Line of Credit Guarantee -
Theatre Passe Muraille
The Corporate Services Committee recommends the adoption of the following report (September18, 1998) from
the Commissioner, Economic Development, Culture and Tourism:
Purpose:
This report seeks approval for an extension of the former Metropolitan Toronto's guarantee of a line of credit for Theatre
Passe Muraille, in the amount of $140,000.00. This is reduced from the amount of the current guarantee of $150,000.00.
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 $140,000.00 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 Theatre Passe Muraille's bank for a guarantee of the line of credit
in the amount of $140,000.00 for the period from January 1, 1999, to December 31, 2001, on terms and conditions
satisfactory to the Solicitor and Chief Financial Officer and Treasurer;
(2)authority be granted to enter into an agreement with Theatre Passe Muraille with respect to the line of credit guarantee
on terms and conditions approved by the Solicitor, the Chief Financial Officer and Treasurer and the Commissioner of
Economic Development, Culture and Tourism, including the taking and registration of any security interest against the
assets and property of Theatre Passe Muraille as considered appropriate by those Metropolitan officials in order to protect
the interests of the City of Toronto; and
(3)the appropriate officials be authorized to take the necessary action to give effect thereto.
Council Reference/Background/History:
Theatre Passe Muraille (TPM) was founded in 1968 as one of the first alternative theatres in Toronto and Canada. The
company evolved from its original setting within Rochdale College in Toronto with a mandate to create a distinctly
Canadian voice in theatre. It is now housed in a self-owned facility with a 220-seat mainstage and 65-seat smaller stage at
16 Ryerson Avenue, in the vicinity of Queen and Bathurst Streets.
Now in its thirty-first season of operation, TPM celebrates the creation of over 300 plays and continues to be a leader in
the theatre community. It continues to provide innovative, challenging drama, reaching about 22,000 audience members
annually while employing 18 staff and 60 contract personnel.
TPM's 1997/98 operating revenues totalled $850,750.00 at fiscal year-end, June 30, 1998. Its combined annual operating
grant from the former City of Toronto and former Metropolitan Toronto is $132,400.00 or 15.6 per cent. of total revenues.
Other governments' support for the operations totalled $327,175.00. The company generated $297,109.00 in earned
revenue and $56,600.00 in donations, sponsorships and other private sector revenue. In addition, a philanthropic gift of
$50,000.00 was provided to the group and has been committed to next year's operations.
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 Young People's
Theatre were recipients of such guarantees. To date, none have defaulted upon loans during the course of their agreements
with Metropolitan Toronto, which through amalgamation have now become agreements with the City of Toronto. The
Canadian Stage Company's guarantee expired in June 1996, as planned. Young People's Theatre's was recently extended
by the City of Toronto to October 31, 2001. Theatre Passe Muraille was the recipient of a guarantee in the amount of
$150,000.00, which is due to expire December 31, 1998 and is the subject of this report.
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. The three-year period was also intended to allow the companies sufficient time to make alternative
arrangements. Three theatre companies, Canadian Stage Company, Young People's Theatre and Buddies in Bad Times
Theatre were recipients of this funding. Theatre Passe Muraille received a $25,000.00 grant to replace the working capital
loan it had received previously.
In 1996, the former City Council provided new line of credit guarantees to Young People's Theatre 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, one-time grants were provided to Young People's Theatre and Buddies
in Bad Times Theatre.
Discussion:
The former Metropolitan Toronto has guaranteed a portion of TPM's line of credit since 1997. The current guarantee of
$150,000.00 expires on December 31, 1998. The group is now requesting that the City of Toronto guarantee its line of
credit in the amount of $140,000.00 from January 1, 1999 to December 31, 2001.
TPM's accumulated deficit at the end of its 1997/98 season was approximately $114,000.00, about 13.0 percent of
operating revenues, reduced from a high of $229,000.00 in 1991. Factors contributing to the deficit include the
responsibility of facility ownership and upkeep, reduced government support and slow implementation of a fundraising
strategy.
The company's current financial status is relatively healthy. For the second consecutive year, the company will report an
operating surplus. This year's surplus, in the amount of $11,000.00, represents the largest in the company's history. The
general manager and board of directors have submitted a business plan with three major elements designed to put the
theatre on solid financial footing. The plan includes running certain productions in repertory, resulting in longer runs of
commercially successful shows and lower production costs. It also includes increasing ancillary revenues through rentals
of newly refurbished spaces and targeted marketing of individual donors, a segment showing the most growth in recent
years.
The proposed extension of the City's guarantee of TPM's line of credit would accomplish three objectives. First, it would
alleviate a cash flow crunch and potential crisis. Second, it would reduce the company's borrowing costs because the bank
normally provides a lower interest rate when security is provided by the City. Third, it would allow the company to
implement its business plan with the goal of deficit reduction and establishment of a working endowment over five years.
The bank will continue TPM's line of credit in conjunction with the City's guarantee.
In order to monitor TPM'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 TPM line of credit guarantee will be considered a financial obligation of the City. As such the Chief Financial Officer
and 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:
Staff has initiated work on the development of a policy approach to the issue of the City's guarantee of cultural
organizations' lines of credit, as per Council's directive at its meeting on July 29, 1998 (Corporate Administration Report
No. 11, Clause No. 9). The goal of the policy, which is to be developed jointly with staff of the Solicitor and Treasurer
and Chief Financial Officer, will be to provide a service of value to the cultural community at the same time as limiting
financial exposure to the City. Guidelines and criteria for evaluating requests will streamline the process, ensure equity
and prevent crisis management. The policy will be submitted to Council for approval later in the fall. Approval is being
sought for the guarantee of TPM's line of credit at this time to allow for time for negotiations with the bank and an
adequate planning period for the company.
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. As a leader in its community for producing innovative, distinctly Canadian
theatre, Theatre Passe Muraille is a national and local cultural asset. Provision of a line of credit guarantee as requested
will ensure short-term survival and allow longer-term stability for the company. The company has demonstrated
competent management and good will by reducing the amount of its required security. Staff will continue to monitor the
status of the deficit. The Chief Financial Officer and Treasurer concurs with the financial aspects of this report and the
Solicitor is satisfied with the legal requirements.
Contact Name:
Irene Bauer, Culture Office, Economic Development, Culture and Tourism - 392-5225.