History of the City’s Zoo

The City’s first Eastlake Zoo dates back to 1885 in East Los Angeles Park. In 1912, the City’s Griffith Park Zoo opened near the site of the current Zoo grounds. By 1956, it became apparent that the City had outgrown the small Griffith Park Zoo, and voters approved a $6.6 million bond measure to help build a new, expanded Zoo. The Los Angeles Zoo and Botanical Gardens opened at its current location in 1966; until 1997 the Zoo was operated by the City’s Department of Recreation and Parks.

In 1997, City policymakers added Los Angeles Administrative Code (LAAC) §22.700 by ordinance, which created a separate Council-controlled Zoo Department. This code section prescribes that the Zoo Department “shall operate, manage, maintain and control” of the Zoo. A Board of Zoo Commissioners, appointed by the Mayor, advises the Zoo Director. The Zoo Commission meets on a monthly basis with Zoo Department and GLAZA management, often including presentations on GLAZA’s fundraising efforts and significant events occurring at the Zoo.

Today, the Zoo is home to more than 1,100 mammals, birds, amphibians, and reptiles representing more than 250 different species, including 29 endangered species. In addition, the Zoo’s botanical collection comprises several planted gardens and 800+ different plant species with more than 7,400 individual plants. As previously mentioned, the Zoo is accredited by the AZA, an organization that requires the “highest standards of animal management and husbandry, while also focusing on animal management for conservation, education, scientific inquiries, and guest services” and it has continuously accredited the Zoo for more than 25 years.3

Mission and Vision Statements

The following is the Zoo’s mission statement: To serve the community, the Los Angeles Zoo will create an environment for recreation and discovery; inspire an appreciation of wildlife through exhibitry and education; ensure the highest level of animal welfare; and support programs that preserve biodiversity and conserve natural habitat.

The following is the Zoo’s vision statement: We will leverage the diverse resources of Los Angeles to be an innovator of the global zoo community, creating dynamic experiences to connect people with animals.

3 https://www.aza.org/accreditation-vs-certification

Zoo Department’s Relationship with GLAZA

In 1963 GLAZA incorporated as a not-for-profit organization to assist the City in establishing, developing, and improving the Zoo through fundraising. In 1997, when the City created the separate Zoo Department, the City entered into an Operating Agreement with GLAZA that officially defined its relationship with the Zoo Department.4 According to this agreement, the “Zoo Director shall be exclusively responsible for the administration and management of the Zoo within the policy guidelines set forth by the Mayor and City Council.” GLAZA’s primary responsibility is “to seek and provide financial support to the Zoo and to fund the Zoo’s capital improvements.” Further, “GLAZA shall be responsible, under the terms of the [Operating Agreement], to raise an amount, negotiated yearly, of the Zoo’s annual operating budget and funding needs for capital improvements.”

Appendix I delineates GLAZA’s contributions toward Zoo capital improvements completed between 2000 and 2014.

The organization chart, below, depicts the Zoo Department and GLAZA’s placement within the City’s governance structure.

4 This Operating Agreement will expire in 2022.

The Operating Agreement allows the Zoo Director to contract with GLAZA to perform additional responsibilities for the Zoo through separate MOUs.5 As of October 2017, under the Operating Agreement, Concession Agreement (distinct from the Concessions MOU), and four separate MOUs, GLAZA supports the Zoo Department by managing the following programs:

As of October 2017, GLAZA has 40 full time and 26 part time employees. The number of part time employees fluctuates seasonally. See Appendix II for a fuller description of GLAZA’s responsibilities per the referenced MOUs.

5 The Operating Agreement specifies that the City may contract through a separate MOU for GLAZA to perform the Zoo Department’s responsibilities for publications, special events, and the rental, construction, operation and maintenance of Zoo facilities. It also specifies that all separate MOUs entered into between GLAZA and the Zoo Department will operate as “sub-agreements” to the Operating Agreement.

The Zoo Department manages the remaining programs as part of its regular operations: 6

As of October 2017, the Zoo Department has 219 full-time employees and it has the ability to use 133 part-time positions, as needed. For City budgetary purposes, the Zoo Department has position authority for 246 full time positions (233 regular authority and 13 resolution authority). See Appendix III for a fuller description of the Zoo Department’s programs and activities.

6 GLAZA public relations staff work with Zoo Department public relations staff to ensure consistent messaging in Zoo communications.

Zoo Department Funding

As a Council-controlled City Department, the Zoo Department is subject to annual budget appropriations to fund operations. For FY 2017, the City budget allocated $33.4 million for the Zoo Department.

$20.4 million (61% of the Departmental budget) represents direct operating costs (staff salaries, animal food, maintenance materials and supplies, contractual services, veterinary supplies, office supplies, uniforms, field equipment, etc.). All direct costs are covered by the Zoo Enterprise Trust Fund (ZETF), a City Special Revenue Fund that receives and allocates funds that are restricted for Zoo purposes. The remaining $13 million represents the City’s budgetary allocation of indirect and related costs (pension and human resource benefits, workers compensation, liability claims, and other City overheads) associated with the Zoo Department, which is covered by the General Fund.

Funds available in the ZETF are generated from Zoo Department receipts (primarily admission fees) and a portion of revenues generated by GLAZA for their managed programs, as transferred to the City. For FY 2017, the Zoo Department’s adopted budget indicated 77% of ZETF revenues would come from the Zoo Department programs; while 23% would come from GLAZA, as an allocation of shared revenues under terms of the Operating Agreement, Concession Agreement, and MOUs. See the Table below.

7 Prior to February 2017, GLAZA operated the carousel.

8 GLAZA reimburses the Zoo Department when its employees work overtime at night-time ticketed events.

In addition to the City budget, the Zoo Department has access to funds held in two accounts maintained by GLAZA: the Zoo Assistance Fund (ZAF) and the Zoo Surplus Development Fund (ZSDF). These accounts, specifically mentioned in two MOUs, are held by GLAZA for the direct benefit of the Zoo Department, i.e., operating costs not funded through the City budget.9 Specifically, the Financial Assistance, Special Events, and Community Affairs MOU specifies that GLAZA is to transfer a “gift” of unrestricted fundraising revenues into the ZAF each year. And while the Concessions MOU specifies that GLAZA is to transfer any excess commissions revenue into the ZSDF, based upon a suggestion by the CAO, since FY 2015 the Zoo Department annually transfers $600,000 (a majority of ZSDF monies) to the City’s ZETF.

See Appendix IV for a schedule delineating revenues collected per MOU and distributions to the ZETF, ZAF, and ZSDF.10

GLAZA Funding

As the official support organization for the Los Angeles Zoo & Botanical Gardens, GLAZA is an independent not-for-profit corporation organized for the purpose of establishing, developing, beautifying and improving the Zoo. While GLAZA is exempt from income taxes, it files an annual informational return per IRS requirements, and provides an Independent Audit of its annual financial statements to its Trustees and began posting its audited financial statements to its website in April 2017.

Based on GLAZA’s audited financial statements for FYs 2014, 2015 and 2016, GLAZA generated an average of $15.9 million per year in support and revenues. Sources are attributable to membership program revenue (37%), contributions and grants (30%), and visitor amenities (19%), with some additional revenues from special events net of direct donor benefits, and investment income.

During this same period, GLAZA expended an average of $15.0 million each FY. On average, 35% represented transfers to the ZETF or expenditures Zoo Department management requested GLAZA to make on their behalf from two funds (the ZAF and ZSDF mentioned above) maintained by GLAZA for the Zoo Department. The remainder were expenditures incurred for Zoo program services delivered or performed by GLAZA on behalf of the Zoo (43%), general and administrative (13%), and fundraising (9%) activities.

9 According to Zoo Department management, the ZAF and ZSDF are used for operating costs that are not funded through the City budget, and the monies in these accounts are typically spent by the end of each FY. The ZAF primarily funds conservation and research programs. ZSDF monies not transferred to the ZETF are primarily used for animal care equipment and supplies, training, travel, visitors’ surveys, etc. While both the ZAF and ZSDF amounts are held by GLAZA, Zoo Department management indicated that they control the use of the monies in these accounts by requiring approval signatures from the Zoo Department’s Chief Management Analyst and Assistant General Manager and/or General Manager.

10 The Operating Agreement and Concession Agreement also specify how GLAZA apportions shared revenues with the Zoo Department. As mentioned in the Consolidation and Clarity of Agreements section, certain Operating Agreement and Concession Agreement specifications conflict with MOU specifications and certain MOU specifications conflict amongst each other.

As of June 30, 2017, GLAZA’s assets included $29.5 million in combined cash, cash equivalents and investments; $4 million in receivables; and $763,000 in other assets. GLAZA’s net assets totaled $31.3 million, of which $21.5 million (69%) was unrestricted11, $7.7 million (25%) was temporarily restricted; and $2.1 million (7%) was permanently restricted.

Prior Audits & Reports

Concerns regarding the City’s administration of agreements with GLAZA stretch back for decades, even before the City created the Zoo Department in 1997. In fact, in 1990 when the Los Angeles County Grand Jury evaluated the City’s relationship with GLAZA, the Grand Jury reported multiple findings but two remain relevant to our current review. Specifically, the Grand Jury found: 1) the prior Operating Agreement and current Concession Agreement had been poorly written; and, 2) the City did not exercise its authority to audit and monitor concession operations, nor did it independently audit concession receipts. The Grand Jury concluded that “weak management” and certain provisions in the agreements with GLAZA hampered the City’s ability to “fulfill its duty to manage the Zoo.”

In December 2002, the Controller’s Office issued its “Report on the Greater Los Angeles Zoo Association” that identified subpar fundraising performance by GLAZA and a potential over- retention of millions in revenues due to the City from the Membership Program and Concessions Program. At the time, both GLAZA and the new interim Zoo Director disagreed with the audit’s finding regarding the shared revenues.

Subsequent audits by the Controller’s Office in 2005 and 2009 noted that recommendations relating to the City Attorney providing a legal opinion on the possible over-retention of shared revenues remained outstanding, and noted the Zoo Department and GLAZA had been operating from expired MOUs. The 2009 audit also recommended the Zoo Department complete a cost- benefit analysis on the feasibility of directly contracting for concession services. However, due to reported staffing shortages, the Zoo Department did not conduct this cost-benefit analysis.

11 However, $19.2 million was Board-designated for endowment and certain projects.

According to interviews with Zoo Department management, the Zoo Department’s oversight of GLAZA is limited. For example, the Zoo Department does not: 1) compare GLAZA’s reported shared revenues and expenses to GLAZA’s general ledger of historical detailed trial balances; 2) review any of GLAZA’s or GLAZA’s subcontracted Concessionaire’s internal controls to ensure completeness and accuracy of reported shared revenues; 3) review any of GLAZA’s deductions from shared membership or night-time ticketed event revenue; or, 4) require GLAZA to submit a yearly actual versus budget comparisons of shared revenue calculations for each MOU. While it is a City contractor subject to oversight and monitoring by the Zoo Department, GLAZA holds a unique role in its relationship with the Zoo, and is seen more as a partner than a contractor. This has raised questions as to GLAZA’s compliance with the terms of its agreements with the City as delineated in the Consolidation and Clarity of Agreements section of this report.

In addition, although the Concession Agreement requires that the Zoo Department receive: 1) a monthly profit and loss statement on concession sales each month with a breakdown of expenses and net income for concession activity; and, 2) an annual Income Statement and a Balance Sheet for the Concessionaire’s concession operations prepared by an independent Certified Public Accountant, we found that these reports are not being prepared or provided to the Zoo Department and GLAZA. However, these reports would be a good mechanism to help GLAZA and the Zoo Department monitor the Concessions Program and to negotiate revenue-sharing arrangements.12 GLAZA management indicated that it will be issuing a RFP for Concession Services in the near future and the subsequent contract will contain a requirement to provide these reports to the Zoo Department as required by the Concession Agreement.

Further, this review evaluated a small sample of GLAZA expenses deducted from shared membership and night-time ticketed events revenue. While the costs were supported by documentation, we were unable to conclude on the reasonableness of the expenses, as GLAZA’s Accounting Policies, Procedures, and Internal Controls (written policies and procedures) are insufficient. Specifically, GLAZA’s procedures require its managers to “investigate new vendors during the budgeting process and whenever goods and services are needed. For large purchases, department managers obtain quotes from several reputable vendors.” However, the written policies and procedures do not specify what constitutes “large purchases,” how to document and retain RFP submissions and price-quotes, and what type of documentation is required before a vendor can be used and a payment can be issued.

12 The 1981 Concession Agreement required GLAZA to provide the reports described in the preceding paragraph to Zoo Department management. This was when GLAZA directly operated the Zoo’s concessions. In 1997, the Operating Agreement reaffirmed the terms of the Concession Agreement, but allowed GLAZA to subcontract its concession function. GLAZA then entered into an agreement with Service Systems Associates (Concessionaire) effective October 1, 1997 and has managed the Concessionaire since this time; however, its contract with the Concessionaire did not include the requirement to provide the required financial reports to Zoo Department or GLAZA management.

Upon inquiry of Zoo Department management, we learned that they do not have sufficient staffing levels to provide detailed fiscal oversight of agreements with GLAZA. The Zoo Department also has staffing shortages in other critical areas such as animal keepers, maintenance construction helpers, and curators, as delineated in the Long Term Governance of the Zoo section of this report.

Given the lack of staffing to provide detailed fiscal oversight, Zoo Department management could improve accountability by using a robust set of performance metrics to monitor GLAZA’s program and fundraising performance.

Our review of agreements (i.e., Operating Agreement, Concession Agreement, and MOUs) found that they do not include adequate performance metrics to evaluate GLAZA’s performance. For many years, GLAZA and the Zoo Department have operated from expired MOUs, and most of the performance expectations contained therein with the exception of a prior FY 2013 Marketing and Public Relations & Site Rentals/Catered Events MOU, were based on GLAZA’s budgeted revenues and expenses for the upcoming year. However, in comparing the FY 2013 Marketing, Public Relations, Site Rentals, & Catered Events MOU to the FY 2017 MOU, significant performance metrics were removed. Specifically, the FY 2017 MOU: 1) no longer includes a minimum investment by GLAZA; 2) removed several performance metrics related to expected increases in Zoo revenues; and, 3) authorized a $1.6 million Marketing Refund to GLAZA without it being distinctly tied to its performance. For FY 2017 none of the MOUs contain performance metrics that require comparisons to the results from prior years, or to other zoos to gauge GLAZA’s performance. To drive improvements and focus resources towards reaching a target, it is critical that performance metrics be established to evaluate GLAZA’s performance, as a contractor and fundraiser for the City.

Based upon the programs currently managed by GLAZA, we offer the following potential data points that City management can use to develop goals and performance metrics for GLAZA, that could then be evaluated on a quarterly and a multi-year basis. Different from the metrics that should be used to assess the Zoo’s overall performance toward meeting its strategic goals in its Business Plan, these performance metrics would be focused on evaluating GLAZA’s program and fundraising activities and could be used to compare against prior years and other similarly sized/situated zoos. Any differences in planned versus actual results should be analyzed and addressed. See the following Table for potential data points that could be used to develop a robust set of performance metrics.

Further, regarding GLAZA’s marketing of the Zoo’s Daytime Admissions Program, in a June 21, 2013 memorandum to the City’s Budget and Finance Committee, the CLA questioned whether the transfer of marketing responsibility to GLAZA would financially benefit the City.13 After assuming daytime admissions marketing responsibilities, GLAZA did not meet its performance metrics and as a result, GLAZA did not obtain the full Marketing Refund from the Zoo Department that it anticipated.14 On March 19, 2015, Zoo Department management requested City Council to authorize an amendment to the Marketing, Public Relations, Site Rentals, & Catered Events MOU, allowing GLAZA to include net night-time ticketed events revenue to meet the performance metric originally structured to measure only daytime admissions revenue increases. This metric was used to calculate GLAZA’s Marketing Refund. However, as previously mentioned, the FY 2017 Marketing, Public Relations, Site Rentals, & Catered Events MOU no longer includes performance metrics related to expected increases in Zoo revenues and authorized a Marketing Refund to GLAZA without being distinctly tied to its performance. Although GLAZA has since generated substantially more revenue from night- time ticketed events (e.g., Zoo Lights, Roaring Nights, and Brew at the Zoo), these events represent a new stream of revenue that could have been tracked and measured separately to ensure there is adequate monitoring of projected increases of daytime admissions revenue and attendance.

For a summary of the Zoo’s historical gate attendance from FY 2002 – 2016, see Appendix V.

Recommendations

Insofar as the current governance structure and operational responsibilities exist,

Zoo Department management should:

1. Establish stronger fiscal controls and oversight of revenue-sharing arrangements with GLAZA, such as by requiring GLAZA to submit annual actual versus budget comparisons of shared revenues per MOU, and comparing GLAZA’s reported revenues and expenses to GLAZA’s general ledger of historical detailed trial balances.
2. Enhance oversight of the Concessions program by requiring the internal controls used by the Concessionaire to be reviewed on a periodic basis, to ensure the completeness and accuracy of reported revenues. In addition, as specified by the Concession Agreement, require: a) the submission of a monthly profit and loss statement on concession sales each month with a breakdown of expenses and net income for concession activity; and, b) the annual submission of an Income Statement and a Balance Sheet for the Concessionaire’s concession operations, prepared by an independent Certified Public Accountant.

13 In the June 21, 2013 memorandum issued to the City’s Budget and Finance Committee, the CLA indicated: “it appears, net revenues from paid admission that are achieved above and beyond what the Department would otherwise retain from annual admission [fee] increases, will revert to GLAZA and will not benefit the City’s General Fund or the Zoo Department directly. Although the MOU projects that the Department will achieve increased revenues from additional membership and concessions, these increases could be realized with increased attendance and would not require the MOU to do so.”

14 In FYs 2014, 2015, and 2016, GLAZA received the following Marketing Refunds: $0, $761,057, and $1,590,540, respectively. The original MOU authorized the Marketing Refunds of up to: $591,596, $1,308,820, and $2,169,074 respectively for each of these FYs based on the amount of anticipated increased revenue to the Zoo Department.

3. Work with GLAZA to develop adequate policies and procedures to ensure reasonableness of costs. These could include a requirement to issue RFPs and/or obtain quotes from vendors for frequent purchases or purchases more than a certain dollar amount, as well as ensuring retention of related documentation that justifies the vendor selection.
4. In consultation with the CAO and CLA, develop a robust set of performance metrics, using the potential data points identified by this review while considering City expectations, to facilitate monitoring GLAZA’s performance in areas related to their contractual responsibilities. Compare the results over time, and to other similarly sized/situated zoos.

In recent years, the City has dramatically increased its transparency by publicly posting significant amounts of financial information on its website. The public expects accountability of government and public institutions through financial transparency.

Charitable organizations are also embracing the values of accountability and transparency as a matter of ethical leadership, legal compliance, and to help preserve the very important trust each donor places in a not-for-profit through their contribution. Although GLAZA is a separate not- for-profit corporation, it exists for the primary purpose of establishing, developing, beautifying, and improving the City’s Zoo. Currently, even though GLAZA exists solely to support the Los Angeles Zoo, it does not publically post its detailed financial transactions, though high level financial information is available through its annual U.S. Internal Revenue Service (IRS) information returns and audited financial statements.

To provide more accountability and transparency, in line with public expectations, GLAZA should begin to provide the details of its operational revenue and expense transactions online, to be as financially transparent as the City and the Zoo Department.15 Although GLAZA began including their audited financial statements on its website in April 2017, donors, GLAZA members, and all Angelenos should have access to the same amount and type of detailed financial information transparently provided by the City as GLAZA is an integral part of the City’s Zoo operations.

GLAZA management indicated that because it is not a government organization and receives no taxpayer funding, it does not publicize its detailed transactional financial information. Further, management emphasized that GLAZA is an independent not-for-profit organization governed by a Board of Trustees with a fiduciary duty to the organization, and that the Zoo Director attends the Board of Trustees meetings and Board Committee meetings, and is present when GLAZA’s financial matters are discussed.16

15 When initiating this review, GLAZA management sent correspondence to our Office requesting that its General Counsel serve as our point person to process all questions and document requests, and its General Counsel requested to be present during all interviews of GLAZA staff. The correspondence also indicated that as a private organization, GLAZA retained all rights related to privacy laws.

16 GLAZA management also indicated that it fully complies with all state and federal laws regarding not-for-profit reporting and disclosure.

Further, similar to leading practices found with the Huston Zoo and LACMA, the Zoo Department should include GLAZA’s federal 990 forms on its website. LACMA also includes its Policy on Review of Executive Compensation on its website, which serves to enhance public transparency.

Agreements with GLAZA require more transparency.

While reviewing the agreements between the Zoo Department and GLAZA, we found that the Membership, Publications, and Volunteer Programs MOUs for FYs 2012 and 2017 delineated only the total costs of each program that GLAZA was authorized to deduct from shared revenues. These MOUs did not provide a breakdown of direct staffing and non-staffing expense estimates, nor did they provide any indirect staffing and non-staffing expense estimates for each program. Considering that GLAZA has deducted more than $6.3 million, or 61% of its $10.3 million total indirect expenses between FYs 2012 to 2016 from shared membership revenues, this information needs to be delineated to City management, which would also enable the Zoo Department to properly monitor the fiscal sharing arrangements.

Further, we noted that the transparency of agreements with GLAZA can be enhanced by delineating the value of “in-kind” support being provided by the Zoo Department. For example, based upon a review of the MOU between Milwaukee County and the Milwaukee Zoo’s associated not-for-profit, the Milwaukee MOU delineates all the support, including “in-kind” support being provided to the not-for-profit by Milwaukee County and by the not-for-profit to Milwaukee County, quantified into a dollar value. The MOU contains a listing, with estimated dollar values, of the free admissions provided to the not-for-profit’s members, a dollar value of food and merchandise discounts provided to the not-for-profit’s members, facility costs, etc. The Milwaukee MOU also requires that for each capital project, Milwaukee County and the associated not-for-profit execute a separate specific agreement describing sources and uses of funds, procedures for transferring the not-for-profit’s share of project costs to Milwaukee County, program management, project schedule, and other specific arrangements. During our Mach 13, 2018 meeting with Zoo Department and GLAZA management, GLAZA representatives indicated that they believe the inclusion of “in-kind” support in agreements would lead to further confusion, but we believe that the practice of delineating “in-kind” support would help to ensure that the City has negotiated revenue-sharing terms with GLAZA that are mutually beneficial.

Recommendations

Insofar as the current governance structure and operational responsibilities exist,

Zoo Department management should:

5. Include GLAZA’s federal form 990 forms for multiple years on the Zoo’s website, and include GLAZA’s policy on executive compensation.
6. Ensure all agreements with GLAZA clearly delineate the estimated dollar value of all “in- kind” support (e.g., facilities, free admissions for members, value of merchandise discounts to members, in-kind staff support, etc.) provided by the City to GLAZA and by GLAZA to the City.

GLAZA management should:

7. Make publicly available via the internet, all detailed transactions related to payroll expenses, purchases, revenues, etc.

Poorly written and conflicting terms in agreements (Operating Agreement and MOUs) give rise to questions about GLAZA retaining more shared membership revenue than may have originally been intended.

We found inconsistencies between the Operating Agreement, FY 2012 Membership, Publications, & Volunteer Programs MOU, and the FY 2012 Financial Assistance, Special Events & Community Affairs MOU. The Zoo Department and GLAZA operated from these agreements between FYs 2012 and 2016.17 While the FY 2012 Membership, Publications, & Volunteer Programs MOU authorized GLAZA to deduct a majority (up to 59%) of shared membership revenues for its Membership Program costs, both the 1997 Operating Agreement and the FY 2012 Financial Assistance, Special Events & Community Affairs MOU include terms that appear to limit the amounts GLAZA can deduct.18 Specifically, the Operating Agreement appears to limit GLAZA’s retention of membership fees to 25% for its administrative costs and the FY 2012 Financial Assistance, Special Events & Community Affairs MOU appears to require GLAZA to underwrite all of its indirect expenses (e.g., administrative, information technology, special events, and volunteers etc.).19 20

17 Although the MOUs expired at the end of FY 2012, the Zoo Department and GLAZA agreed to operate based upon the expired MOUs through FY 2016.

18 The MOUs are signed agreements negotiated between the Zoo Department and GLAZA while the 1997 Operating Agreement is a signed agreement that was negotiated between the City and GLAZA.

19 The 1997 Operating Agreement specifies: a) GLAZA may use a portion of fees charged for membership in the Zoo for its administrative costs. From each family, individual, and other membership fee, GLAZA shall retain for such purposes 25% of each fee; b) From each family, individual, and other membership fee, GLAZA shall remit 25% to the City; and, c) The remainder of monies received from membership fees shall be deposited into the City’s ZETF unless the Zoo Director and GLAZA enter into an MOU requiring GLAZA to perform services for the Zoo Department. If the MOU does not allocate the remaining monies received from membership fees, all such unallocated fees shall be deposited into the ZETF.

20 The FY 2012 Financial Assistances, Special Events & Community Affairs MOU specifies: As a result of all its unrestricted fundraising efforts, GLAZA will gift the sum of $365,000 to the Zoo Assistance Fund for public relations, marketing, and conservation efforts, and will entirely [emphasis added] underwrite the costs of the GLAZA departments and activities discussed herein, such as Development, Information Technology, Special Events, Volunteers, and other GLAZA produced or sponsored activities that “complete” the total operations of the Los Angeles Zoo, as well as the costs for finance and administration of GLAZA, including insurance. This term appears to indicate that unrestricted fundraising revenue are to fund GLAZA’s indirect expenses. We noted that GLAZA modified the FY 2016 MOU by removing the word “entirely.” GLAZA management indicated the edit was made to remove inconsistencies with the Membership, Publications, and Volunteer Programs MOU, but we found that Zoo Department management had been unaware of the edit. This occurrence indicates that the Zoo Department needs better controls to ensure all revenue-sharing modifications are agreed upon, and transparently delineated to all parties prior to the agreements’ formal execution.

The following table delineates GLAZA’s retention and distribution of shared membership revenue from FYs 2014 to 2016, in which nearly $4 million had been deducted for its indirect expenses.

During FYs 2012 and 2013, GLAZA deducted $1,199,189 and $1,150,411, respectively, from shared membership revenue for its indirect expenses. Thus, between FYs 2012 and 2016, GLAZA deducted a total of $6.3 million ($4.0 million and $2.3 million) for its indirect expenses from shared revenues.

Based upon the terms of the Operating Agreement and the FY 2012 Financial Assistance, Special Events & Community Affairs MOU, it appears that GLAZA should not have deducted its indirect expenses from shared membership revenues between FYs 2012 and 2016. However, since the Zoo Department entered into the Membership, Publications, & Volunteer MOU for FY 2012 with GLAZA, which allowed them to effectively retain 59% of shared membership revenues to offset their expenses, it appears the Zoo Department authorized additional deductions by GLAZA for its indirect expenses.21 22

21 It is also questionable whether shared membership revenues retained by GLAZA for managing the Volunteer Program is allowable.

22 We also noted that GLAZA deducted $6.3 million (61%) of its $10.3 million indirect expenses from shared membership revenues between FYs 2012 and 2016 without having a sound basis to support the deductions. Although GLAZA uses a spreadsheet that allocates percentages of its indirect expenses to the Membership Program, Publications Program, and Volunteer Program, GLAZA management indicated that the percentages had been developed many years ago and they did not have any documentation to support how the percentage allocations were developed.

The Zoo Department and GLAZA operate from expired MOUs and certain departures from MOU specifications were not formally documented.

For many years, GLAZA and the Zoo Department have operated from expired MOUs. From FYs 2014 through 2016, the Zoo Department and GLAZA operated from three MOUs that had expired on June 30, 2012. Further, for much of FY 2017, the Zoo Department operated from unexecuted MOUs with GLAZA, with the four MOUs being formally executed only in May 2017, the month prior to them expiring. We believe part of the reason for this occurrence is that most of the MOUs covered a period of one year. See the Table below.

The Zoo’s three-year Strategic Business and Marketing Plan also expired as of July 2017.24 25

Moreover, pursuant to the FY 2012 Membership, Publications, & Volunteer Programs MOU, GLAZA was authorized to deduct $812,308 from shared membership revenue to run the Publications and Volunteer programs. However, GLAZA deducted $1.1 million, $1.1 million, and $1.2 million, in FYs 2014, 2015 and 2016 respectively. Zoo Department management indicated they had been aware that GLAZA was deducting more for these programs each year, even though they did not officially approve the increases or review the specific costs.

23 This MOU expired in February 2017 when the Zoo Department assumed the responsibility for operating the Zoo’s carousel.

24 Per LAAC Chapter 27, Article 1, Section 22.711 the Zoo’s Business Plan must contain marketing and financial projects for the Zoo for a maximum period of 5 years, and include but not be limited to, methods to attract additional visitors and funds to the Zoo and calculations of funds anticipated to be received from fund raising, admissions (paid attendance) at the Zoo, City General Fund, membership, grants, concession(s), and other commercial enterprises.

25 On February 7, 2018, the Zoo Department submitted a one-year Business and Marketing Plan for FY 20-18 to City Council, indicating a multi-year plan will be developed that addresses recommendations contained in this Special Review.

A renegotiation, consolidation, and clarification of all agreements (i.e., Operating Agreement, Concession Agreement, and MOUs) with GLAZA could result in the Zoo Department receiving additional revenue for its operations.

Opportunities to Enhance Shared Revenues with the Zoo Department

Exclusive or Official Product and Service Agreement Revenues. To manage the Concessions Program, GLAZA received $1,037,439 from FYs 2014 through 2016. However, this amount does not include additional revenues GLAZA received from other vendors and the Concessionaire due to its management of the Concessions Program. For example, GLAZA received $567,706 in exclusive or official product and service agreements revenue. A portion of the exclusive or official product and service agreement revenues are not currently shared with the Zoo Department.

Free Benefits Provided to GLAZA Members and Business Sponsors. To price membership bundles, GLAZA uses an agreed upon recoup rate. The recoup rate refers to the ratio between the cost of daily admission prices and the cost of an annual membership. It is a measure of how many visits at regular price it would take to recoup the cost of a membership. The recoup rate was 2.0 for FY 2016-17, and prior to July 1, 2016, the recoup rate was 1.9.

While reviewing the FYs 2012 and 2016 Membership, Publications, and Volunteer Programs MOUs we noted that GLAZA’s membership bundles include free guest passes to the Zoo. However, these free guest passes are not factored into the membership price and recoup rate but they entice Zoo patrons to purchase a membership package. It is critical that the membership packages be fairly priced with consideration of admission prices. If the price of membership packages is too low, it can reduce Zoo admission ticket sales. Admission ticket sales are critical because they fund approximately 70% of the Zoo Department’s operating costs; while the Zoo Department receives all revenue from admission ticket sales, it receives only 26% of membership sales revenue.26

For example, as part of GLAZA’s family membership bundle and higher-level membership bundles (i.e., family deluxe, contributing associate, wildlife associate, and conservation associates) GLAZA used to provide up to 12 free guest passes for each bundle purchased.27 GLAZA provided its members between FYs 2014 and 2016 with more than 332,000 free guest passes; 65,500 (20%) were redeemed. These guests are not GLAZA members, thus the Zoo Department could receive a negotiated fee for all free guest pass redeemed. Similarly, the Zoo Department could also negotiate reimbursement for free guest passes redeemed by GLAZA’s business sponsors; however, this would decrease GLAZA’s sponsorship revenues.28 Zoo Department management indicated that it has not requested any reimbursement from GLAZA for the redemption of any free guest passes provided by GLAZA to its members and business sponsors.

26 Based upon GLAZA’s accounting records for shared revenue distributions between FYs 2014 and 2016.

27 According to GLAZA, since FY 2016, the number of free guest passes provided to its members had been reduced and currently, GLAZA offers 2-4 free guest passes to certain membership levels.

28 GLAZA also provides free guest passes to its business sponsors. Based upon information provided by GLAZA, between FYs 2014 and 2016, GLAZA provided 2,314 free guest passes to its business sponsors, of which 227 (10%) were redeemed. Again, the Zoo Department neither requested nor received any reimbursement from GLAZA for these redeemed free guest passes.

Family Membership Bundles May Be Too Incentivized. GLAZA’s family membership bundles do not limit the number of children or grandchildren that can be included in a family membership.29 Coupled with GLAZA’s free member benefits and discount offers, the family and family deluxe membership bundles are favorable. Zoo Department management indicated that they do not review or approve any membership discount promotions offered by GLAZA. However, given that membership package discounts change the recoup rate and can devalue the benefit of purchasing Zoo admission tickets, Zoo Department management should review and approve all discount promotions offered by GLAZA for its membership bundles if they deviate from the prices formally agreed upon by the Zoo Department. Or, if membership package discounts cause a drop to an agreed-upon recoup rate, it could be negotiated into future agreements that GLAZA share a higher portion of the membership revenue with the Zoo Department.

Due to conflicting terms between the Concession Agreement that GLAZA has with the City and the separate contract that GLAZA has with the Concessionaire, the Zoo Department has not received all concessions revenue it was entitled to.

The contract between GLAZA and the Concessionaire has a clause that appears to conflict with the Concession Agreement. The contract clause specifies:

All Zoo and GLAZA staff (full time and part time) and volunteers shall receive a ten percent (10%) discount on food and beverage purchases and twenty percent (20%) on merchandise purchases. GLAZA members shall receive a ten percent (10%) discount on food and beverage purchases and ten percent (10%) on merchandise purchases. Operator agrees to honor these discounts during the term of this Agreement. Gross receipts from these sales will be reported to GLAZA, monthly, but commission payments will not be made on these sales” [emphasis added].

The emphasized term conflicts with different terms in the Concession Agreement between the City and GLAZA, which requires that the City receive 10% of gross receipts from concessions revenue. The Concession Agreement defines gross receipts as the total amount of all sales or the amount charged for the performance of an act, excluding any cash discounts allowed or taken on sales and any sales or use tax added to the purchase price of an item.30 Thus, all sales, less any discounts provided, should be included in gross receipts when calculating the amounts due to the Zoo Department.

29 GLAZA management indicated there are unpublished limits on the total number of children and grandchildren allowed per membership level.

30 The Concession Agreement and Concessions MOU between the Zoo Department and GLAZA do not authorize any exclusion of discounted sales to Zoo Department employees, GLAZA employees, or Zoo volunteers from commissions. Further, the Concession Agreement and Concessions MOU do not specify any discount percentages provided to GLAZA members for food and merchandise purchases.

Upon discussing this discrepancy further, GLAZA management indicated that the Concessionaire has deemed the following sources of revenue as non-commissionable:31

• All food purchases by Zoo Department employees, GLAZA employees, and volunteers/docents.
• All food purchases for GLAZA or Zoo Department internal events, such as GLAZA Board Meetings, Zoo Commission Meetings, etc.
• All food purchases for internal business meetings (client, donor, vendor, etc.) held in the offices of the Zoo Director or GLAZA President.
• All snack purchases for Zoo-wide staff meetings.

Zoo Department management indicated they do not review the contracts GLAZA has with the Concessionaire and they were not aware of the conflict between GLAZA’s contract with the Concessionaire and the Concession Agreement.32 Based upon reports provided by GLAZA, the Concessionaire deemed $363,281 of its sales as non-commissionable during FYs 2014 to 2016, which resulted in the Zoo Department being underpaid $36,328 (10% of the sales deemed non-commissionable) in concession revenue due per the Concession Agreement.

Moreover, we found that the Concessionaire has been providing Zoo Department employees, GLAZA employees, and Zoo volunteers with a 50% discount on food purchases that does not correspond to the contract GLAZA has with the Concessionaire. According to GLAZA, this discount is offered because the Zoo is not located near other food outlets and employees/volunteers are not able to drive elsewhere for their meals. However, the 50% discount is much larger than the 10% discount delineated in the contract between GLAZA and the Concessionaire. Any discounts provided by the Concessionaire to Zoo Department employees, GLAZA employees, and Zoo volunteers should be discussed with the OCA to ensure adherence to the City’s rules, regulations, and mandated disclosure requirements. Further, to enhance transparency, all approved and negotiated discounts should be delineated in applicable agreements, MOUs, and contracts.

31 GLAZA confirmed that the Concessionaire is considering all sales to GLAZA members as commissionable.

32 GLAZA management indicated both the Zoo Director and Deputy Zoo Director have attended the GLAZA Board’s Concessions Committee meetings where these contracts were reviewed and discussed.

Recommendations

Insofar as the current governance structure and operational responsibilities exist,

CLA, CAO, OCA, Zoo Department management should:

8. Renegotiate and clarify all agreements and MOUs with GLAZA, preferably consolidating into a single agreement. Further, consider and evaluate the following items during renegotiations:

a) Revising the revenue-sharing terms by discontinuing the practice of GLAZA’s deducting its expenses from revenues shared with the Zoo Department, and consider allocating a fixed percentage of gross program revenues be distributed between the Zoo Department and GLAZA. If such a revision is not pursued, ensure the agreement(s) clearly delineate the direct and indirect expenses (if any) that are authorized to be deducted by GLAZA from shared revenues.

b) Ensure all applicable agreements with GLAZA, and any contracts GLAZA has with the Concessionaire, have consistent terms and accurately describe any discounts provided to Zoo Department employees, GLAZA employees and Zoo volunteers, while conforming to City rules and regulations and mandated ethics disclosure policies.

In 2012, the City attempted to change the Zoo’s governance arrangement from being City managed by the City’s Zoo Director, to being non-government managed by a not-for-profit organization. A consultant retained by the City indicated that a non-government managed arrangement could reduce the Zoo’s costs and increase revenues through a combination of increased flexibility, increased fundraising opportunities, and the gradual transition of City employees to not-for-profit employees through attrition.

The City issued an RFP to have a non-government entity manage the Zoo, and GLAZA’s proposal received the highest score. However, efforts for the Zoo to transition to non-government management ceased when the OCA identified several obstacles, including certain regulations preventing the supervision of City employees by a non-City supervisor.

This review identified several concerns that point to the need to revisit the Zoo’s long-term governance arrangement once again, as discussed below.

The Zoo Department has staffing shortages.

The Zoo Department does not appear to be optimally staffed which may be inhibiting its ability to achieve its vision to be an innovator for the global zoo community, creating dynamic experiences to connect people and animals.

Nearly all Zoo Department managers expressed concerns with staffing, mentioning custodial staff most frequently. Zoo Department managers also mentioned staffing shortages with animal keepers, maintenance construction helpers, and curators. Some of the specific concerns include:

• Custodial Staff: There has been a 29% (14 to 10) reduction in custodial staff levels from FY 2008 to FY 2017. Two of the 10 custodians are also assigned to prepare animal feedings at the Zoo’s commissary instead, further compounding the shortage of custodial staffing. With more than 1.8 million visitors to the Zoo each year, custodial staffing appears inadequate, this assessment is further confirmed by surveys of Zoo visitors between FYs 2015 and 2016 who rated the Zoo’s cleanliness lower than visitors to other benchmarked zoos.
• Curators: The Zoo Department does not have a horticulture curator or a conservation curator. Without these curators the Zoo Department continues to:

1. Voluntarily forgo the Zoo’s certification as a botanical garden due to difficulties it has complying with certain mandates (i.e. inventorying botanicals, maintaining logs, and labeling more than 800 different plants and trees at the Zoo).
2. Lack a formal, comprehensive, and coordinated conservation program focused on animals, plants, public participation, habitat restoration, conservation commerce, and “green” operations.33

Also, Zoo Department management indicated that it requires another education curator to develop a formal school-based curriculum that meets California State Science Standards. The lack of this curriculum reduces the ability of teachers to obtain authorizations for student fieldtrips to the Zoo.34 Based upon the Zoo Department’s Historical Gate Attendance (Appendix V) there has been a 60% decrease (between FYs 2002 and 2016) in attendance by Los Angeles Unified School District (LAUSD) groups, Head Start Program participants, recreation and park center groups, and children under 2.

Part of the decrease may result from the lack of a formal school-based curriculum.35 Further, not having a formal school-based curriculum that meets California State Science Standards may result in less Education Program revenues, as the Zoo Department charges a reduced entrance fee to non-LAUSD school groups. According to Zoo Department management, they recently surveyed teachers to identify their curriculum needs and plan to hire the additional education curator to re-establish a comprehensive school group program with curriculum that will meet California State Science Standards.36

Additionally, the Zoo Department’s Manager of Animal General Care indicated that due to staff shortages, when an animal keeper is on family medical leave, jury duty, worker compensation leave, vacation, or sick leave, it causes the other animal keepers to not only work faster, but also increase everyone’s workload to ensure the entire animal collection is cared for. The Manager of Animal General Care explained that the animal keepers’ workload is already heavy without the additional workload from co-worker absences.37

33 In FY 2017, GLAZA initiated a major effort to establish a $3 million fund to realize the Zoo Director’s desire to establish a formal, comprehensive, and coordinated conservation program for the Zoo. GLAZA’s Special Conservation Action Network Initiative has raised more than $1 million in financial support as of March 2018.

34 Other zoos and aquariums such as the San Diego Zoo and the Long Beach Aquarium have developed formal school- based curriculums and offer tours that meet California State Science Standards.

35 Zoo Department management indicated that the decrease may also result from reductions in school budgets for fieldtrip transportation costs.

36 We further noted that the Zoo Department does not offer any of its tours in Spanish, while other cultural institutions in Los Angeles County do, such as LACMA.

Further, based upon the conditions identified by this review, given the current governance structure and operational responsibilities, additional staffing is needed to enhance the Zoo Department’s fiscal oversight of GLAZA. Such employee(s) could be dedicated to monitoring GLAZA’s adherence to revenue-sharing arrangements and achievement of performance metrics. Currently, the Zoo Department has one senior accountant, one accountant, and three accounting clerks.38

In FY 2008, the Zoo Department had 268 authorized positions; however this number has declined by 13% over the last ten years, to 233 regular authority positions for FY 2018. Zoo Department management indicated they have attempted to increase staffing through budget requests; but those were not approved by City policymakers, because the General Fund would need to cover the associated indirect costs.

We noted that the above conditions may be the result of changes to the Zoo Department’s source of funding for its operations. According to the Zoo Director, in 2008, City Council directed the Zoo Department to eliminate its reliance on the General Fund for its direct operating cost. By FY 2015, the Zoo Department did so. It now covers all its direct costs with its operating revenues and accumulated reserves. However, between FY 2008 and FY 2017 the Zoo Department’s ZETF fund balance, which is to provide financial stability for the Zoo, has decreased by 70% ($10.4 million to $3.1 million), as the Zoo Department spent more than it received in revenues during that time.

The Zoo has infrastructure shortcomings.

Zoo Department management reported shortcomings with the infrastructure of the Zoo. Managers indicated that the Zoo’s animal collection is impressive, but parts of the Zoo’s facilities are not. While conducting this review, we learned:

1. The Zoo lacks sufficient lighting coverage at night, which is a safety concern. Although a project is in place to install lights in portions of the Zoo, upon completion an estimated 1/3 of the Zoo will still have no lighting.

37 According to Zoo Department management, they are completing an analysis of animal keeper staffing as part of the FY 2019 budget process.

38 At its peak in FY 2010, Zoo Department management indicated that it had one fiscal systems specialist, one senior accountant II, one accountant, and five accounting clerks.

2. The Zoo lacks infrastructure to use recycled water to irrigate the grounds or to flush toilets.

The Zoo uses “potable” water instead—a conservation concern.39

3. The Zoo lacks an adequate drainage system for sewage, storm water, and pool water. Larger sewer pipes added over the years in the upper parts of the Zoo feed older, smaller pipes of the original sewer system in the lower areas of the Zoo, leading to stoppages.
4. The Zoo lacks a modern electricity system—one that facilitates control of and separate metering of smaller areas of the Zoo. Such a system would facilitate conservation by reporting electricity usage for individual components of an exhibit or other structure.
5. The Zoo Department lacks adequate automation for efficient communication, coordination, and recordkeeping amongst employees. For example, the Zoo Department uses a paper- based maintenance tracking system, which results in employees having to inquire repeatedly to ensure proper resolution of each animal exhibit maintenance issue. Enhancing real-time automation of various Zoo Department systems would allow its employees to coordinate their work more efficiently and effectively.40

The above conditions exist because of other Zoo Department priorities and limited financial resources. It should also be noted that two-thirds of the Zoo’s infrastructure (i.e., water, gas, sewer, and electric delivery systems) date back to the 1960s. Additionally, before construction of the Zoo grounds at its current location, the land was a golf course with water and sewer systems buried to a reasonable depth. However, in constructing the Zoo grounds by adding hills, the existing infrastructure was covered with 5 or more feet of soil, making repairs costly.

Moreover, we learned that hand-held radios (provided to certain employees) and cell phones only function normally in about 80% of the 133-acre Zoo grounds, and do not work well (or at all) in the remainder. This may represent a safety concern as many Zoo Department employees use their cell phones or hand-held radios to remain in contact with other employees throughout the expansive Zoo grounds.

Addressing these conditions will help move the Zoo Department closer to achieving its vision, address the Mayor’s call for all City Departments to proactively mitigate or eliminate potential safety issues, and to contribute to and be responsible for the sustainability of Los Angeles.

39 The Zoo’s parking lot has infrastructure for using recycled water in the planters. However, inside the Zoo, the infrastructure is not present.

40 The Hogle Zoo reported significant increases in efficiency and employee satisfaction when they converted to an automated maintenance system.

The current governance arrangement appears to be inhibiting the Zoo from achieving its vision to be an innovator for the global zoo community, creating dynamic experiences to connect people and animals.

While the Zoo is City managed with the City’s Zoo Director being exclusively responsible for its administration and management, GLAZA has assumed the responsibility of managing multiple programs including: memberships, publications, volunteers, concessions, special events, community outreach, marketing, public relations (non-animal), site rentals, and catered events.

Yet the long-standing lack of clarity and inconsistencies amongst the Operating Agreement, Concession Agreement, and MOUs have continued to perpetuate issues with interpretation of revenue-sharing arrangements. As a result, the Zoo Department may have received less funding than it was entitled to. Further, based upon discussions with Zoo Department and GLAZA management, the public is less willing to donate to the Zoo because it is part of City government.

Industry Opinions on Zoo Governance

In the book Collaborative Governance: Private Sector Roles for Public Goals in Turbulent Times, the authors point to a future where government institutions partner with non-government institutions to engage a “force multiplier”41 and accomplish objectives neither side could achieve alone. Government managed zoos are a discretionary service, yet their animal collections require 24 hour/7 day a week care, and these zoos are often competing for limited resources from city, county, and state entities. As a result, most zoos across the nation have transitioned to non- government management. A 2016 Benchmark Report of 67 AZA accredited zoos across the nation found that only 13 (19%) were government managed—as is the Los Angeles Zoo–with the vast majority (54 or 81%) being non-government managed. One well-known zoo-consulting firm noted that all but six AZA-accredited zoos receive some form of government subsidy, with an average subsidy of 30%-35% of total revenues.

According to an article entitled “Characteristics of a world-class zoo or aquarium in the 21st century,” government administrative bureaucracy can be stifling and government-run zoos may find it difficult to become “world-class.”42 The article indicated modern zoos and aquariums need the flexibility to: 1) recruit and hire the best personnel; 2) remove unproductive personnel more easily; 3) speed up decision-making processes; 4) take more risks; and, 5) be less subject to the vagaries of government funding and political cycles.

41 Donahue, J., & Zeckhauser, R. (2011), Collaborative Governance: Private Sector Roles for Public Goals in Turbulent Times. PRINCETON; OZFORD: Princeton University Press, p. 4.

42 Hutchins, M. and Smith, B. (2003), Characteristics of a world-class zoo or aquarium in the 21st century. International Zoo Yearbook, 38: 130-141.

The article goes on to say,

This does not mean that world-class zoos of the 21st century will never come from the ranks of government-run institutions, only that they may be less likely to do so. Enlightened government leadership could create the right conditions for a modern zoological institution to flourish (e.g. Roberts, 1995), but it would mean giving up many cherished and politically popular notions, such as job protection, minimum risk taking and an over-dependency on public funding of core operations (Anderson, 1994; Baker, 1994).

The article does highlight that non-government managed zoos can also have downsides, such as the possibility that the core mission of the institution could become secondary to public relations and fundraising, suggesting that privatized institutions must “take great care to balance their marketing and development activities with their efforts in conservation, science, and education.”

In an attempt to identify potential enhancements to the current governance arrangement, we contacted representatives of 13 zoos across the nation, including both government and non- government managed zoos (with one zoo declining to participate). See the Table below.

Government Managed Zoos – Leading Practices

Based upon our benchmarking, other government managed zoos are receiving supplemental funding for operations through a dedicated portion of sales or property tax. Further, one government managed zoo received a unique entity designation, while another government managed zoo reported positive results when it reduced the function of its associated not-for- profit to focus primarily on fundraising. Specifically:

• Additional Funding Sources – Three of the five zoos reported receiving additional funding through special sales or property taxes levied to help fund zoo operating expenses. Point Defiance Zoo’s (PDZ) Director described the sales tax it receives as “very effective” because the zoo does not need to compete with other programs or other city management needs, and it provides a solid financial base for the zoo. The two zoos that do not receive sales or property taxes are Zoo Miami and the Smithsonian National Zoo. Zoo Miami relies instead on its operating revenues and a fluctuating subsidy from Miami-Dade County. A Zoo Miami representative indicated, “It is difficult to run a zoo with fluctuating revenue where food and labor costs rise steadily year after year.” As for the Smithsonian National Zoo, the federal government funds approximately 60% of its operating revenue, while donations, concessions and other earned operational revenue fund approximately 40%. Admission to the National Zoo is free. This review also found that several non-government managed zoos, such as the Sedgwick County Zoo, St. Louis Zoo, Utah’s Hogle Zoo, and Denver Zoo also receive supplemental funding through either a sales or property tax.

43 San Diego Zoo declined to participate in our benchmarking survey.

• Alternative Governance Structures for Government Managed Zoos – Governance of the St. Louis Zoo (SLZ) is by a unique State-designated government agency, the St. Louis Zoological Subdistrict, whose Subdistrict Commission governs the zoo–and nothing else. Under the Subdistrict Commission, SLZ has flexibility similar to a zoo operated by a not-for-profit organization, while its employees continue to participate in the City of St. Louis’ retirement plan. The not-for-profit associated with SLZ has no employees. Instead, SLZ employees staff the not-for-profit roles on a full- or part-time basis. Long ago, the St. Louis City Parks Department managed SLZ. The State of Missouri created the Subdistrict in 1972, as a cultural taxation Subsdistrict of the St. Louis Metropolitan Zoological Park and Museum District (ZMD). ZMD funds a substantial portion of the SLZ budget from property taxes levied by ZMD on property in St. Louis City and the separate St. Louis County. The PDZ is also governed by an entity independent of the city government, Metro Parks Tacoma, with its own authority to collect property taxes and manage and operate its facilities.

Upon completion of this review, we also learned of another city, the City of Toronto, that rejected a recommendation in 2012 to privatize its zoo, and it remains a City board and agency, though it is quasi-independent. Governance is effected through a Board of Management composed of 12 members (the Mayor or his/her designate, 3 Councilmembers, and 8 public members). The Board hires and evaluates the Chief Executive Officer, who is responsible for day-to-day zoo administration and supervises all staff.

• Focus More on Fundraising and Less on Managing Zoo Programs – The not-for-profit associated with PDZ fundraises and manages community relations for the zoo and does not manage any other PDZ programs. In the past, the associated not-for-profit had been responsible for selling memberships and collecting the related revenue; however, PDZ found that it worked better for PDZ to handle membership and ticket sales, while the not-for-profit focuses primarily on fundraising. According to the PDZ Director, PDZ found that it seems “most functional to include operational components, including membership, within one entity. This seems to lessen confusion over priorities and roles.”

Non-Directly Government Managed Zoos – Leading Practices

Based upon the benchmarking of seven zoos not directly government managed across the nation, certain zoos have reported significant increases in attendance, incorporated certain controls to enhance oversight of the not-for-profit managing the zoos, and capped the government subsidy. Specifically:

• Significant Increases in Zoo Attendance – The Dallas Zoo and Houston Zoo reported great increases in attendance after transitioning from government managed to non-government managed zoos, with Dallas Zoo reporting a 70% increase since the transition in 2009 and Houston Zoo reporting a 75% increase since the transition in 2002. Further, Houston Zoo has reduced admission fees for holders of Texas’ Lone Star Card. California has a similar Golden State Advantage EBT card used in the CalFresh and Calworks Programs, which could be evaluated by City Council to authorize discounts to cardholders and their household members, enhancing the Zoo’s ability to connect lower income California residents with animals.
• Government Appointees to the Not-for-Profit Corporation’s Board of Trustees – Certain cities such as Houston, Omaha, and Denver that have transitioned to non-government managed zoos are authorized to appoint a certain number trustees to the associated not-for- profit’s board. Including a provision for the government to influence the makeup of zoo governing boards allows the government to participate in decisions that affect an important City resource. It also facilitates communication between the not-for-profit and the government whose vital interests the not-for-profit serves.
• Capping of Government Subsidy – As part of the City of Houston’s operating agreement with the not-for-profit operating the Houston Zoo, it provides a capped annual management fee to the not-for-profit, which increases each year based on the Consumer Price Index. For 2016, the associated not-for-profit received a management fee of $9.6 million from the City of Houston or 19% of total revenues.

We also noted that Sedgwick County has a unique arrangement with the not-for-profit managing the Sedgwick County Zoo (SCZ). Specifically, in 1971, SCZ opened under non-government management by a not-for-profit with a 50-year operating agreement. A majority of SCZ staff are Sedgwick County employees (110), including the Zoo’s Director who is chosen by and is also the President and Chief Executive Officer of the not-for-profit. This staffing arrangement is not part of any type of transition, but part of the agreement with the not-for-profit in which Sedgewick County staffs, and pays the salaries and benefits for employees assigned to animal care, maintenance, horticulture, administration, custodial, and some education duties. Moreover, three members of the not-for-profit’s Board of Trustees are Sedgewick County leaders. A second not-for-profit corporation fundraises for SCZ.44

Non-Government Management of Cultural Institutions in Los Angeles

In 2011-12, the City initiated an effort to transition to a non-government managed Zoo through an operational agreement with GLAZA based on a competitive selection process. However, this transition was not pursued, primarily due to concerns raised by labor representatives regarding the supervision of Zoo Department employees by a non-City supervisor employed by GLAZA.

To provide perspective on how Los Angeles County transitioned three cultural institutions to a non-government managed governance arrangement, we contacted representatives from LACMA, the Natural History Museum (NHM), and the Music Center. LACMA and the NHM remained County Departments after the transition, while the Music Center is a related agency. While differences exist between these cultural institutions and the Zoo, as well as between the City’s Charter and Administrative Code versus the County’s regulations, the following illustrates how these institutions have transitioned to non-government management. It is also worth noting that all three non-government managed institutions continue to receive substantial financial support from the County.

❖ LACMA – A not-for-profit operates LACMA under a 99-year contract with the County. According to LACMA’s Statement of Activities for FY 2016, the County funded 47% ($23 million) of LACMA’s total reported revenues ($49 million). The County employs 30 of the approximately 450 employees who work at LACMA. One of these County employees is the LACMA Director who is also the Chief Executive Officer of the not-for-profit. Except for a few key officials, including the LACMA Director, when County employees retire, the not-for-profit hires their replacement.

❖ NHM – A not-for-profit operates the NHM. At one time, the County employed approximately 250 NHM employees. Now there are about 10 County employees at the NHM. The not-for- profit’s operating revenue base is public funding, secured by a contractual agreement with the County, and non-government funding from gifts, grants, and the not-for-profit’s enterprises. The County subsidizes the not-for-profit with about $16 million each year, representing about 40%-50% of its revenues. The County also provides NHM’s utilities. Each member of the County Board of Supervisors appoints three members of the NHM’s Board of Governors who also serve on the not-for-profit’s Board of Trustees and related committees, including its Executive Committee. As a result, the County Board of Supervisors appoints approximately 30% of the not-for-profit’s trustees.

44 Other privately-managed zoos such as the Dallas Zoo, Henry Doorly Zoo & Aquarium, and Houston Zoo also have two not-for-profits, one for fundraising and one to manage zoo operations.

❖ Music Center – A not-for-profit operates the Music Center under a long-term contract with the County. The not-for-profit fills two roles: 1) property manager of the Music Center structure and grounds (including Grand Park), and 2) overseer of artistic programming. The not-for-profit keeps finances between these two roles completely separate, as the County funds activities related to the facility, but revenue from performances belongs to the not-for- profit and the contracted resident organizations. These organizations pay a user fee to the not-for-profit under a formula, based on the combination of revenue received from the County and concession revenue. When the Music Center transitioned to a non-government managed organization many years ago, the not-for-profit’s security, ushers, and building maintenance departments were staffed by County employees. Upon retiring, the not-for- profit hired their replacements. For more than 25 years, the not-for-profit has not employed any County employees. Each year, the not-for-profit submits a budget to the County with line items for the Music Center’s security, grounds maintenance, building maintenance, guest services, utilities, and other costs. The County reimburses the not-for-profit for these costs, including the not-for-profit employees’ salaries and benefits and the costs to outsource custodial services. These County reimbursements do not include any subsidy for artistic programming.

The OCA has advised that under the City Charter and the Administrative Code section that created the Zoo as a City Department, a manager that is employed by a non-government entity cannot supervise Zoo Department employees, and the Zoo Director cannot be managed or controlled by a non-government entity. In addition, neither the Zoo Director nor the Mayor can delegate his/her management authority to a non-government entity.

The Zoo is a publicly prized asset and should operate under the conditions that would be most conducive to it reaching its full potential. The current governance arrangement in place over the Zoo, in which the City’s Zoo Department and GLAZA share responsibilities defined by an operating agreement and multiple MOUs, has become cumbersome for all parties involved, contributes to confusion, and makes accountability and transparency difficult to achieve. Beyond this, it is not the model that will allow the Zoo to maximize its potential to become the world class Zoo it aspires to be.

The question is not whether change is needed in the City’s governance arrangement for the Zoo, but what form that change will take. Ensuring a stable source of funding for the Zoo is essential, and some form of public subsidy may always be necessary. Nonetheless, the City must determine which governance arrangement will best support the Zoo and enable it to thrive and fully realize its vision to be an innovator for the global Zoo community, creating dynamic experiences to connect people and animals, with the Zoo continuing to remain a safe affordable family destination for Angelenos and surrounding communities for years to come. The City must then commit to following through on implementation of its chosen governance arrangement for the Zoo.

Recommendation

The City Council is urged to:

9. Establish a working group with members from the Mayor’s Office, the CAO, CLA, OCA, representative Council Offices, the Zoo Department, and other relevant stakeholders, including labor representatives, specifically to:
10. a) evaluate various governance arrangements (e.g., LACMA, St. Louis Zoo, etc.) considering the opportunities for enhanced funding and flexibility associated with each, to determine which arrangement will be in the best interest of the Zoo; and subsequently,
11. b) identify and implement the steps necessary to transition the Zoo to the most optimal governance arrangement.

Documents Reviewed

We reviewed relevant governance documents including, but not limited to: City Ordinances, City budgets and position authorities, the Zoo Department’s Business Plan, relevant correspondence between the Zoo Department, City Council, and other City leaders, the Operating Agreement and various MOUs with GLAZA, prior Controller audits of the Zoo and GLAZA, City Council meeting minutes, publications issued by GLAZA, GLAZA’s audited financial statements and federal forms 990, downloads from GLAZA’s accounting systems, limited samples of GLAZA expenses deducted from shared revenue with the Zoo, limited samples of GLAZA reported shared revenues, and an AZA benchmarking report.

Interviews, Site Visits, and Walk-Throughs

We conducted multiple interviews of Zoo Department and GLAZA management and staff, visited Zoo Department and GLAZA administrative offices and toured the Zoo facility, and conducted several walk-throughs of GLAZA processes used to track shared revenues and expenses.

Literature Review and Benchmarking

We researched literature related to zoo governance and contacted 13 zoos across the nation to identify various governance arrangements employed and to identify any other leading practices for possible incorporation by the City. We also contacted three non-government managed Los Angeles County cultural institutions to gain insight into how they transitioned to being non-government managed, recognizing that different rules and regulations may have existed prior to these transitions and the City Charter and LAAC may have different hindrances.