KITCHENER - An analysis of TheMuseum's plans for expansion by an independent consultant raises several red flags, most notably TheMuseum's "chronic" deficits and its lack of a strong donor base upon which to draw to raise the $25 million needed.

The expansion includes a proposal for the City of Kitchener to buy the BMO bank building next door to TheMuseum for $3 million, and allow the museum to build a new building which it would lease from the city. Kitchener council is to vote on the proposed purchase, and consider the consultant's report, at a committee meeting on Monday.

The report warns that TheMuseum has "consistently run large deficits" for at least the last decade, and that it must address "a number of challenges" before embarking on an ambitious expansion. Despite those concerns, Kitchener Mayor Berry Vrbanovic said it makes sense for the city to buy the land for the expansion.

The City of Kitchener and the Region of Waterloo paid an independent consultant $40,000 to look at TheMuseum finances and its expansion plans in 2019, after TheMuseum asked for a 58 per cent increase in its funding from the municipalities.

The review was carried out by Ottawa-based arts management consultant Angela Birdsell and included interviews with museum staff and board members, donors and partners, and an "extensive review" financial records and other documents.

That review concluded TheMuseum's has a "compelling" vision, mission and mandate and it has several factors working in its favour: its visibility, established programming, member support, private foundation support and a committed board.

But the review also raised several concerns:

• TheMuseum has "consistently incurred large operating deficits since 2009." Deficits ranged from $260,000 to $550,000, equivalent to 10 to 30 per cent of revenues.

• Its staffing in numbers and cost is close to double that of most comparable organizations. Salaries jumped 27.5 per cent from 2016 to 2018. TheMuseum argues its staffing needs are greater than a museum that doesn't charge admission, especially because it runs many events in off-hours.

• Fundraising and sponsorships "show a general decline since 2011-13." They amounted to $212,319 in 2018. TheMuseum's fundraising is below average when compared to similar organizations and low compared to the Kitchener-Waterloo Art Gallery, Kitchener-Waterloo Symphony and The Clay and Glass gallery.

• There's "significant divergence in understanding" TheMuseum's vision among stakeholders and the public. "It will be important for TheMuseum to articulate a clear and honed strategic direction if it is going to gain support for an expansion among donors and governments," it says.

• TheMuseum's only plan for its long-term sustainability was to ask municipalities for an extra $400,000 a year in operating funds.

• Its claim that it is underfunded by municipal funders "is not supported by research" of comparative organizations.

• Although TheMuseum board carried out standard financial controls, it's not clear what was done when revenues fell short or expenses were higher than expected. Every year, the board approved budgets that projected break-even results, despite the ongoing history of failing to meet budget targets.

TheMuseum's existing space has several limitations, said CEO David Marskell: the open atrium means sound travels throughout the building, making it difficult to hold multiple events at the same time; the space isn't flexible enough to be easily converted for exhibits of varying size; and the current setup forces TheMuseum to close for 42 days a year to set up exhibits.

Marskell said his organization is committed to becoming more sustainable, but believes the route to doing so lies in growth. "For us to sustain and continue to do what we're doing, we need to grow our revenue," he said. "We've got to keep an eye on our books, but we've got to grow revenue as best we can."

TheMuseum would have 10 years to raise the $25 million needed. "That's more than enough time," Marskell says, noting TheMuseum raised $17 million in the early 2000s when it started as a children's museum.

The new addition would more than double TheMuseum's space from about 30,000 square feet now, with an addition of up to six storeys and 50,000 square feet.

Kitchener owns the museum's building at 10 King St. W. and leases it to the institution for $1 - an in-kind grant worth $125,483. It also gives TheMuseum a yearly operating grant, which is $148,839 in 2020. TheMuseum also receives $45,325 from the City of Waterloo and $385,662 from the Region of Waterloo, for a total of $704,984.

Under the proposal, the city would own the BMO property, and lease the building to another tenant until TheMuseum has the funds to begin its expansion. Any proceeds from the lease of the BMO building, after expenses are covered, would go to TheMuseum to support its expansion.

It's in the city's interest to see TheMuseum thrive, Vrbanovic said. "TheMuseum brings upwards of 90,000-plus people into the downtown on an annual basis."

The opportunity to buy the adjacent property at a reasonable price, coupled with BMO's offer of a $1-million donation to TheMuseum if the sale goes through, is too good to pass up, Vrbanovic said.

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