The latest deficit at Escondido's arts center is once again raising questions about its financial viability.
The center has announced that its expenses were $723,000 more than revenue for the fiscal year that ended June 30. It blamed unpopular shows and the unexpected cancellation of two major concerts.
It follows a $445,000 loss in the 2006-07 fiscal year, which the city covered because it owns the center.
The city also will be on the hook for the latest shortfall, usings its dwindling emergency reserve fund, City Manager Clay Phillips said.
“We have no choice,” Phillips said. “The only money we have is from the reserves.”
Like other municipalities, Escondido has been hard hit by the economic slowdown, which is causing a sharp decrease in sales tax revenue. The city responded by cutting services and earmarking $1.6 million from its $8.5 million emergency fund to balance its budget.
The fund will shrink further because of the red ink at the California Center for the Arts, Escondido.
The bad news doesn't end there.
Center President Vicky Basehore said she doesn't expect the center to balance its budget in coming months.
“It's a challenging economy out there,” Basehore said. “We expect a loss, but not as big as this one.”
That was enough to ring alarm bells at City Hall. City Councilman Dick Daniels said Escondido cannot afford to bail out the center indefinitely.
“I don't think we can sustain $400,000 and $700,000 deficits,” Daniels said. “The arts center is a big asset, but it is not our only priority.”
He was referring to the center's string of annual losses since it opened in 1994. The losses don't include an annual subsidy the city has paid to the center for years.
The $85 million arts center, which has 400-and 1,500-seat theaters, a conference center and a museum, was never intended to be profitable. It was supposed to help encourage a resurgence in downtown Escondido, which suffered when the North County Fair mall opened in 1986. The city has strived to transform downtown into an entertainment and restaurant destination, with much success.
But the center's losses have been more persistent than anticipated. It started out with a $1.4 million deficit in 1994-95 and a $1.5 million loss in 1995-96.
It had three years of surpluses: $27,000 in 1998-99, $118,000 in 2003-04, and $164,000 in 2004-05.
Then the losses resumed.
The center, which is operated by a private foundation, blames its most recent deficit on unpopular shows and income lost from two canceled concerts, by Julio Iglesias and Peter, Paul and Mary. Both were canceled because of illness.
Basehore also said the October wildfires kept patrons from renting the conference center, and donors gave less money.
In September, the City Council saw the writing on the wall and appointed Daniels and Councilman Ed Gallo to study the center's viability.
They recommended dramatic changes, which were adopted by the council this month and will take effect next year. After July 1, the center's financial performance will be the responsibility of the center, not the city, which will no longer write off losses.
The center will stop producing its own shows, and instead will contract with production companies, which will be responsible for making ends meet.
The city will limit its role to paying a $1.3 million management fee to the center each year, and paying its utilities, about $800,000 annually.
From the council's standpoint, the new model will minimize the city's liability. Councilman Sam Abed also predicted that a Marriott Hotel planned for a parking lot at the center would help it make more money.
From Basehore's vantage point, the new business model may or may not change the center's financial performance.
“There are no guarantees,” she said. “It will take several years to find out. We hope to get to where we can stabilize our situation.”
Angela Lau: (760) 737-7575; angela.lau@uniontrib.com
