Analysis of Feasibility Study
August 14, 2023
TO: Board of Education (brd@smmusd.org)
Superintendent, Dr. Antonio Shelton (ashelton@smmusd.org)
Chief Operations Officer, Carey Upton (cupton@smmusd.org)
Community and Public Relations Officer, Gail Pinsker (gpinsker@smmusd.org)
FDAC Staff Liaison Steve Massetti (smassetti@smmusd.org)
FROM: Save the Civic Steering Committee (https://www.savethecivic.org/)
RE: Resident input on whether the School Board should continue negotiating
with the City to buy the Santa Monica Civic Auditorium
We are a newly formed group of residents who have been activated over our common concern for the Santa Monica Civic Auditorium, responding to your request for resident input.
We are writing to express our concern about the Santa Monica School District’s pending proposal to buy the Civic Auditorium to use primarily as a school gymnasium. Repurposing the Civic primarily as a gym but also for possible other uses would require a significant amount of District funds. We believe this venture is risky and not in the best interest of our public schools, which we strongly support.
Over the past 17 years, residents have approved over one billion dollars in school bonds, not including hundreds of millions of dollars in interest, for construction, remodeling and modernizing school facilities. These bond measures have received strong support from Santa Monica voters because we believe in public education and trust the District to use these funds wisely. Included in those bonds has been the current replacement of the South Gym with the Gold Gym as part of a $127 million project. Many more millions recently have been spent on other sports facilities.
The District has confirmed that in order to purchase the Civic and pay for the construction it plans to dramatically increase its next Bond measure in 2024.
We understand the District is considering a new bond proposal in the range of $500,000,000, and very possibly more. We imagine that District leadership believes there are important unfulfilled construction needs that are of some urgency or it would not be conducting polling for such a very sizable bond. Indeed, your website has an extensive list of what “[a]dditional [bond] funding is needed.” Included in this list are more science, technology and arts labs, improving security, fixing leaky roofs and replacing aging temporary classrooms—but the list does not mention a new gym. (See, “School Facilities: Current Needs and Past Accomplishments”)
The District just released a Feasibility Study if it were to acquire the Civic. The Study’s findings only intensify our concerns. The Study estimates that District construction costs just to refurbish the Auditorium would be in the range of $103 to $138 million dollars. This does NOT even include a significant purchase price to acquire the Civic.The Study recognizes that this construction number needs further study and, inevitably, construction costs will balloon.
In addition to a gym, the District anticipates use of the Civic as a commercial venue. This is a high-risk venture into an area in which the District has no expertise and is a distraction from its core mission: Education. The cost and risk of this entire venture have to be weighed against what the District, the students and the public would get in return: One additional facility primarily used as a gym.
If future annual operating costs are unable to be recouped by renting the Civic as an occasional venue when the gym isn’t in use, then those costs would have to be covered by the District’s then existing budget. This would cause a corresponding reduction in resources available for other school and student needs.
The Study admits that this proposed project will be “costly and complex.” It further states that “additional cost is anticipated to address client’s specific needs” and that “[t]his work is indeed complicated by the rigors of compliance with [State rules] as a building for school use.”
The Study’s consultants were only tasked with whether it’s possible to do this project — not whether it is prudent, wise, or good public policy. Some significant shortcomings in the Study are discussed in our attached Addendum. The Addendum also discusses the District’s recent press release that overstated the Study’s findings and ignored the risks and unknowns involved.
Additionally, we believe the City has misread the strong attachment residents have to the Civic as an important cultural and performance space and, to date, has failed to do all that it can to rehabilitate it for its historic intended use rather than agree to transfer it to a mainly non-public use as a gym.
We are also aware that the local student population has been declining and new housing units being built are largely for singles or couples, not families with school-age children. We are cognizant that the pending breakup with Malibu will add financial stress to our District and that, importantly, when you build or remodel school facilities there are stricter building standards resulting in higher costs than would otherwise be the case.
Given all of this, we do not believe it is in the best interests of the District to attempt to move forward with a purchase of the Civic and expend the extremely high cost for its purchase, remodel and upkeep. The District has identified far more immediate and longer-term priorities and costs as detailed on its website.
We welcome the opportunity to further discuss this. Please email info@savethecivic.org and we will get back to you quickly. Thank you.
See attached Addendum below on the Study’s shortcomings and the District’s unrealistic view of the Study.
ADDENDUM Re FEASIBILITY STUDY AND DISTRICT’S OVERSTATEMENT OF ITS FINDINGS
While the Study provides useful detail on the Civic’s history and certain construction costs, it is deficient in outlining the risks and potentially unsuccessful outcomes in this high-risk venture in acquiring and operating the Civic. These outcomes could then burden the District financially and greatly impact its budget and its students. In addition, the District has overstated the Study in important ways.
The District paints an incorrect and too rosy picture of the Study’s findings in its Press Release of August 11 and its fact sheet outlining the Study. With the huge expense of this risky, uncharted venture, it is of vital importance to be accurate, realistic, and not overstate the actual Study. These excesses include the following key District definitive statements:
“With the completion of the feasibility study determining that the District’s vision is in fact achievable, the Board of Education will determine whether to proceed…” District Press Release of 8/11/23.
However, this vision is only achievable if all of the speculative assumptions prove to be true within the District’s budget. These key assumptions and the consequences of not meeting them are not analyzed in the District’s “Outline of Findings” or its press release.
The budget itself, appears to understate what the actual costs of the project will be based on the Study’s own findings and exclusions.
The vision that is allegedly achievable according to the District’s press release includes using the Civic primarily as a school gym and multi-athletic facility and potentially as a multipurpose safe space, theatre, auditorium, concert venue, exhibit facility, banquet hall, and other Samohi, District and community uses. District Press Release.
This grab bag of uses appears aimed at appealing to everyone, but because this is a facility being constructed primarily as a gym, these myriad uses could be incompatible, pose scheduling conflicts, and not materialize.
Important to this project financially would be third party rentals for commercial events. On this subject, the District misstates that the Study “demonstrate[s]” that “Operating costs [of the project] will be subsidized by rentals [to third parties.]” District outline of findings
This actually misstates the Study’s findings that the Civic “creates potential opportunities” and that “further analysis would be needed to accurately estimate the venue’s financial operations” in a highly competitive environment.
In sum, these bottom-line conclusions are an overly optimistic reading of the Study as we discuss more fully below.
We would have expected a SWOT analysis in a more than $300,000 Study. A SWOT — Strength, Weaknesses, Opportunities and Threats — analysis is a strategic planning and management tool used to help an organization identify potential benefits, as well as critical pitfalls related to project planning.
NAC Architecture, which did this Study, has done SWOT analysis for other clients. Why wasn’t one done here?
SWOT analyses are particularly important for a public entity, custodian of the people’s money and every student’s education. According to Business News Daily, a SWOT analysis always should be performed when exploring new initiatives. This is especially true for an entity without the experience or expertise in running a significant, competitive commercial venture on school property. For example, a crucial ask by the District of this Study was:
“Is it possible to develop revenue streams that would offset the annual operating costs?”
With a purchase of the Civic, the School Board would be leading the District into uncharted territory as the District attempts to run, with very little experience, a major commercial enterprise – renting out a venue for multiple uses in a highly competitive environment and at considerable risk.
If the revenue “possibilities” (note they are not “probabilities”) don’t materialize, the District would have to cover those considerable operating expenses from existing, budgeted educational items to the possible detriment of its then existing facility and student needs.
Additionally, there are increased risks and uncertainty in a project rehabilitating a historic, landmarked property in poor shape, long left unused, which will require extensive work to accommodate all these different and sometimes competing needs as outlined by the District. Not only was a rigorous SWOT analysis not performed in the Study, but we are unaware of one conducted by the District at all.
The material from the District, including its widely distributed press release, does not contain a discussion of the risks or uncertainties in proceeding and the scenario if they are not met. Instead, it only made the rosy, definitive statements outlined above.
The District’s summary of the Study wrongly states that: the Study “demonstrate[s] the . . . Operating costs will be subsidized by rentals.”(emphasis added) which is not supported by the Study. The Study found interest for the venue’s use in querying various possible renters, but apparently never discussed specifics with them, including key determinants for potential users with many options to choose from. None of this is discussed in the District’s definitive statements above.
Foremost in what would need to be discussed with possible renters (but apparently was not) is pricing, along with parking issues and the question of selling alcohol on school premises which appears to be an important income stream. Nor were there ANY commitments received from possible renters in what the Study found to be a “relatively saturated” market. Moreover, the Study states only that the Civic “creates potential opportunities to attract a variety of third-party events to Santa Monica.” The Study cautions that “further analysis will be needed to accurately estimate the venue’s financial operations.” What if it doesn’t attract a sufficient number of those third-parties? The District ignores this major risk. This is definitely not what any sophisticated business would rely upon in entering into a new venture. Equally important, while the Study mentions various competing venues, it does not discuss the the level of demand for any of these venues or whether the demand is meeting the expectations of those venues. Without having done so, the Study’s conclusion that “moderate, but material level of unmet demand exists” is unsupported. It is also vague in the extreme. The more multi-purpose the venue becomes, the more difficult it may be to attract those who demand certain features and a higher quality from the venue they rent in the highly competitive environment found by the Study. For example, the Study makes it clear that the acoustical rehabilitation that the District envisions is rudimentary and would not be adequate to use the space for certain concerts, or for movies, or TV/Film productions. This is not a prudent basis for the District to make the leap into running a commercial business in the same space as a school facility and relying on that business to be sufficiently profitable. None of this is discussed in the District’s overly assured statements mentioned above.
The financial summaries are mathematical computations of possibilities and opportunities, NOT projections of probabilities that have a higher degree of certainty.
The already extremely high estimates of $103 to $138 million appear to be serious underestimations in the face of the Study’s other findings and exclusions:
These ranges do not include the considerable cost of purchasing the Civic;
They do not include “additional cost [that] is anticipated to address client’s specific needs”— wasn’t that supposed to be a major purpose of this exercise?
No construction contingency is included in the important Cummings estimate of construction costs nor are soft costs. Indeed, both are specifically excluded.
State building regulations for building a school may be interpreted to further increase costs or change.
Inflation costs, if a project of this size and complexity is delayed beyond expectations;
The Study addresses 3 possible building scenarios, including one that would require the construction of 2 additional buildings on the Civic site. Each of these throw multiple different complexities into the equation both for ultimate cost and the feasibility for use as a rental venue, e.g., the cost and potential interference with school activities required to transform the space easily from a gym to a high value rental venue, which varies with each scenario; and
The costs of additional District staff who would be hired, in-house or as outside contractors, to manage or oversee the facility overall and its rental activities are not factored in (not to say the distraction of key staff from their primary responsibilities of providing education to the District’s students.)
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