Date:June 26, 1998
To:Corporate Services Committee
From:Commissioner, Economic Development, Culture and Tourism
Subject:Line of Credit Guarantee - Young People's Theatre
Purpose:
This report seeks approval for an extension of the former Metropolitan Toronto's guarantee
of a line of credit for Young People's Theatre, in the amount of $250,000.00. This is reduced
from the amount of the current guarantee of $260,000.00.
Funding Sources, Financial Implications and Impact Statement:
Issuance of a line of credit guarantee is considered a financial commitment of the City. A
commitment of $250,000.00 is within the updated Debt and Financial Obligation Limit of
the City of Toronto.
Recommendations:
It is recommended that:
(1)authority be granted to enter into an agreement with Young People's Theatre's bank for a
guarantee of the line of credit in the amount of $250,000.00 for the period from November 1,
1998 to October 31, 2001, on terms and conditions satisfactory to the Solicitor and Chief
Financial Officer/Treasurer;
(2)authority be granted to enter into an agreement with Young People's Theatre with
respect to the line of credit guarantee on terms and conditions approved by the Solicitor, the
Chief Financial Officer/Treasurer and the Commissioner of Economic Development, Culture
and Tourism;
(3)the Commissioner of Economic Development, Culture and Tourism be directed to report
on an appropriate policy regarding line of credit guarantees for cultural organizations, in
consultation with the Solicitor and Chief Financial Officer/Treasurer; and
(4)the appropriate officials be authorized to take the necessary action to give effect thereto.
Council Reference/Background/History:
Young People's Theatre (YPT) was founded in 1966 as the first professional theatre
company for young people in Canada providing touring productions to Toronto elementary
and secondary schools. The activities of the organization include theatrical productions for
family and school audiences, touring productions for in-school presentation, a theatre school
for young people, teacher training programs and new play workshops.
Now in its thirty-second year of operation, YPT is an important cultural organization in
Toronto, reaching about 100,000 people in schools and at its theatre annually. The company
employs 16 full-time staff, 80 part-time staff and contract staff and has attracted 80
volunteers.
YPT's 1997/98 operating revenues will total $2,433,200.00 at fiscal year-end, June 31,
1998. Its combined annual operating grant from the former City of Toronto and former
Metropolitan Toronto is $288,600.00 or 11.9 per cent. of total revenues. Other governments'
support for the operations totalled $570,400.00. The company generated $1,073,300.00 in
earned revenue and $464,600.00 in donations, sponsorships and other private sector revenue.
In addition, a philanthropic gift of $50,000.00 has recently been committed to the group.
Comments and/or Discussion and/or Justification:
Municipal History of Line of Credit Guarantees:
The former Metropolitan Toronto's activity in the area of line of credit guarantees to
cultural organizations was relatively limited. Since 1990, three theatre companies, the
Canadian Stage Company, Theatre Passe Muraille and YPT were recipients of such
guarantees. To date, none have defaulted upon loans during the course of their agreements
with Metropolitan Toronto, which have through amalgamation now become agreements with
the City of Toronto. The Canadian Stage Company's guarantee expired in June 1996, as
planned. YPT's was previously extended to October 31, 1998 and is the subject of this
report. Theatre Passe Muraille's was previously extended to December 31, 1998 in the
amount of $150,000.00.
The former City of Toronto adopted a policy in 1992, whereby operating or working capital
loans or lines of credit guarantees would no longer be provided as a means of financial
support to community groups. Rather, grants would be provided through an established grant
program if deemed to be in the interest of the municipality. The strategy was intended to
phase out the existing line of credit guarantees over a three-year period and thereby
eliminate the City's contingent liability. In order to diminish the impact on three theatre
companies, including YPT, grants were provided to each group over a three-year period to
replace the lines of credit. The period was also intended to allow the companies sufficient
time to make alternative arrangements. The last of the payments to YPT was made in August
1994.
In 1996, the former City Council provided new line of credit guarantees to YPT and
Buddies in Bad Times Theatre. The issue of lines of credit was referred to the Board of
Management for a subsequent report on a recommended policy direction. In January 1997, a
one-time grant of $150,000.00 was provided to YPT to be applied against the line of credit
guarantee and a similar grant was provided to Buddies in Bad Times.
Discussion:
The former Metropolitan Toronto has guaranteed a portion of YPT's line of credit in
diminishing amounts since 1993. The original guarantee was approved on February 17, 1993
in the amount of $350,000.00. Most recently, Council approved a two-year guarantee of
$260,000.00 that expires on October 31, 1998. The group is now requesting that the City of
Toronto guarantee a $250,000.00 line of credit from November 1, 1998 to October 31, 2001.
YPT's current financial status is relatively healthy. For the second consecutive year, the
company will report an operating surplus. A surplus of $102,000.00, including the
$50,000.00 gift as a receivable, shows at this fiscal year-end which was recently changed
from August 31 to June 31. Application of a twelve-month period from September 1, 1997
to August 31, 1998 shows a $62,000.00 surplus. The year's results would have been even
more positive if it were not for the Ontario teachers' strike last fall which severely affected
school box office revenues.
The accumulated deficit has been reduced from a high of $1.3 million in 1991 to
approximately $306,000.00. Steps taken in recent years to reduce the deficit include the
assignment of increased responsibility and authority of the Controller in all areas of
business, establishment of a Financial Committee to monitor finances, elimination of off-site
office and storage space, and pursuit of a name donor for the theatre. The recently hired
general manager and artistic director have committed to a deficit reduction goal of
$50,000.00 per year. Details of the strategy are outlined in the attached correspondence from
the YPT Board Chairperson.
The proposed extension of the City's guarantee of YPT's line of credit would accomplish
two goals. First, it would alleviate a cash flow crunch and potential crisis, pending box
office results and other unforeseen circumstances. Second, it would allow the new general
manager, new artistic director and board adequate time to further reduce, and possibly erase,
the deficit, allowing the company to eliminate its line of credit with the bank. The bank is
willing to continue YPT's line of credit in conjunction with the City's guarantee.
In order to monitor YPT's progress with deficit reduction, staff will require bi-annual status
reports from the company. In addition, the group's 1999 Cultural Grant from the City
through the Toronto Arts Council will be contingent on submission of satisfactory deficit
reduction information.
The YPT line of credit guarantee will be considered a financial obligation of the City. As
such the Chief Financial Officer/Treasurer's approval will be sought on the terms and
conditions of the agreement regarding the line of credit guarantee.
Line of Credit Guarantee Policy Development:
Through the provision of such line of credit guarantees in the past, the former City of
Toronto and Metropolitan Toronto were able to assist with the survival and financial health
of important organizations forming part of the cultural infrastructure of the City. In the case
of the former Metropolitan Toronto, this was done without incurring any financial cost.
Given the number of requests for line of credit support received in the past decade, the need
for support in this area clearly exists. Guidelines and criteria for evaluating requests would
streamline the process, ensure equity and prevent crisis management. As part of the
development of a cultural policy for the City, my staff will investigate and recommend a
policy approach to the issue.
Conclusion:
The City of Toronto, as the second largest theatre centre in the North America and third
largest English-speaking theatre centre in the world, derives considerable benefit from the
presence of the not-for-profit theatre companies, both in terms of quality of life and
economic impact. YPT has significantly reduced its accumulated deficit during the time its
line of credit has been guaranteed. The company has demonstrated competent management
and good will by progressively reducing the amount of its required security. Staff will
continue to monitor the status of the deficit. The Chief Financial Officer/Treasurer concurs
with the financial aspects of this report and the Solicitor is satisfied with the legal
requirements.
Contact Name:
Kathleen Sharpe, Interim Functional Lead, Arts, Culture and Heritage - 392-5225.
Joe Halstead
Commissioner of Economic Development, Culture and Tourism