Newsletter: Jan 25, 2022

Delray Budget May Need More Patches

A $10.7 million budget deficit loomed over City Hall last fall -- patched over in part with $4.2 million in federal coronavirus relief dollars and by funding 16 open City department positions, including firefighters and police, for only nine months. But the City is about to take on an unbudgeted expense: the management of Old School Square.  The non-profit, Old Square Center for the Arts, had provided this service for 33 years when it was abruptly notified in early August that the City was terminating its lease.  The unbudgeted expense, which could amount up to $10 million, wasn't accounted for when the Commission approved Delray's balanced 2021-2022 budget in late September.  

The reason? Not one management company or non-profit responded to the City's "Invitation to Negotiate" to take over management of Old School Square, leaving Delray financially responsible for its on-going operations until the City finds another, if it does.  

The possible $10 million in additional expense is not a number pulled out of a hat.  Old School Square Center for the Arts operated the Cultural Center on an annual budget of about $3 million, largely funded bygrants and private donations, which covered the cost of exhibits at the Cornell Museum, classes at the Creative Arts School and concerts and plays at The Crest Theatre and The Pavilion, not to mention other events that took place on the campus -- all manned to a large extent by unpaid volunteers.  In addition, the non-profit owns all the expensive equipment estimated at $2 million inside the buildings, marketing software and donor lists that go along with running an arts and entertainment venue.

The non-profit was also in the midst of a $1.5 million renovation of the Crest Theater, which remains unfinished after private donor funding for it was withdrawn.  With a 180 notice to vacate and no grace period to mediate lease issues since the termination was without cause, the non-profit, in effect, had no purpose to exist, violating the donor's stipulation that funds be used by the non-profit, not an unknown organization of the City's choosing.  And the cost of finishing the project landed squarely in the City's lap.  The expense is not in its Capital Improvement budget, which was trimmed by almost 63%.

Should the City Commission refuse the non-profit's recent request to work on coming to an agreement, Delray will have to find funds and personnel with expertise and the time to manage the entire complex, clearly lacking in Parks and Recreation.  The City Parks and Recreation Department maintains and manages the City's golf course, tennis center, parks and recreational facilities -- many needing the City's attention.

In October 2021, the City diverted personnel and resources from Parks and Recreation to temporarily manage scheduled private and other non-profit events at OSS that had been cancelled due to the non-profit's need to reduce staff during COVID and its inability to hire new staff when funding dried up after the lease termination.  City Manager, Terrance Moore, called this solution "finding efficiencies" in the Department - one that already had unfunded positions.  In early January, Moore told the Mayor and Commissioners the department needed to hire a curator to run the Museum.

Other Fallout from Lease Termination

Enter stage left, the deeper pockets of the CRA (Community Development Agency) -- a complicated scene integral to the financial consequences of what has played out and what could play out.  The CRA receives a percentage of property tax revenue to revitalize neighborhood areas and support non-profits, that contribute to vitalization, OSS among them.

In 2019, Mayor Petrolia orchestrated a takeover of the CRA Board, placing the Mayor and four Commissioners in five of its seven seats.  At the time of the lease termination, a $750,000 CRA grant to OSS had been approved but funds owed to them had not been fully disbursed due to the non-profit being late in filing financial and other required paperwork, which occurred in part because of a turnover of auditors during the COVID epidemic.  The paperwork was submitted to the CRA in September but the remaining funds have yet been disbursed.

What remains in question is whether the City, now controlling the CRA Board, will apply for and get grant money to complete the renovation.  "The money at the CRA that would have necessarily gone -- maybe that's what we'd use towards what was started..." Mayor Petrolia stated at the Commission's August 10 meeting before the lease termination vote was taken.

Given its new obligation to keep the Cultural Center open, there is also the likelihood the City will seek more CRA funds than the $750,00 it had granted for OSS operations.  At a January City Commission meeting, Mayor Petrolia suggested that Parks and Recreation apply for a grant to fund the cost of hiring a museum curator.  These possible new grant requests could have a negative impact on other projects the CRA has budgeted for redevelopment, such as west of Swinton, which has seen its share of delays.

The City and Old School Square Center for the Arts are also embroiled in a lawsuit filed by the non-profit in early November, which questions the motives behind and methods used for the lease termination and also claims financial harm and collusion.  The City has filed a counter suit to defend the City, the Mayor and Commissoners Johnson and Casale, who voted for the termination.  The City Attorney was also named in the suit.  Others named are private citizens who must seek their own counsel.  At a Commission meeting on November 16th, the Mayor, Johnson and Casale, who were named individually, voted to indemnify themselves. This meant the three would be financially protected and the City cover legal costs plus any awards should the outcome of the suit go against them.

"Smart move, guys...or we're going to end up with a 3-2 vote" Mayor Petrolia said after Commissioner Frankel withdrew his motion not to indemnify individual defendants should they be found guilty of the suit's charge.  "It's going to send a message out there that basically, if you had not had the three of us involved in this lawsuit, two of us would have been out there hanging because of a decision that was made by people who have been sitting on this dais that should have been respecting and supporting each other."

The discussion, Commissioner Boylston noted, wouldn't have occurred or the process been transparent if Commissioner Frankel hadn't made his motion.

"I wish we weren't here.  There were different paths we could have taken," Boylston said, referring to the lease termination and the cost of City lawsuits before the vote was taken.  "But I am interested in the conversation about tax payer dollars."

The individual action against Casale was withdrawn in late January; however, the other actions in the suit remain.  This still leaves the total legal costs to be borne by the City, and the amount depends on whether the City will respond to the non-profit's request to negotiate the issues in mid-January - on the recommendation of the judge in charge of the case.  Prior to its rejection of a mediation, the City released a YouTube Video advertising the ability of its Parks and Recreation Department to keep the Cultural Center "Alive and Active".  

An update on this complex issue is to be discussed at the City Commission Meeting at City Hall on February 1st at 4pm.

To learn more: click on the links below or copy and paste to your browser:

https://www.palmbeachpost.com/story/news/local/delray/2021/09/12/delray-plans-to-erase-nearly-11-million-budget-deficit/5698359001/

https://www.bocamag.com/old-school-square-lawsuit-singles-out-delray-mayor-city-attorney/

https://www.bocamag.com/delray-responds-to-old-school-square-lawsuit/

https://www.palmbeachpost.com/story/news/local/delray/2021/08/18/despite-public-outcry-delray-to-end-lease-with-old-school-square/8173687002/

https://www.bocamag.com/delray-commission-disregards-public-outcry-over-old-school-square/

https://www.sun-sentinel.com/local/palm-beach/delray-beach/fl-ne-old-school-square-lease-20211005-27boha6f6zhwbico5i75troy4i-story.html

To read the City Budget, click on the link below or copy and paste to your browser:

https://www.delraybeachfl.gov/home/showpublisheddocument/10695/637769752936930000

To watch Commission videos, return to our "Homepage", scroll down to City Hall Agendas and click on "Go to Meetings".   To see the video on the City page: click on "Meeting Details".  When the page comes up, click on "video" on the upper left hand side.