Mountain View Cemetery Proposal

SUPPORTS ITEM NO. 1
CS&B COMMITTEE AGENDA
MAY 16, 1996

ADMINISTRATIVE REPORT

Date: April 15, 1996
Dept. File No. C324

TO: Standing Committee on City Services and Budgets

FROM: Manager of Real Estate, in consultation with the
General Manager of Community Services

SUBJECT: Mountain View Cemetery Proposal

RECOMMENDATION

A. THAT the City retain control and operation of the Mountain
View Cemetery and instruct staff to investigate and report
back on the most appropriate way to organize the Cemetery to
ensure a publicly acceptable, cost recovery operation,
including the possibility of transferring the operational
aspects of the Cemetery to the Park Board under contract to
the City.

B. THAT staff be instructed to report back on the terms of
reference and estimated cost to hire a consultant
experienced in cemetery operations to review the staff
proposal and recommend on the following items.

- new revenue sources
- staffing levels
- heritage preservation and opportunities
- maintenance levels
- management
- site planning and development
- public access and security
- formation and role of a Citizens Advisory Group

CONSIDERATION

C. THAT Council instruct staff to commence negotiations with
the Loewen Group to develop suitable terms and conditions
around an operating lease of the Mountain View Cemetery for
report back to Council for consideration and approval.

D. THAT staff report back on the formation and role of a
Citizens Advisory Group to assist the City with oversight
activities around the operation of the cemetery by a private
contractor.

GENERAL MANAGERS' COMMENTS

The General Managers of Corporate and Community Services
RECOMMEND approval of A and B on the basis that Council will be
able to maintain a low key cemetery operation with the ability to
eliminate part, and likely all, of the operating deficit with an
increase in present fees and charges to market levels, and a
modest capital improvement program, as advanced under the staff
proposal.

The General Manager of Corporate Services submits C and D for
CONSIDERATION should Council wish to abandon its in-house
cemetery operation for a more aggressive and capital intensive
operation under the private proposal submitted by the Loewen
Group.

COUNCIL POLICY

There is no Council policy directly attributable to this matter.

BACKGROUND

On June 22, 1995, Council approved the following motions:

- THAT Council direct staff to prepare and issue a Request for
Proposal on the subject of leasing and operating the
Mountain View Cemetery on a contract basis under the general
terms and conditions out-lined in the Administrative Report
dated May 8, 1995;

FURTHER THAT the proposal call be open to profit, non-profit
and current City staff groups, and include provisions to
keep the cemetery open to visitors, protect the heritage of
the cemetery, protect the status of the Jewish Cemetery,
address concerns about the veterans' graves, and create a
community advisory group.

= THAT Council review and evaluate the proposals, with public
participation, and approve any contract or lease award that
might arise from this process.

The general terms and conditions of the May 8, 1995 report were as
follows:

- a lease term of 20 years with optional renewals;

- a lease rate to be negotiated every five years with a base
rate and percentage of gross requirement, including rent in
lieu of property taxes;

- a requirement to upgrade and improve the cemetery grounds
and facilities over each five year period, but not including
revenue generating improvements, with specifics to be
provided by the proponents;

- the existing perpetual care fund to remain in custody and
control of the City of Vancouver;

- a requirement to provide 24 hour security;

- a requirement to provide City of Vancouver indigent funeral
services at a fixed fee for each five year period;

- a permission from the City to construct columbarium, niche
walls, funeral home, mausoleum, memorialization, offices and
any other funeral or cemetery facilities subject to City
by-laws and subject to design and location approval of the
Manager of Facilities Development; and,

- additional terms and conditions as deemed appropriate by the
Manager of Real Estate Services and Director of Legal
Services before the RFP is issued.

In September, 1995, a Request for Proposals for the Lease and
Operation of Mountain View Cemetery was advertised in local and
national newspapers. In addition, all groups or individuals that had
expressed an interest in the proposal call were contacted directly.

DISCUSSION

Three proposals were received by the January 19, 1996 proposal call
closing date from three distinct types of organizations.
1. Vancouver Civic Cemetery Society (non-profit society)

2. The Loewen Group Inc. (profit group)

3. Staff and Management Mountain View Cemetery (present staff)

All three proponents propose retaining public access, protecting the
status of the Jewish Cemetery, addressing concerns about the veterans'
graves, creating a community advisory group and retaining the heritage
of the cemetery.

The operating lease would ensure all of the above concerns are
addressed to the satisfaction of the City.

All three proponents also recognize 37th Avenue as a designated
greenway and will work with the Greenway Committee on any proposal
that may affect 37th Avenue.

On the revenue side all three are proposing the following mechanisms
to offset an estimated 1996 tax funded operating loss for the cemetery
of $665,000.

- increased fees to levels similar to other Municipally
operated cemeteries in the Lower Mainland.

- sale of niches for cremation urns in niche walls and
columbarium.

- reclamation of grave sites when there has been no contact
with owner for 50 years.

All of the proponents are also proposing maintenance at levels similar
or higher than present.

PROPOSAL ANALYSIS

1. Vancouver Civic Cemetery Society (VCCS)

The Vancouver Civic Cemetery Society (VCCS) is a society made up of
numerous groups (refer to Appendix A). Their preference is for the
City to continue to operate the cemetery. However, if the City was to
lease out the operation, they would prefer to operate Mountain View.

The Society has indicated that neither profits nor commission sales
should be a factor in the costs for access to cemetery facilities for
the citizens of Vancouver and that the management of the cemetery be
conducted in a professional, business-like manner, on a cost recovery,
not-for-profit basis. While the Society is not opposed, in principle,
to privately owned and operated cemeteries, they suggest that the
responsibility for the operation of Vancouver's only cemetery, which
itself is an important historical site, should remain in the public
domain.

The Society's proposal further states:

- that the concerns of the local community should continue to
be solicited and addressed; and

- that it would avoid engaging in any revenue generating
activities which could unfairly compete with existing
Vancouver businesses. Its proposal for increasing revenues
above present levels include the following items:

a) increase rates for present services to comparable
rates for other Lower Main-land municipally-owned
cemeteries;

b) reclamation and resale of unused graves as
provided for in Provincial legislation;

c) potential for new grave sites on the partial or
full closure of 37th Avenue; and,

d) installation of columbarium (niche walls).

The Society's proposal for decreasing costs is to hire a general
manager and contract out the operation of maintenance. Existing city
staff would not be offered employment. Their pro forma estimates of
$432,000 for operating expenses are 30% lower than the Loewen Group
proposal and 57% lower than the City staff proposal.

The Manager of Real Estate is not convinced, based on the data in the
VCCS proposal, that the Society could operate Mountain View at a level
equal to or better than the present operation for the costs as
proposed. There also appears to be no costs attributed to the
marketing of the cremation urn niches. In comparison, the Loewen
proposal, albeit with a much more ambitious program, is allocating 50%
of gross revenue to cost of sales. In addition, there are no capital
costs shown in the Society's proposal for the construction of niche
walls and columbarium.

Pros:

The City will not be directly involved in the operation of the
Cemetery and there may be some cost savings in contracting out the
majority of the operation and maintenance.

Cons:

The Society has minimal assets and the City, as owner, will need to
guarantee all the risk and has no direct day to day control, other
than the specific remedies set out in the operating agreement, should
the operator fail to meet its revenue and expense projections.

The Society has no direct experience as a society in the operation of
a cemetery and, therefore, no track record in that regard.

The Society has not indicated that it would be willing to offer
employment to the City staff now working at the cemetery.

2. Loewen Group Inc. Proposal

The Loewen Group Inc. proposal is the most ambitious of the three
proposals submitted. They are proposing a three phase construction
program of up to 2,700 ground buried plots, 6,000 outdoor niches,
18,000 mausoleum crypts and 21,000 indoor niches.

They also propose that the City fund the first $300,000 of operating
losses for each of the first three years of the operating lease.
Their pro forma, however, indicates losses for the first three years
of approximately $40,000 per annum. The difference between their
annual loss estimate and the $300,000 figure is presumably backup
insurance to cover the start-up period.

Total capital investment in the first 10 years is estimated at $3.5 to
$5 M and significantly more over the second 10 year period. All
capital investment will be to the Loewen account.

The Loewen Group is proposing to pay lease revenues of 15% of net
earnings after taxes. Based on their pro forma, total lease payments
to the City after recovery of operating costs for the initial 10 year
period would be approximately $50,000. The Manager of Real Estate,
however, cannot recommend a lease formula based on a percentage of net
earnings after tax, as it is virtually impossible to adequately define
expenses or costs and to ensure all costs are legitimate in the
determination of net income. Other than setting the rent at a fixed
figure with an escalation clause, common practice in commercial real
estate leases is to base the rent on a percentage of gross revenue.

Pros:

The Loewen Group is a large experienced organization capable of
managing the operation of the cemetery and financing a capital
improvement program.

City losses would be limited to a maximum of $300,000 per year for the
first three years of the operating lease.

City staff working at the cemetery would be offered employment by the
Loewen Group.

This would be a good working example of a Public-Private partnership
and an opportunity to test that form of partnership in a controlled
environment.

Cons:

The rent formula and expected receipts are not acceptable as proposed
and would need to be negotiated in the City's favour before staff
would recommend proceeding.

Public sentiment appears to be against the City leasing the operation
of the cemetery to a private operator and this may be a concern for
Council as well.

3. Staff Proposal

The staff proposal is for the City of Vancouver to retain management of the Mountain View Cemetery and increase revenues. Staff are
proposing fee increases in line with market rates elsewhere in the
region, and new revenues through unused grave reclaiming and the
construction of cremation niche walls and columbarium.

The staff pro forma projections indicate a gross profit over the first
5 years of approximately $2 million. The majority of the income
$728,000 (80%) coming from burials and niche walls in absence of a
cost of sales figure for the sale of 500 burial internments and 200
niche wall internments. Unless the marketing of these additional
facilities is done within the present administration budget on an all
but passive basis, the $2 million profit over 5 years would need to be
suitably adjusted to recognize the costs associated with a more active
sales program.

On the other hand, adopting some or all of the fee increases
recommended in the staff proposal would bring the City's rates in line
with market rates in the region. This action alone would certainly
reduce the operating deficit now being funded by property taxes.

Pros:

The City's continued operation of the Mountain View Cemetery accords
with the preference expressed by a majority of the citizen groups and
individuals who have written or appeared before Council on this
matter.

The staff proposal offers the possibility of eliminating the present
operating deficit, with suitable market adjustments to the cemetery's
schedule of fees and charges and a modest capital improvement program.

Cons:

The City has no direct experience with marketing the facilities
available under an expanded cemetery operation.

The City will need to make available the appropriate capital funds to
develop the additional revenue facilities in face of competing demands
from other high priority capital works.

The operation of a cemetery is arguably not a core business for the
City.

CONCLUSION

In analysing the three proposals received by the City in response to
its Request for Proposals for the operation of Mountain View Cemetery,
it appears that none of the proponents is suggesting rent payments
back to the City's general coffers at a level much above the break
even point over the first five years of the operating lease. There is
a strong possibility, however, that the City's annual operating
deficit for the cemetery could be reduced, or in fact eliminated, by
managing expenditures and increasing fees to reflect market levels,
coupled with a capital investment to expand present facilities.

The three proposals comprise two categories of cemetery operation. The
staff proposal assumes a continuation of the City's involvement as a
public operation, and the VCCS and Loewen proposals assume an
independent quasi-public and private operation respectively. Of the
two choices available in the independent category, we believe the
Loewen proposal is clearly superior.

The choice, therefore, boils down to the following alternatives:

- continuation of City operation; or,

- negotiating an appropriate operating lease with the Loewen
Group.

In arriving at a conclusion, we feel that both proposals have
strengths and weaknesses but overall the staff proposal reflects a
good understanding of the challenges involved with improving the
operations of the cemetery to cost recovery levels and possibly
beyond. We therefore recommend the staff proposal to Council for
approval and, in doing so, suggest that a consultant experienced in
cemetery operations be retained to investigate and report back on the
following items.

With the transfer of the Health Department to the Vancouver Health
Board, continued operation of the Cemetery within Community Services
is not particularly appropriate. While the operational aspects of the
Cemetery have more in common with the Park Board than other areas of
the City, the business aspects of the operation have more in common
with the revenue property management aspects of Corporate Services.
We suggest that the most appropriate organization structure to ensure
a successful, high quality cost recovery operation be considered as
part of an immediate staff-consultant review of revenue opportunities,
staff levels, maintenance, site planning and development, heritage
opportunities, and public access and security.

A copy of this report has been forwarded to CUPE Local 1004, CUPE
Local 15, the Foremen's Association and the Superintendents'
Association for information.

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