutique inns have restaurants which provide another source of revenue, in addition to room rental. Without a restaurant, the Inn cannot compete effectively with boutique inns in the area which have fine restaurants that complete the "getaway" experience. -4- • Revenue (ca wn.,d) The Inn is essentially a Bed & Breakfast facility, which is incapable even at 100 percent occupancy of supporting 24 -hour staffmg on an hourly wage basis, in addition to the other operating costs incurred by or allocated to the operation. Operations of this size are typically run by couples or families, often as a secondary rather than primary source of income. Sale or lease of the facility, assuming an interested parry could be found, is the only viable means of eliminating the losses at the Inn. An alternative which would allow the City to retain somewhat greater control would be a permanent live -in manager. This would reduce, but by no means eliminate operating losses. Management is also exploring the potential to create restaurant facilities at the Inn, which could further alter the performance profile. Reallocation of marketing dollars and other cost containment measures alone will have a only a limited impact. Marketing The total 1993 communications budget equals slightly over $140 000 g � > 28 percent of which is allocated to the Inn, commensurate with its proportion of total complex revenue. However, marketing expenditures for the Inn are of little incremental value at this stage in the project's evolution. While the Inn should be included as a tag on marketing for the Convention Center, actual cash expenditures for Inn marketing should be minimal and allocations should be eliminated. Marketing budgets should be developed based upon the needs and resources of the Convention Center. Over 75 percent of current business is generated from non - advertising related sources (word of mouth, attendance at prior events and people driving past the facility). Corporate and social functions are typically generated by direct sales efforts. However, awareness of the Earle Brown Heritage Center in the Twin Cities area is still limited, particularly outside of the northwestern suburbs. To increase utilization on a cost effective basis, several steps should be taken. -5- • Marketing (mw ..d) Reduce production costs for new material Refocus public relations efforts to attract high profile events to the Center likely to be attended by corporate executives and upper - income bracket individuals Place greater reliance on the recently expanded sales staff to generate business and increase awareness in the Twin Cities area - Reallocate advertising expenditures to increase Twin Cities awareness, particularly outside of the northwestern suburbs Improve highway signage in the immediate area to call more attention to the facility and its uses A reduction in total marketing costs and focus on direct sales and public relations events designed to bring key individuals and companies to the Center offers the best opportunity to improve facility performance. Consideration should also be given to changing the name of the complex from "Heritage Center" to more accurately reflect its actual uses. Pricing Pricing at the Convention Center is general competitive with other convention facilities in the Twin Cities. However, the division of catering from other facility costs and the policy of charging for nearly all equipment and ancillary services creates an unwanted perception that the facility is expensive. In addition, the administrative difficulties for users in planning and paying for functions with two different entities - Center management and D'Amico Catering, are a disincentive. Ad hoc efforts to package functions and increase cooperation between catering and Center management are a positive step but should be extended further. -6- Pricing (continued) Several packages should be developed with predetermined per - person prices. Packages should include specific catering menus, basic AN equipment and room rental, tailored for various types of functions and group sizes. Potential users should still have the option of designing their functions on an "a la carte" basis. However, prepackaging will streamline communications, eliminate false price perceptions and simplify sales efforts for many functions. It will also improve management's ability to ensure proper price positioning relative to the competition. Communications As referenced earlier, there are only limited opportunities to improve facility performance by reducing operating costs. However, the most effective way to identify costs which can be reduced and ensure appropriate margins as utilization increases is to improve the formal communication process during the preparation of • the annual budget and subsequent monitoring of performance. Informal communication takes place on a frequent basis within the full-time, on -site staff and between the staff and the City. Because of the gap between the time the annual budget is first prepared, the time it is fmalized and the actual operating year, specific formal communication policies are recommended. Facility management should be fully responsible for developing an initial budget with an agreed upon bottom line performance level - Budgets must be based upon all relevant data, including planned wage rates as well as hours Facility management should formally present the budget to representatives of the City and Economic Development Authority, with full documentation for each major cost and revenue category • -7- Communications (co w,,ucd) - The budget presentation should be scheduled to allow the City and Economic Development Authority adequate time for review Following review, comments, questions, required changes in overall targets and suggested adjustments in individual categories should be discussed between the City and facility management, prior to any actual changes in the proposed budget Following final budget approval, facility management should prepare forecasts on a monthly basis, reflecting current conditions The operating profile of the facility should be adjusted • based upon revised forecasts to ensure performance approximates overall budget goals as closely as possible Development of budgets for the following year should expressly consider actual and forecasted operating performance A clearer definition of bottom line responsibility for facility management and a more formalized process for budget development, adjustment and monitoring should aid both management and the City in achieving ultimate performance goals. -8- Community Impact Brooklyn Center is unique in having the only public exhibit hall/civic center facility in the Twin Cities suburbs. For outstate cities, exhibit halls are civic and economic focal points for the community, improving tourism, providing needed assembly space and enhancing community identity and quality of life. The Earle Brown Heritage Center provides similar benefits, not only for Brooklyn Center but for the northwestern metro area. Individuals and companies in the area are able to hold their business and social functions within the community, often when it would not otherwise be possible. Visitors attending those functions whether from within the Twin Cities or elsewhere have the opportunity to spend money at other businesses in the community and to become familiar with the amenities the community has to offer. The City itself has a focal point for festivals and gatherings. The impact of a facility like Earle Brown differs in a suburban setting, • from comparable facilities in outstate communities. By objective criteria, such as increased tourism spending, the impact is more limited. By subjective criteria, such as enhanced community identity, the impact is perhaps even greater. By either measure, the Earle Brown Heritage Center is an important community asset. Although they will have little effect on facility performance, continuing efforts to increase the value of that asset, through increased association business and increased community oriented activities, should continue to be an important part of the operating strategy of the complex. • -9- • FACILITY PROFILE The Earle Brown Heritage Center is a truly unique facility, or group of facilities, portions of which are not typically owned by a public entity. The Inn, office space and even the Convention Center are entrepreneurial ventures that function in a competitive environment. These circumstances create operational challenges which must be recognized. The Center consists of three components which operate largely independently of one another. Although management is unified, each component provides, at best, limited support for the others: The Inn The 11 -room Inn is attractively designed and furnished. Although its local market exposure is still somewhat limited, it is very popular with its users and has established a solid weekend demand base. More recently, businesses in the surrounding area have increased their usage of the Inn on weekdays, both for overnight guests and small meetings. Corporate usage has increased, in part due to a standardized corporate rate policy and increased marketing efforts. The Inn is designed to be, and functions well as, a bed & breakfast. It lacks adequate food and beverage facilities and is too small to function as a true boutique inn. Bed & breakfast facilities are typically run by couples and families with no payroll, limited marketing, and very low overall operating costs. Such facilities often provide secondary rather than primary income for their owners. In its current form, the Inn cannot support the cost structure under which it operates. There is still room to increase revenue, primarily through further increases in corporate weekday business. However, the payroll cost of a manager, supported by 24 -hour staffing, actual and allocated marketing costs and other operating costs which would be lower or non - existent in a private setting, exceed the revenue capacity of the Inn, even at 100 percent occupancy. The Inn also has far too few rooms to adequately support the Convention Center. • -10 Assuming an interested party can be found, sale or lease of the Inn is the only viable means of eliminating the operating losses entirely. An alternative which would allow the City to retain greater control would be a permanent, live -in manager. The reduction in payroll costs, combined with reduced marketing expenses and other cost containment measures could reduce, though not necessarily eliminate, operating deficits, if weekday utilization continues to improve. Management is also exploring the potential to create restaurant facilities at the Inn, which could further alter the performance profile. However, viable revenue growth and cost containment under the current structure are likely to have only a limited impact upon operating deficits at the Inn. The Convention Center The convention center is an attractive, accessible, average -sized exhibit hall with supporting space of mixed quality and utility. The Center is most comparable to civic center /exhibit halls in outstate cities, which are designed as multi- purpose facilities. The Center, in combination with its attractive grounds, is • most effective for consumer shows and large social events, including corporate parties, weddings, reunions and similar functions. Most such functions are weekend oriented. Comparable facilities in outstate cities often house conventions for smaller state associations and secondary meetings for larger groups. However, the Convention Center, without a sufficient number of adjacent hotel rooms, must function primarily on a day -use basis, unable to capture a significant share of the more lucrative multi -day conventions or large corporate meetings. The in -house technical capabilities of the Center are below the standards of corporate conference centers. In addition, the ancillary meeting space, particularly the smaller breakout rooms such as Belgian and Morgan, are of below average quality. While such characteristics are common for civic centers, they reduce the effectiveness of the Center in competing for the corporate day -use business which is its most viable weekday market. • -11- This does not preclude the capture of corporate demand. Indeed, the Center as been successful to-date in capturing corporate business and is continuing to increase its penetration. The facility is best suited to motivational seminars, sales training and various other types of non - technical functions, particularly for larger groups. Growth in corporate meetings combined with continued growth in social business represent the greatest potential for increased facility utilization. Efforts to increase flat shows and association business will also be valuable, since even a small increase in the number of functions would have a significant impact on revenue. However, they represent secondary, rather than primary sources of future growth potential. The recent changes in the catering arrangements will have a substantial, positive impact on Convention Center performance. The new arrangement should increase both the flexibility of Center management in pricing functions with catering components, and the overall catering revenue available. Close cooperation between Center management and the contract catering manager and a clear understanding of priorities will be important in capitalizing on the increased opportunities available. The Office Space The office component essentially operates completely independently of the Inn and the Convention Center. The profitability of the office space partially offsets the operating losses of the balance of the complex. However, the office space cannot g enerate sufficient operating profits alone to cover other facility components. On a long -term basis, attempts to attract tenants most likely to make use of other facility components is a desirable goal. Nevertheless, the office space is unlikely to provide significant direct support for the Inn or Convention Center. Maintaining its profitability should remain the primary goal. -12 • PERFORMANCE EXPECTATIONS Although the Earle Brown Heritage Center is comprised of three distinct components, the Convention Center is the anchor of the facility. The initial feasibility study for the Convention Center indicated that not only capital costs, but on -going operations, would have to be subsidized, which is the case with nearly all civic centers and exhibit halls. Communities support both the capital costs and a portion of the operating costs for such facilities in return for the benefits they provide to the community, such as jobs, increased tourism and associated spending. However, facilities of this kind are ideally located within walking distance of lodging facilities large enough to support them. Although it is less obvious, exhibit space in private facilities is subsidized as well. Function space in hotels and conference centers generates even less revenue directly than in public facilities. However, private hotels and conference centers can derive sleeping room revenue from meeting participants and attendees at various social events directly, because their lodging is connected. • Neither option is available to the Center, with only 11 rooms available under joint management and within walking distance. While the scenario would differ markedly if a full service hotel were located in close proximity, no such facility exists. Consequently, the Center is left primarily to compete for day business, which is more price sensitive and often requires the same amount of set -up time and administrative effort as a multi -day function. Therefore, this type of meetings business is the least profitable. Expectations of breakeven operations notwithstanding, the lack of synergy among the various facility components and the operating profiles typical of such facilities will make achieving such a goal difficult, although not necessarily impossible. The inability of the Inn to operate at a breakeven level has already been discussed. The Convention Center, as the anchor of the complex, will need to operate at or near a breakeven level for the complex as a whole to have any opportunity to achieve such a goal. -13- Trends in operating performance to date are moving in the right direction. However, the inflexible cost structure of convention facilities places the focus for improved financial performance on maximizing revenue. Despite some structural inefficiencies and certain cost centers which could be improved, increased revenue is the only realistic means to improve the financial performance of the Convention Center and the complex as a whole. Certain other considerations must be incorporated into any assessment of overall facility performance. While the Earle Brown Heritage Center's financial statements indicate that a subsidy in the approximate amount of $335,000 was required in 1992, this information alone is somewhat misleading. Much of the $42,000 overhead allocation of City expenses that have been absorbed by the Heritage Center should be considered as an offset, since actual costs to the city have not increased by anything approximating this amount. While it is true that the Heritage Center would need to pay for the services provided by the City if it were not City owned, it is. There are operating inefficiencies inherent in City ownership which have a negative impact on financial performance. Positive impacts should not be ignored. Further, $63,000 in real estate taxes are paid by the facility. Some, though not all, of which accrues to the City. Payments such as these are transfers, rather than actual cash outlays. The City has no more "spent" tax dollars to subsidize these expenses than it has received tax revenue or expense reimbursement from the complex. The net effect is zero. While there may be internal accounting and presentation issues which support the current structure, an accurate assessment of actual facility performance should include a clear understanding of real cash outlays versus internal transfers. On the other side of the equation, the use of Heritage Center facilities without reimbursement by the City should not be overlooked. This too is a positive impact of City ownership. For an accurate assessment of facility performance, the treatment of City usage should be consistent with the treatment of expense allocation and other payments to the City. -14- PROFILE OF BUSINESS The sources of business at the Convention Center in 1992, shown below, indicate that approximately half of rental income is derived from the corporate sector. Shows contribute six percent of the functions but over 20 percent of the rental revenue. 1992 BUSINESS COMPOSMON Percent Percent of Average Segment Events of To tal Rent Total Rent Rent/Event Corporate 200 58% $152,000 47% $760 Weddings 48 14 39,000 12 $804 Social 39 12 29,000 9 $742 Religious 32 9 25,000 8 $771 Show 19 6 68,000 21 $3,608 Other 5 1 9,000 3 $1,800 343 100% $322,000 100% $938 Source: Earle Brown Heritage Center Total revenue generally tracks closely with rental income on a month to month basis. However, the gap is narrowest in March, when ancillary revenue tends to be lowest, and greatest in December, when catering revenue is particularly high. These figures are illustrated graphically on the following pages. -15- 1992 BUSINESS COMPOSITION 200 5 19 32 39 Events Corporate Weddings 0 Social 0 Religious 0 Show Other Source: Earle Brown Heritage Center 1992 BUSINESS COMPOSITION $152,000 i i $9,000 $39,000 $29,000 $68,000 $25,000 Rent Corporate M Weddings 0 Social M Religious 0 Show Other Source: Earle Brown Heritage Center 1992 Revenue Comparison Total vs Room Rental Revenue 70 60 . . . .. . ......... ................. .................. .......... ........... - .......... ................................................ .......... ........................................................... 0 50 . ........... ............. ........................................... ................ ........................... I ............................ .................................. ................ ................................................................................................. 0 po F-4 40 . .......................... ............................. .... ........ .......... ....... .................................. ............. ........................................................ Nft� . 30 - ................ .............................................. ........................................................................................ ........................... ............................... I ............... .............................. 20 . ................. ................ ..... ........................................... . .... ... ...... ............... ........................ - .. ......... ......... ... ................................................. ...... ........ ..................................... .................. . . .................. 10 . . . ............................. ......... ...... . .................... ............................................................................................ ...................... I ................ ..... .. .......................................... .............................................. ..... .... ..... . ..... . - 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Months Total Revenue Room Rental Revenue Source: Marquette Partners 1991 Revenue Comparison Total vs Room Rental Revenue 70 60 ...... ...... ........ ...... .............. _ . .. ....... rA O 50 .......... .......... - .......... _ ........ .................... _ ........... _ .......................................... ..... ......... .......... ........................ ............ E,.,,40 _. 0 30 20 .......�� ....... ..... 10 O A 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Months Total Revenue Room Rental Revenue Source: Marquette Partners Usage records (shown below) indicate that even the most popular rooms are used less than 50 percent on weekdays. Utilization on weekends is generally, though not entirely, higher. Utilization figures are also presented graphically on the following page. Overall occupancy at the Center was 44 percent in 1992, up from 33 percent in 1991, according to Center records. 1992 CONVENTION CENTER FACII.ITIES UTII.IZATION Room Weekday Weekend Utilization Utilization Carriage A 41% 68% Carriage B 44 78 Captain's 46 44 Estate 46 44 Tack A 34 40 Tack B 29 39 Belgian 13 27 Morgan 15 37 Blacksmith 25 16 Source: Earle Brown Heritage Center, adapted by Marquette Partners Unlike office buildings or even hotels, convention facilities are structurally incapable of achieving 100 percent occupancy for all available space. A practical overall capacity for a facility of this type is 60 to 65 percent. With the exception of the Carriage Hall on weekends, no component of the Convention Center approaches such utilization levels. Indeed the capacity exists for an increase in overall utilization of 50 percent above current levels. It is this excess capacity which must be filled to enable the Convention Center, and the complex as a whole, to achieve the financial performance desired. -20- 1992 Convention Center Facilities Utilization 0.9 0.8 0.7 0.6 0 0.5 0.4 03 0.2 0.1 0 Carriage A Captain's Tack A Belgian Blacksmith Carriage B Estate Tack B Morgan Meeting Space Weekday Utilization Weekend Utilization MARKETING ISSUES The Earle Brown Heritage Center is in the process of successfully establishing its position among the various exhibition and conference facilities available in the Twin Cities area. Its facilities complement dictates that it focus on day meetings, social events, exhibitions and shows. It takes several years to fully develop such business and to begin to benefit from repeat business and word of mouth experience. Business has improved at the Convention Center each year since opening, a trend which is continuing in 1993. Review of the Center's previous advertising budgets indicates efforts to promote the facility have been spread locally, regionally and nationally. In 1992, $11,800 was spent on national media, $3,800 on regional media and $17,600 was spent on local advertising. 1992 MARKETING BUDGET Convention Center Communications 1992 Budget Allocation: $96,825 Target Market Media Budget Percent Local Corporate $17,000 52.0% Regional Corporate 4,000 12.0 National Corporate 12,000 36.0 $ 33.000 100.0 Wedding $2,000 Trade Shows $1,500 Associations $1,200 Inn On The Farm Communications 1992 Budget Allocation: $31,825 -22- The total communications budget for 1993 is $140,285, of which 72 percent is focused on the Convention Center and 28 percent is focused on the Inn. While this split is in proportion to the revenues generated by each operation, the Inn cannot afford extensive marketing, as previously discussed, and will benefit little from such efforts. The Center, on the other hand, can increase its business by another 40 to 50 percent and significantly improve its financial performance, before it begins to encounter capacity constraints. Advertising expenditures notwithstanding, review of the comment cards from users of the Center reveals that the vast majority of the bookings originated from three sources: familiarity through attendance at a prior event (35 %) word of mouth ( 24 %) people driving past the facility (18 %) • It is important to note that none of these categories is directly related to advertising efforts. It appears that people are impressed with the facilities, once they have the opportunity to visit the Center; a notion that was confirmed by the sales personnel that we interviewed. In addition, all of the categories above clearly pertain to business from local sources. The interviews we performed to gather information on the general awareness of the Center among Twin Cities area corporations revealed a relatively low awareness among meeting planners. While, generally, companies prefer to stay in the area of their business, larger corporations, such as 3M, Honeywell and others, hold meetings at facilities throughout the metropolitan area, including the Riverwood Conference Center approximately 30 miles west of the Twin Cities. -23- Due to the easy access provided by I -694 and I -94, all companies near the northern loop of the beltway, as well as downtown Minneapolis can be targeted for corporate meetings business. This promotion is most effectively accomplished by direct contact by sales personnel, rather than through advertising. Public relations events designed to attract key individuals are another useful tool. The Heritage Center has an extensive selection of high quality marketing materials already developed. Consequently, future production costs should be lower than historic levels. Increased emphasis on direct sales efforts and targeted public relations events should further reduce the reliance on advertising. Remaining advertising dollars should be reallocated to focus primarily on increased awareness within the greater Twin Cities area. This should include improved signage, to the extent possible, along highways adjacent to the complex. The key in all cases is to attract potential users to the facility. The facility clearly sells itself. In addition, the strongly positive tenor of comment cards indicates that users are satisfied, not only with the facility, but with the service they receive. Opportunities to display the quality of facilities and service at the Center must be maximized to build utilization to a practical capacity and provide the greatest potential for breakeven performance. Consideration should also be given to changing the name of the complex from "Heritage Center" to a more accurate and informative, or at least less misleading moniker. Current marketing efforts are forced, not only to create awareness, but often to overcome confusion. • -24- OPERATIONAL ISSUES Labor Costs Overall labor costs are high at the Convention Center on a proportional basis, due to the relatively low business volume. The Center does not appear to be over- staffed, either with full-time or part -time personnel. The nature of a convention center requires a high fixed cost of operations which cannot be reduced when business is slow. In addition, higher hourly wage rates are paid by the City than are typically paid in the industry, which creates another structural inefficiency. On average, hourly wage rates are approximately 15 -20 percent above industry averages, which translates into an additional cost of $7,000 for the first seven months of 1993 at the Convention Center. The graphs on the following pages illustrate the relatively fixed nature of labor costs at the Center. Total payroll typically ranges between $20,000 and $30,000 per month, regardless of business volume. As emphasized previously, such a cost structure requires increases in revenue to substantially improve bottom line performance. • Coordination and Pricing The separation of the catering component from the balance of the facility has caused operational difficulties historically. Under the new arrangements with D'Amico, the difficulties have been partially mitigated. However, additional steps need to be taken. During the initial planning stages, when the sale is made, simplicity is one of the critical factors in completing the sale. Event planners, regardless of the type of function, want clear communication, clear pricing, and streamlined planning. Similarly, invoices issued at the conclusion of an event are the last point of contact for the function, leaving a lasting impression. Again, both clarity and price perception are important. • -25- 1992 Operational Comparison 50 Payroll vs Room Rental Revenue 40 30 0 rA A E' 20 10 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Months Payroll ME Room Rental Revenue 1993 Operational Comparison 60- Payroll vs Room Rental Revenue 50- 40 30 �o F+ A j 20 10- 0 LL -L.— Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec Months D Payroll = Room Rental Revenue • Although it is common to deal with caterers in addition to the sales representative who coordinates the overall function, the need for separate contracts and separate invoices is uncommon and introduces undesirable complications. In addition, separate pricing for the catering component and space rental, combined with add -on charges for essentially all ancillary equipment and services, creates an unwarranted perception that the Center is expensive. The Center is, in fact, competitively priced for typical meetings, once all of the costs are added together and spread over total attendees. The Center is most competitively priced for larger groups. However, the lack of packaged pricing on a per- person basis makes it difficult for a customer to make an appropriate comparison, difficult even to determine overall cost in some cases. Both the pricing concerns and the coordination problems faced by customers in dealing with two entities are already being alleviated on an ad hoc basis by facility and catering management. Contracts and invoices are being mailed together when possible. Representatives of the caterer and Center make an effort to meet with users together. These efforts should be strengthened and expanded to develop a variety of packages to meet the needs of different types of users for • different types of functions. There will always be customers who do not fit standard criteria and need to make arrangements on an a la carte 'basis. However, for the majority of patrons, prepackaged options will make the decision to use the Heritage Center much easier to make. Facility management and catering management should work together to develop standardized packages, including menu options, space rental and basic equipment, at pre-set prices on a per - person basis. Discounts for larger groups can be built into the packages. Packaging will strengthen the sales effort at the initial point of contact and reduce the potential for miscommunication. Although rental income will vary to a greater degree from group to group and may, in some cases, be lower, the offsetting improvements in customer service and simplified sales efforts should boost overall utilization. • -28- COMPETITIVE ANALYSIS IDS Northland Thunderbird Radisson Convention Market A tribute Earle Brown Oak Ridge Inn Riverwood Hotel South Center. Square Day Rate No inclusive $55 $60 $50 none none none none Room Charge Flat charge Included $99 Included Based on Based on Based on Based on rooms and rooms and F &B F &B F &B F &B A/V Rented Included Included Included Rented Rented Rented Rented Meals Charge Breakfast Continental Breakfast Charge Charge Charge Charge Lunch breakfast Lunch Breaks (2) Lunch Breaks (2) Breaks (2) Source: Marquette Partners Communication At present, the Center manager submits a budget in June to the City and Economic Development Authority, along with documentation for their review. The City and Authority make revisions based on their interpretations and constraints and then. submit the budget for city council approval in November or December. During this process, there is little formal contact between management and the City, so that both parties are making decisions without complete information. For example, hourly labor is budgeted in terms of hours only by the manager, without the wage rates, which are added later by the City. Also, revisions to the budget may be made by the City without prior consultation with the manager. In order to effectively control facility performance, management must be fully responsible for bottom line performance and must have the necessary information to plan and execute performance goals. Budgets should be prepared by management to meet a specific bottom line target, agreed upon in advance. Submission of the budget should include both written documentation and oral presentation in a formal setting, to explain the reasoning behind key figures. Adequate time must be available for review and revision. Following review, any necessary adjustments should be made in coordination with management to ensure their full knowledge, understanding and ability to execute. However, a more formalized budget development process is only the first step. Due to the time lag between budget development and the period covered, operational and market circumstances can and do change. To ensure that the budgeted performance goals are met despite the changing circumstances, a regular forecasting process on a monthly basis should be developed to enable management to foresee potential problems - or opportunities. Such a process has the added advantage of improving the available information for preparing future budgets. Refinements in the process for developing and monitoring operating budgets will do more than simply help ensure costs are controlled effectively. As mentioned several times in this report, cost control is only a small part of the effort needed to improve facility performance to the desired degree. Refinements, particularly in forecasting on a regular basis, will improve the ability of management to react to changing market conditions to maximize revenue as well as control costs. -30- • CONIN MTY IMPACT The spending and income generated by the Earle Brown Heritage Center and the enjoyment of its use benefit residents and businesses, not only in Brooklyn Center, but throughout the northwestern suburbs. Brooklyn Center is unique among Twin Cities suburbs in having a multi -use public facility. Not even Bloomington, with its extensive array of hotels, offers a similar facility. While several Twin Cities area hotels have function space of equal or greater size, none are located in the northwestern suburbs and few are as well designed for exhibit oriented functions. Indeed, it is highly unlikely that a facility comparable to the Convention Center would be developed elsewhere in the northwestern suburbs by either private or public entities. The Convention Center provides the same subjective benefits as comparable facilities in outstate cities. It serves as a focal point for community identity and a gathering place for a wide variety of events, both public and private. Residents of Brooklyn Center can meet, shop and celebrate within their own community, often when the only alternative would be facilities in other parts of the metro area. Facilities such as the Center add to the attraction of the community for both prospective residents and businesses. The Center provides objective benefits to the community as well. Full- time and part -time employment opportunities are available to area residents. Visitors to various functions, whether corporate, social, consumer show or other, come from throughout the Twin Cities and even greater distances, spending their money not only at the Center, but at surrounding hotels restaurants and shops. Even those who do not make purchases outside of the facility in connection with the function they attend gain an increased familiarity with the City and the many things it has to offer. The Inn is also effective in attracting additional spending to the community. Although a large proportion of corporate demand accommodated at the Inn could easily choose other lodging within the City, weekend get -away business and other tourist demand attracted to the Inn would be unlikely to stay in Brooklyn Center if the Inn were not available. Such visitors are very likely to visit restaurants and shops in the surrounding area. • -31- As mentioned previously, cities support the development and on -going operations of multi- purpose facilities such as the Heritage Center for the economic and civic benefits they provide. Although they are not expected to have a significant effect on the financial performance of the Heritage Center, continued efforts to increase association business, exhibitions and community events are valuable for the impact they can have on the surrounding community. Promoting the Center to state associations should not only be the job of Center management, but of the Convention & Tourism Bureau as well. The possibility of Brooklyn Center developing its own convention and visitors bureau has been raised in the past. Such a move would be designed to focus staff and financial resources more closely upon developing potential convention demand. While the suggestion was made that the word "Heritage" was not the most accurate representation of the facilities and services the Center has to offer, it is accurate in one important respect. The Earle Brown Heritage Center is a part of the historical and cultural heritage of the City of Brooklyn Center. In developing and • maintaining the Center, the City as a whole continues to preserve that heritage in a manner which also provides concrete benefits to the community on an on -going basis. • -32- CITY 6301 SHINGLE CREEK PARKWAY OF B ROOKLYN BROOKLYN CENTER, MINNESOTA 55430 TELEPHONE: 569 -3300 C ENTER FAX: 569 -3494 EMERGENCY - POLICE - FIRE 911 MEMORANDUM TO: Mayor Todd Paulson Council Members Gerald G. Splinter, City Manager Charles R. Hansen, Finance Director . FROM: Mark P. Parish, City Assessor DATE: November 5, 1993 RE: Truth in Taxation Notices Proposed Pay 1994 Tax Rates • Attached for your reference is an example of the Truth in Taxation Notices that will be mailed by Hennepin County in the next two weeks. This sample is from a residential property in the City of Shorewood; however, the notice that will be mailed to each property owner in Brooklyn Center will follow the same format. On this sample notice, the increase was significantly impacted by a ten percent increase in the taxable market value. Hennepin County has provided us with proposed tax rates for pay 1994. Below is a table comparing the overall tax rates from pay 1993 to pay 1994. School District Pay 1993 Pay 1994 Percentage Change ISD 011 130.143 129.613 -0.41% (Anoka Hennepin) ISD 279 132.469 140.355 +5.95% (Osseo) ISD 281 129.328 138.806 +7.33% (Robbinsdale) ISD 286 134.529 130.929 -2.68% (Brooklyn Center) Gerald G. Splinter Mayor Todd Paulson Council Members November 5, 1993 Page Two Roughly speaking, properties in half the community, or two of the four school districts, will see stable or modestly declining overall tax liabilities. However, properties located in the other half of the community, or two of four school districts, will experience increases of roughly six to seven percent. Individual property experiences will also be dependant on market value changes for that property. As you can see from the example of the Truth in Taxation Notice, the total tax statement will be broken down by jurisdiction. Therefore, the City of Brooklyn Center will be indicated as an increase for all properties regardless of school district. Therefore, we may experience some concern from residents located in School Districts 11 and 286, despite the fact that their overall tax liability will likely decline. However, I would anticipate most concern will be from owners located in School Districts 279 and 281, as they will likely experience overall increases, not simply increases in one or more of the components. Also attached for your review is a comparison of tax rates, payable 1993 to proposed payable 1994, for various municipalities, Hennepin County, and special taxing districts. If there are any questions on this material, please contact me at 569 -3355. • MPP:kjm Attachments: Truth in Taxation Notice Tax Rate Comparison • RECD NOV 0 2 1993 �. Your Proposed Progrt Tax for 1994 i p p Y The amounts of property tax shown below are being proposed by your county, city /town, school district and metropolitan special taxing districts. The market values shown below are final and are not a subject for the upcoming budget hearings. They were discussed at the local board of review and county board of equalization hearings held earlier this year. The final market value for 1994 may reflect reduction under the new limited value law. lo w Final 1992 Market Value for 1993 taxes: 211,900 HOMESTEAD Final 1993 Market Value for 1994 taxes: 233,100 HOMESTEAD PID NO: MUNIC 26 Your county board of commissioners, your school board and your city council or township electors and the metropolitan special taxing districts (Metropolitan Council, Airports Commission, Transit Commission and Mosquito Control District) will hold meetings soon to decide on the amount of property ` taxes to collect in 1994 to pay for services they provide. The county board and city council or township electors and metropolitan special taxing districts will also discuss their proposed budget for 1994 and the school board will discuss its budget for the current school year. The discussion will describe the increases or decreases of the total budget, including employee salaries and benefits and the costs of consultants and other independent contractors for the prior year, current year and the proposed budget year. The first column of figures below shows the 1993 property tax you paid to your county, school district, city or town, and special taxing districts. , The second column of figures below shows the total amounts of property tax your county, school district and city or town and metropolitan special taxing districts will collect from you in 1994 if they approve the property tax amounts they are now considering. Any upcoming referendums, legal judgments, natural disasters and special assessments could result in increasing these amounts. i The amounts shown below for other special taxing districts - such as watershed districts - are the totals for all other special taxing districts in which your property is located. No meeting is required for these districts. Your county commissioners, school board members and city council or township electors, and metropolitan special taxing districts invite you to attend their meetings at the times and places shown below to express your opinions on the proposed property tax amounts for 1994. If you cannot attend the ° meetings, you may send your comments to the addresses listed below in the left hand column. Increase or Percent of Your Property Tax Property Tax Proposed Decrease Increase Budget Hearing Dates For 1993 _ For 1994 Over 1993 or Decreas Times 8 Locations County of Hennepin HENNEPIN COUNTY $1,273.76 51,499.02 225.26 17.77 DEC 14, 1993 5:30 PM A2400 GOVERNMENT CTR COMMISSIONER BD ROOM. ' MINNEAPOLIS MN 55487 A2400 GOVERNMENT CTR 348 -3011 MINNEAPOLIS MN 55487 i City of SHOREWOOD $731.63 5801.29 69.66 9.5% NOV 30, 1993 7:15 PM SHOREWOOD CITY HALL SHOREWOOD CITY HALL 5755 COUNTRY CLUB RD 5755 COUNTRY CLUB RD SHOREWOOD MN 55331 SHOREWOOD MN 55331 474 -3236 School District 276 Excess Referenda Tax $865.18 $954.83 89.65 10.4% DEC 02, 1993 7:30 PM Remaining Tax: 11,782.99 52,114.33 331.34 18.6': EXCELSIOR ELEMENTARY MINNETONKA SCHOOLS 441 OAK ST 261 SCHOOL AVE EXCELSIOR MN 55331 EXCELSIOR MH 55331 470-3431 Special Taxing Dist Metro. Spec Taxing Districts: $136.85 $257.72 120.87 88.37. NOV 29, 1993 5:00 PM METROPOLITAN COUNCIL METROPOLITAN COUNCIL 230 FIFTH ST EAST MEARS PARK CENTRE ST PAUL MN 55101 230 FIFTH ST EAST 291 -6359 ST PAUL MN 55101 Other Spec. Taxing Dist: $68.33 $70.93 2.60 3.8% No meeting required Fiscal Disparity Tax: No meeting required Tax Increment Tax: No meeting required Totals (Excluding S pecial Assessments) $4,858.74 $5,698.12 839.38 17.3% THIS IS NOT A BILL - DO NOT PAY MUNICIPAL TAX RATE CHANGES PAY 1993 TO PROPOSED PAY 1994 MUNICIPALITY PAY 1993 PROPOSED 1994 PERCENT CHANGE Brooklyn Center 23.969 27.897 16.39% i Brooklyn Park 22.315 25.645 14.92% Bloomington 22.785 25.040 9.90% Crystal 23.353 25.143 7.66% Edina 15.092 16.199 7.34% Golden Valley 25.963 26.337 1.44% Hopkins 26.356 27.638 4.86% Maple Grove 24.567 25.239 2.74% Minneapolis 33.034 34.787 5.31% Minnetonka 20.189 20.428 1.18% New Hope 22.358 24.878 11.27% Plymouth 17.390 16.007 - 7.95% Richfield 24.421 25.918 6.13% Robbinsdale 21.439 22.091 3.04% Other Districts Hennepin County 35.839 37.652 5.06% Metro Transit 3.571 3.626 1.54% Brooklyn Center HRA 0.576 0.572 -0.69% Other Special .( Mosquito, Met Cncl, Parks 2.471 2.619 5.99% p:\ depts\assess lspredsht\mppunboxUnunitax.xls 11/5/93