Toronto Zoo Over-ExpendituresThe Policy and Finance Committee recommends the adoption of the Recommendations of the Budget Advisory Committee embodied in the communication (December 10, 1999) from the City Clerk, subject to:

(1) amending Recommendation No. (3) by adding thereto the following words "and that the base budget be amended accordingly", so that such Recommendation now reads as follows:

"(3) the admission fee decision be deferred until such time as the comprehensive strategic plan and advertising plan is in place, the said plan to address attendance at the Zoo in the year 2000, therefore, justifying the admission fee increase, revenue gained, promotion of events and costs of such promotion and that the base budget be amended accordingly;"; and

(2) amending Recommendation No. (4) to read as follows:

"(4) City Council be requested to ask the Zoo Board to consider the tendering of the advertising contract, and that such tendering be done with the assistance of the City's Purchasing Division".

The Policy and Finance Committee submits the following communication (December 10, 1999) from the City Clerk:

Recommendations:

The Budget Advisory Committee on December 9, 1999, recommended to the Policy and Finance Committee, and Council that:

(1) the balance of the 2000 Stabilization Reserve Funds, after deducting funds for the Meerkat Exhibit, be used to offset the Zoo's projected over-expenditure for 1999;

(2) in the future, the Zoo Stabilization Reserve Fund be used only for operating budget stabilization purposes, and the Chief Financial Officer and Treasurer be requested to make the necessary amendments to the Reserve By-law in that regard;

(3) the admission fee decision be deferred until such time as the comprehensive strategic plan and advertising plan is in place, the said plan to address attendance at the Zoo in the year 2000, therefore, justifying the admission fee increase, revenue gained, promotion of events and costs of such promotion;

(4) City Council be requested to instruct the Zoo Board to commence immediately with the tendering of the advertising contract, and that such tendering be done with the assistance of the City's Purchasing Division;

(5) the report (December 7, 1999) from the General Manager and Chief Executive Officer of the Toronto Zoo be referred to the City Auditor for consideration, the said report to be amended to include the income per day on the Attendance Chart embodied therein; and further, that the City Auditor be requested to look into the issue of tendering the advertising contract;

(6) a draft of the strategic plan and the Zoo's plans to increase attendance in the year 2000 be submitted to the Budget Advisory Committee with their Operating Budget; and

(7) the report (December 7, 1999) from the Chief Financial Officer and Treasurer be received.

Background:

The Budget Advisory Committee had before it the following reports:

(1) (November 10, 1999) from the Chief Financial Officer and Treasurer, recommending that:

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

(b) this report be received for information;

(2) (December 7, 1999) from the General Manager and Chief Executive Officer, Toronto Zoo, responding to the Budget Advisory Committee's request for further information in relation to the Toronto Zoo's 1999 Operating Budget variance; and recommending that this report be received for information; and

(3) (December 7, 1999) from the Chief Financial Officer and Treasurer, providing information on the impact of raising fees at the Toronto Zoo; and recommending that this report be received for information.

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(Report dated November 10, 1999, addressed to the

Budget Advisory Committee from the

Chief Financial Officer and Treasurer)

Purpose:

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

Financial Implications and Impact Statement:

The Toronto 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 Executive 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 Toronto Zoo had presented the following variances, in millions:

The Toronto 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 eight percent 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 Toronto Zoo was six percent over budget at this period.

A Visitor Statistics report from the Toronto Zoo management as of June 30,1999, indicated a 13 percent shortfall in Regular Visitors and Groups, plus an 11 percent shortfall in School Groups, and when combined overall with Members visits and Special Passes, translates into an average six percent 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 percent, equivalent to approximately $2.5 million. Revenues were only at 83 percent 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 Toronto Zoo is 41.3 percent 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 Toronto 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 percent of revenue is generated during the second and third quarters. On a net basis, the Toronto Zoo is expecting to be 18.5 percent over budget at year end, equal to $1.35 million net over-expenditure.

Background:

A review of the last six years of the Toronto 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 Toronto 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 Toronto 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 Toronto Zoo has been subject to the same general decline in attendance in recent years, as have all attractions and 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 Toronto 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. Toronto Zoo admission rates and other revenue projections need to be addressed by the Toronto Zoo Board of Management and the City on a policy basis in light of a strategy for the future of the Toronto Zoo.

The Toronto Zoo has recently contacted several tourism-related operations around the region in an effort to investigate variances on revenues. It has become apparent that many similar venues are experiencing a similar impact in 1999. Ontario Place attendance was down 11 percent in July and 28 percent in August over 1998 figures, attendance at the Royal Ontario Museum was down eight percent in July and two percent in August, and Cullen Gardens attendance was down 11 percent 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 Toronto Zoo's report.

(b) Managing the Variability:

The Toronto 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 Toronto 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 Toronto 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 Toronto Zoo with other Toronto museums and attractions. The answer to this challenge will be critical to the future of the Toronto Zoo.

Contact Names:

Ms. Judy Skinner, 397-4219 fax 397-4465; Ms. Josie LaVita, 397-4229, fax 397-4465; Mr. Glenn Vollebregt, 392-8095, fax 397-4465; Ms.Wanda Liczyk, 392-8773, fax 397-4465, Finance Department.

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(Report dated December 7, 1999, addressed to the

Budget Advisory Committee entitled "Toronto Zoo 1999

Operating Budget Variance" from the

General Manager and Chief Executive Officer, Toronto Zoo)

Purpose:

The following report is a response to the Budget Advisory Committee's request for further information in relation to the Toronto Zoo's 1999 Operating Budget variance.

Recommendation:

It is recommended that this report be received for information.

Background:

The Budget Advisory Committee, in considering the Toronto Zoo's report on the 1999 Operating Budget Variance on November 15, 1999, requested further information as follows:

(1) provide a list of attendance records for January and February, 1999, on a daily basis and whether it makes logical sense to have the Toronto Zoo opened on those months;

(2) the economic benefits, if any, if the Toronto Zoo is closed in January and February;

(3) provide a Capital plan that can be undertaken to attract more visitors to the Toronto Zoo;

(4) request for the Toronto Zoo Board of Management to ensure that the "advertising" company for the Toronto Zoo be tendered;

(5) the Chief Administrative Officer be involved in the strategic planning process and look at restructuring the Toronto Zoo; and

(6) the Chief Financial Officer and Treasurer look at the impact on raising fees at the Toronto Zoo.

Comments:

(1) Seasonal Closing [Item Nos. (1) and (2)]:

This issue has been previously explored in depth by the Toronto Zoo Board of Management. In 1994, a consultant was engaged to report on the potential savings by operating the Toronto Zoo on a seasonal basis. Seasonal operation was one option put forward to potentially offset the decline in municipal funding that the Toronto Zoo had experienced in the preceding years. Two scenarios were examined: closing for nine weeks (January and February) and closing for 13 weeks (December, January and February). In both cases, it was assumed advantageous to re-open the Toronto Zoo in March, prior to the mid-winter school break.

The consultants estimated total savings of $295,000.00 for a nine week closing and $299,000.00 for a 13 week closing ($1994). This represents approximately 1.5 percent of the Toronto Zoo's total budget. The figures are not substantially different because more layoffs are proposed in the nine week scenario, as there is a diminished risk under a shorter layoff that key employees will seek alternative employment. As well, the 13 week scenario results in the loss of revenue from the Christmas season. The figures, updated for 1999, are essentially unchanged. Higher payroll savings, due to wage increments, are offset by greater revenue loss due to the growth in visitor related revenue over the last five years.

The consultants identified numerous factors, based on interviews with other year-round zoos in a similar climate and seasonal zoos and heritage attractions, to consider in relation to the identified savings. These are summarized as follows:

(a) the negative impact on staff morale and efficiency;

(b) reduced retention of staff which results in higher training and recruitment costs;

(c) minimal savings in animal care, as animals would still need to be housed, cleaned, fed and let outside for fresh air and exercise;

(d) reduced public access to the Toronto Zoo's collection;

(e) confusion in the public's mind as to when the Toronto Zoo is open; and

(f) the Toronto Zoo's reputation and credibility would require proactive management to ensure the public does not perceive that the quality of the experience, the care of the animals, the commitment to education and conservation, and the recreational value is declining.

Given the above qualitative and quantitative factors, the consultant recommended against seasonal closing. The Board of Management concurred with the findings of the report.

There is no question that attendance in January and February is low. Refer to Schedule 1 for attendance by day during these two months in 1999. Over the last three years the average attendance in January and February has been 11,500 and 19,000 respectively, or 2.5 percent of the annual attendance. However, the savings that would be realized by closing the Toronto Zoo during these months, estimated at $295,000.00, does not seem to warrant the disruption to staff, reduced access by the public to the Toronto Zoo's collection, and the uncertainty about how this might damage the Toronto Zoo's reputation with its members and the general public.

All of the major cities in North America have a zoo that is open year-round, as do most mid-size cities. Two zoos, the Detroit Zoo and the Edmonton Valley Zoo, were previously closed for part of the winter season, but now operate year-round. We believe the answer to the Zoo's financial difficulties does not lie in a reduced season of operation, but in providing a quality experience in each season that meets or exceeds our visitors' expectations. On the capital side, we are directing our resources to accomplish this aim, as described in the next section.

(2) Capital Plan (Item 3):

The Toronto Zoo's 2000-2004 Capital Works Program, as submitted and approved by the Board of Management, is comprised of eighteen projects, requiring total gross expenditures of $34,520.0 thousand and $30,576.0 thousand on a net basis after outside funding sources. The request has been submitted in priority order and is a balancing of projects necessary to permit the Toronto Zoo to maintain a state of good repair of its assets, with the need to provide updated exhibits for the visiting public. Each of the projects in the Capital Works Program directly impacts the public when exhibits are refurbished, ensuring visitors return again and again to see something new, and indirectly by maintaining infrastructure to keep the Toronto Zoo from appearing tired or worn.

Prior directions of the Toronto Zoo Board of Management have been to develop plans with a view to increasing revenues and improving the visitor experience. The Toronto Zoo exists in a very competitive attractions market and maintaining our market share requires on-going initiatives and investment.

In 1997, the Toronto Zoo Board of Management, with the concurrence of Metro Council, approved a "Revenue and Visitor Experience Enhancement Study", to prepare a conceptual plan and program for the site to improve the Zoo's potential, enhance the enjoyment and experience of Zoo visitors, and address deficiencies in transportation, circulation, and children's activities. The study created a masterplan for new development opportunities within the context of existing exhibitry and infrastructure, rather than proceeding in an ad hoc fashion to add new revenue producing attractions. There is little gained by adding non-integrated, free standing, revenue producing activities within the Zoo, if the overall result is to make the Zoo less desirable to visit and less enjoyable to our primary audiences.

From the Toronto Zoo's perspective, the study was not intended to recommend a "mega-project" as costs for new tourist attractions and visitor generators run upwards of tens of millions of dollars. Solutions were to be justified within the Toronto Zoo's Capital Works Program and to be realistic and achievable. The intent was not to displace existing capital projects, but rather to strike a balance between major renovations, exhibit improvements and visitor enhancements. The recommended projects were not stand-alone additions, but are geared instead to integrating new activities and attractions into the zoogeographic format of the Toronto Zoo.

The Study recommended investments in improved pedestrian experience: enhancement of the Zoomobile ride, separation of the public and service roads, and to re-organize the site with a framework for each of the zoogeographic areas, in a way that will be more readily understood by our Zoo visitors. Through improved theming, gateways and signage, the experience is better interpreted and revitalized. In addition to these improvements, the consultants recommended new revenue opportunities consisting of themed rides integrated into each area, expanded retail and new food outlets.

The Study also recommended a Request for Proposal (RFP) process to determine the possibilities of securing private sector investment in revenue generating facilities on the Zoo lands located adjacent to the front admission gates. In April 1999, the Toronto Zoo advertised a Request for Qualifications (RFQ) for expressions of interest and a detailing of qualifications from companies or consortia with the resources and proven ability to develop one or both of the opportunities. One proposal was received, however, the financial projections were overly optimistic, the rent was too low and the development would encroach significantly on existing revenue streams. The Toronto Zoo Board of Management has since formed a Committee to explore future development proposals.

The visiting public will be also well served by the continuing refurbishment of three exhibits, two of which are part of our special events in 2000.

The Gorilla project addresses the inadequacy of the current exhibit and creates a habitat immersion experience for the visitor, including new public and animal areas with glass viewing, interactive exhibits and special exhibit materials. The project is expected to be completed in August 2000, and will provide a further incentive for the public to visit the Toronto Zoo

A new meerkat exhibit, is planned, in the Africa Pavilion overlooking the Savanna to utilize an existing space and provide a new holding and display area for a very popular animal with the public. The meerkat exhibit is to be funded from the Zoo's Stabilization Reserve.

Components of the Grounds Improvement Project include picnic area improvements, irrigation of planting beds, a washroom addition in Eurasia, and the replacement of non-compliant admissions and retail information systems.

In future years, two projects requiring refurbishment will directly affect the visitor. Funds are requested in 2000 for design fees for the commencement of the refurbishment of the Children's Zoo. Key components of this development include an Eco-walk, two interpretative buildings, backyard ecology exhibits and interpretative displays, a demonstration amphitheatre, playground, picnic area, carousel and an improved pony ride area. A waterpark will be featured in the area and provision for washrooms is included.

The need to eliminate the long walk and steep hill to the Canadian Domain (to view the North American animal exhibits) is immediately necessary because of the absence of the Monorail. Although the Valley is a spectacular backdrop, the area has received consistent visitor complaints due to inaccessibility. The Canadian Domain project will complete the more efficient integration of visitor site circulation changes at the Toronto Zoo by bringing exhibits, now in the Rouge Valley, up onto the tableland between the America's Pavilion and the African Savanna. Moving up onto the tableland will allow the Canadian animals to integrate fully with the America's pavilion completing zoogeographic orientation of the Site. A key component of the improvement includes a public ride in the area, as recommended by Forrec Ltd.

(3) Tender for Selection of Advertising Agency (Item 4):

The Toronto Zoo's marketing plan and advertising campaign is developed by TBWA Chiat Day. This company started as the Toronto Zoo's agency in 1990. Since 1992, they have handled our account on a pro bono basis, waiving their agency management fee. This represents a savings of $150,000.00 to $200,000.00 per year. The agency strives to produce high quality creative that breaks through the clutter of media advertising. Testimony to their success are the many advertising and attraction industry awards which the Toronto Zoo advertising is nominated for and receives each year. Nevertheless, we acknowledge there may be other agencies that are equally as qualified and might be prepared to offer their services to the Toronto Zoo on a pro bono basis.

We were planning to tender the advertising contract in the fall of 1999. However, with the loss of two Zoo staff in 1999 who were the key contacts with the agency, it did not seem prudent to change the agency as well. To allow time for new staff to familiarize themselves with the marketing program, the process was deferred a year. The tender process will take place in mid 2000 with selection prior to the fall of 2000.

(4) Strategic Planning Process (Item 5):

The first workshop for the Toronto Zoo's strategic plan is scheduled for mid-December. The Chief Administrative Officer's staff have been invited to participate.

(5) Admission Fees (Item 6):

The Chief Financial Officer and Treasurer will report separately on this item.

Conclusions:

The answer to the Toronto Zoo's financial difficulties does not lie in a reduced season of operation, but in providing a quality experience in each season that meets or exceeds our visitors' expectations. The Toronto Zoo has a capital plan that supports a more active experience, with plans for a new Children's Zoo, new exhibits with improved viewing and interactive activities, and upgrading guest amenities (food, retail, washrooms, transportation) to make the site more "visitor friendly". The advertising contract will be tendered in 2000. The Toronto Zoo's Strategic Plan, currently in preparation, will address many of these issues and set out a successful strategy for moving forward.

(A copy of Schedule 1 referred to in the foregoing report was forwarded to all Members of Council with the Agenda for the Budget Advisory Committee of December 9, 1999, and a copy thereof is on file in the office of the City Clerk.)

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(Report dated December 7, 1999, addressed

to the Budget Advisory Committee from the

Chief Financial Officer and Treasurer)

Purpose:

To provide information on the impact of raising fees at the Toronto Zoo.

Financial Implications and Impact Statement:

There are no direct financial implications arising from this report.

Recommendation:

It is recommended that this report be received for information.

Background:

At its meeting on November 15, 1999, the Budget Advisory Committee considered the over-expenditures of the Toronto Zoo as reported in the September 30, 1999 Operating Budget variance report from the Chief Financial Officer and Treasurer. As it was reported to the Budget Advisory Committee that the Toronto Zoo Board of Management approved an admission fee increase as a part of its 2000 Operating Budget submission, the Budget Advisory Committee requested a report from the Chief Financial Officer and Treasurer on this proposal.

Comments:

The Toronto Zoo indicated in its 2000 Preliminary Operating Budget Forecast submission that it intends to adjust its attendance projections to reflect the experience in recent years as well as to raise admission fees. An adjustment of the attendance projection to the three-year average will result in an estimated revenue reduction of $1 million. This is in response to and reflects the recent reality of the Toronto Zoo's attendance. This reduction reflects a 6.4 percent decrease in the annual revenue budget of $15.5 million for the Toronto Zoo.

The proposal for an admission fee increase was approved by the Toronto Zoo Board of Management at its September 1999 meeting. A fee increase was initially proposed for the 1999 Operating Budget but was not accepted by the City's Budget Advisory Committee. The last admission increase at the Toronto Zoo was a major one in 1996. It was a $2.00 increase in each admission category, which ranged from a 20 percent increase in the Adult rate to a 40 percent increase in the Child rate. This increase followed a series of small increases in the early nineties, as can be seen in Appendix "A" to this report. The increase proposed for 2000, projected to achieve an additional $1.7 million in revenue, includes a winter rate for the period after Thanksgiving to the start of March break. It is shown below.

There are a number of considerations, which would favour a fee increase. If it does not result in a further reduction in Zoo attendance it would provide needed funds without further demands on the tax base. It would bring the Toronto Zoo closer to the number of attraction sector comparative venues whose fees are higher than the current fees at the Toronto Zoo. It would cushion the financial impact of the downward adjustment in attendance projections as well as the anticipated reduction in fee service revenues. Finally, if so designed, it could be the first fee adjustment to initiate a policy of incremental Zoo fee increases.

It is clear that the Toronto Zoo must keep its admission fees at a level which relates to the market of similar attractions in order to raise sufficient funds to maintain the operation at a satisfactory level, without making unacceptable demands upon its tax base support. It is generally accepted that small periodic adjustments in admission fees are the best strategy with such attractions. However, there are also a number of considerations which speak against a fee increase at this time. They include the following:

(a) there is no anticipated special "draw" animal exhibit for the summer of 2000;

(b) there has been recent negative publicity about the Toronto Zoo, both over the animal trading issue and the possible admission fee increase;

(c) the strategic plan and subsequent business planning process is just beginning and as such cannot yet offer direction to this decision;

(d) a decision to change the admission fee structure and rates this year would likely preclude new revenue structuring models being implemented for several years; this could delay the implementation of the new strategic plan; and

(e) the Toronto Zoo is also in the process of hiring new senior staff in the Marketing and Communications area and has been asked to review its contract with its public relations firm.

Conclusion:

The last increase in admission fees at the Toronto Zoo occurred in July of 1996, which followed a series of smaller increases during the early nineties. The 1996 increase was $2.00 in all admission categories, which ranged from a 20 percent increase in the Adult rate to a 40 percent increase in the Child rate. Although this is the second year in a row that a fee increase has been recommended by the Toronto Zoo Board of Management, and it is clear that a strategy for fee increases is required for the Toronto Zoo; 2000 does not seem to be the year for an admission fee increase from a strategic perspective. A new approach to revenue generation at the Toronto Zoo should come forward as a result of the strategic planning process, the second phase of which is planned for 2000.

Contact Names:

Ms. Judy Skinner, 397-4219, fax 397-4465; Ms. Josie LaVita, 397-4229, fax 397-4465; Mr. Glenn Vollebregt, 392-8095, fax 397-4465; Ms. Wanda Liczyk, 392-8773, fax 397-4465, Finance Department.

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Appendix "A"

Toronto Zoo

Schedule of Admission Fees, 1990 to 1999

Note: Age range was 5 to 11 for Children was 5 to 11 year prior to 1993 GST is included in all rates from 1991 to present.

Proposed new Admission Fees for 2000

Note: Winter rates to apply from Thanksgiving to the beginning of March break.