STAFF REPORT

November 10, 1999

To: Budget Advisory Committee

From: Chief Financial Officer and Treasurer

Subject: Toronto Zoo Over-expenditures

Purpose:

The following report contains information pertaining to Zoo budget over-expenditures for 1999.

Financial Implications and Impact Statement:

Zoo management is anticipating a year-end net over-expenditure of $1.35 million due to revenue shortfalls of $2.19 million from decreased visitor attendance. Expenditure reductions of $0.84 million have occurred, but are not sufficient to offset the revenue shortfall.

Recommendations:

It is recommended that:

(1) The General Manager and Chief Operating Officer of the Toronto Zoo ensure that the attendance and revenue projections used for its 2000 Operating Budget submission are consistent with recent experience; and

(2) this report be received for information.

Discussion:

As at June 30, 1999, the Zoo had presented the following variances, in millions:

The Zoo's projection to year end at June 30, 1999 was as follows:

It was reported that some expenditure savings from budget had been realized, but revenues had fallen short of budget by approximately 8% or the equivalent of $0.470 million. The over-expenditure was primarily due to the following two factors: 1) extended heat waves which kept people from venturing outside for extended periods during July, and 2) a decrease in school group attendance as a fall-out from teachers' strikes and board funding reductions. On a net basis, the Zoo was 6% over budget at this period.

A Visitor Statistics report from Zoo management as of June 30,1999 indicated a 13% shortfall in Regular Visitors and Groups, plus an 11% shortfall in School Groups, and when combined overall with Members visits and Special Passes, translates into an average 6% shortfall in Total Visitors. This decline in visitors was having a significant impact on revenues.

As of September 30, 1999, a similar position exists, although it is somewhat amplified, in millions:

Additional expenditure savings continue to materialize, predominantly from non-salary expenditures as a result of expenditure constraints, and are $1.16 million under budget as of this period, up from only $0.2 million as of June 30, 1999. Expenditure reductions have been insufficient to entirely offset revenues, which have now fallen short of the approved budget by some 17.5 %, equivalent to approximately $2.5 million. Revenues were only at 83% of third quarter budget, as of September 30, 1999. There are no new factors attributable to this situation; the attendance shortfalls from weather, strikes and school board funding reductions, as described above, still continue to be the critical causes. On a net basis, the Zoo is 41.3% over budget at this period, equal to a $1.36 million net over-expenditure.

The September 30,1999 report had forecasted a year-end position for 1999:

The Zoo will continue to take measures to reduce expenditures, and these measures will assist in minimizing the projected year-end unfavourable variance in the last quarter. Recent weather conditions may help as well; however, due to the nature of operations, it is nearly impossible to recover lost revenues since approximately 50% of revenue is generated during the second and third quarters. On a net basis, the Zoo is expecting to be 18.5% over budget at year end, equal to $1.35 million net over-expenditure.

Background:

A review of the last 6 years of Zoo budget requests, approved budget levels, and actual financial results points to the following areas of concern:

(a) Attendance and Revenue

Attendance revenue projections have been over-optimistic in the last few years, in part due to efforts to accommodate net budget decreases. The 1999 Zoo Board of Management's budget request represented an effort to re-adjust attendance projections in light of that fact. The only year for which revenue exceeded budget was 1995 when the Zoo enjoyed on overwhelming public response to the special White Lion exhibit.

Attendance is difficult to project due to weather variations in addition to other variables. As an outdoor venue, the summer season is critical and attendance decreases if the summer is too hot, too cool or too wet.

The Zoo has been subject to the same general decline in attendance in recent years, as have all attractions & museums; there is increased competition from commercial venues as well as casinos and an increasing number of free public events. In the last several years, educational attendance has also declined due to labour disruptions and funding constraints in the schools.

The Zoo needs a viable approach to the adjustment of attendance rates. Maintaining a policy of no admission fee increases and the continued reduction of gross expenditures will not be a viable strategy in the long term. Zoo admission rates and other revenue projections need to be addressed by the Zoo Board and the City on a policy basis in light of a strategy for the future of the Zoo.

The Zoo has recently contacted several tourism-related operations around the region in an effort to investigate variances on revenues. It has becomes apparent that many similar venues are experiencing a similar impact in 1999. Ontario Place attendance was down 11% in July and down 28% in August over 1998 figures, attendance at the Royal Ontario Museum was down 8% in July and 2% in August, and Cullen Gardens attendance was down 11% in both July and August compared with 1998. The experience is similar for SkyDome, and thought to be similar for Canada's Wonderland. This suggests that greater forces, such as decreased American visitors combined with weather issues, and a growing number of major free events sponsored by the City, are impacting revenues. As a result, the net revenue positions of the region's most significant venues will be down, as noted in the Zoo's report.

(b) Managing the variability

The Zoo's practice has been to create a "hold back" list of discretionary expenditures each year until the results of the summer season are known and then only spend as in relation to the achievement of the net budget target. This has resulted in both revenue and expenditures coming in under budget in the last three years. However, the danger in this approach is that many discretionary items relate to physical plant major maintenance activities, which cannot be postponed indefinitely.

The long term viability of a venue such as the Zoo depends on a strategy which will allow the admission price to keep up with inflation to avoid undue pressure for tax base support and to provide the financial base to keep the facilities attractive to the visitors. Capital projects are also required to refresh the venue and major maintenance projects are needed to keep it attractive and "new" to the public. Return visitation is significantly related to having a new or revitalized attraction as a draw for the season and less related to the specific admission price within reasonable bounds. The Zoo is in the process of developing a new strategic plan to meet the new environmental situation, both in relation to the municipality and the changed market conditions. This plan will not be completed until well into the year 2000, however.

Conclusion:

The challenge of maintaining and increasing attendance and revenue is shared by the Zoo with other Toronto museums and attractions. The answer to this challenge will be critical to the future of the Zoo.

Contact:

Judy Skinner, 397-4219 fax 397-4465

Josie LaVita, 397-4229, fax 397-4465

Glenn Vollebregt, 392-8095, fax 397-4465

Wanda Liczyk, 392-8773, fax 397-4465

Finance Department

Wanda Liczyk

Chief Financial Officer and Treasurer