Trying to compel the Tauranga City Art Gallery Trust to change its future business plan backfired on Tauranga City Councillors this week.
Councillors accepted the gallery’s 2012-2013 statement of intent after the art gallery trust chairman Graeme Horsley presented an unchanged statement to council.
He was previously asked by councillors to review the statement with the intent of creating a more ‘sustainable’ financial forecast.
The Tauranga Art Gallery on Willow Street.
“You have asked us to run a public art gallery, we have always achieved our target of raising at least 20 per cent of the revenue, but you are not prepared to deliver on your share of the partnership and appropriately fund us to meet your share of escalating costs,’ says Graeme in the ‘upfront approach’ section of his report.
“We adopted this approach last year and you refused to accept it. We took this as a clear message that you accepted that we would operate below full financial sustainability.”
The Tauranga Art Gallery Trust is a Council Controlled Organisation with the responsibility of operating a public art gallery in partnership with Tauranga City Council.
The partnership was established when TCC agreed to provide an equity advance to complete the gallery and inflation adjusted operational funding in consideration for taking control of the largely community funded gallery.
The council involvement in the gallery also contributes to TCC meeting its cultural responsibilities under the Local Government Act.
The council no longer inflation adjusts the annual funding.
The Tauranga Art Gallery, which is regarded as one of the country’s most significant regional galleries, receives $847,400 each year from the council.
For the 2012/13 financial year the gallery is expecting a $7192 deficit. Next year it is $24,943, and $43,050 the year after.
If the council grant was inflation adjusted it would be $928,361 for the 2012/13 year, putting the gallery in surplus on its current plan, similarly for the following years.
The projected deficits were in the Trust’s Draft Statement of Intent presented on March 20, but councillors were concerned about the projected deficits, and directed a re-write because the statement of intent didn’t address the deficits.
The trust signalled the likelihood of deficits because of its ’no surprises’ policy, says Graeme.
“It is our aim, even if it is a stretch target, to break even in each operating year. We broke even, actually we had a surplus, last year and will do so this year despite having forecasted budget deficits.
“We believe that we can achieve our deliverables without asking for additional ratepayer funding. It will mean that we will be running at less than full financial sustainability in the short term.
“We will use best endeavours to seek additional income to break even, but if we do not achieve this we forecast that we will comfortably operate with a cash surplus.
“Over the period we will continue to build initiatives to target additional income and we may be assisted by an improving economy, which may release increased discretionary spending. Once this occurs the small shortfall in fully cash funding replacement reserves should be rectified.”
He also criticised councillors for their continued negativity towards the art gallery trust.
“This creates uncertainty about the future of the gallery negatively impacting upon our fundraising and staff morale,” says Graeme.
“We are forced to present to council three or four times a year and at every meeting the focus is almost entirely on dollars and cents, and the director receives little praise for delivering an amazing range of exhibitions that is the equal of any regional gallery in New Zealand - and widely recognised as so.”
The trust sees financial stability as "achieving planned long term service standards without unplanned increases in TCC funding or cuts in deliverables".
The Tauranga City Council hasn’t increased the trust’s operating grant since July 2010.
Graeme says like other New Zealand public galleries the Tauranga gallery’s supporters refuse to fund the gallery’s core operating costs and instead choose to give money to particular exhibitions.
In the last 18 months the trust board turned around an operating deficit of $194,548 in the year ended June 30, 2010 with a surplus of $96,990 in 2011 and $13,000 in the six months to 31 December 2011.
While a small deficit of $800 was forecast for 2012, current indications are that there will be a surplus of about $11,000 for this year with revenue higher and expenses lower than forecast.
“This turnaround has been achieved by management actively pursuing new revenue opportunities and through careful cost control,” says Graeme.
“It can be seen that expenses have been, and are forecast to be, well below 2010 levels. We do not see that these can be reduced further if we are to fulfil our mandate of delivering a diverse and professional exhibition programme. In fact expenses will escalate due to cost increases. Similarly, revenue has grown, and is forecast to continue to grow above 2009/10 levels without any increase from TCC.
On a cash basis the gallery was in deficit 2006/07, and in 2009/10.
“It is well known the reason we ended up in deficit in 09/10 was to do with the replacement of the previous director and the costs that involved us with at that point in time,” says Graeme.
“Under Penny we turned an amazing corner and the following year we had a cash surplus of $194,000. We are budgeting $89,000 this year.”
Depreciation turns the surplus into an $800 deficit. Overall deficit this year is forecast to be $30,000-43,000.
But additional “blue sky” income that the gallery is targeting in order to break even is looking like bringing the end of the financial year out on top by about $11,000 says Graeme.
What he is not prepared to do is put the “blue sky” money into the budget when the gallery doesn’t have it.
“We have a pretty good idea of our costs going forward but it is extremely difficult to forecast revenue when we do not even know what exhibitions will be shown. The gallery schedules exhibitions 12 months in advance but the budget goes beyond this timeframe.
“We have therefore taken a realistic and responsible approach so that we do not end up with financial performance substantially below forecast. We are simply not prepared to report ’blue sky’ income just to balance the books.”
These forecasts of rising levels of deficits in the next three years have been prepared on a conservative basis, says Graeme.
The opportunity to tour Lynley Dodd: A Retrospective has returned a fee to the gallery but it wouldn’t be responsible governance to budget for such income says Graeme.
“It does highlight that where a significant level of income is frozen and there are escalating committed costs then this outcome is inevitable, and you could say that council is setting us up to fail,” says Graeme.
“As we acknowledged earlier they certainly expressed a complete lack of confidence in us and did not acknowledge the positive financial base that we have put in place.”
The gallery is forecasting a cash surplus and increasing cash reserves in each of the next three years. But that means it will not be putting away sufficient funds to meet future asset replacement and major refurbishment costs, which in itself is not sustainable in the long term.
This year the gallery’s cash reserves will reach about $850,000. The reserve started with $650,000, which came from a Government grant when the gallery started, says Graeme.
There is also the asset value that the galley is running, which means that when it comes to financial sustainability it is going to be a long time before the gallery ends up in the negative even if it were not to reach the achieve the blue sky income it is targeting.
“I put it to you that we are indeed financially sustainable and I see no reason why you should not approve the Statement of Intent as originally put to you.”
It was accepted.