BEHIND-THE-SCENES-DRAMA : Talks Over Festival of Arts’ Lease in Laguna Beach Have Stalled

Less than two weeks before the opening of one of Orange County’s biggest summer tourist attractions, the Festival of Arts and Pageant of the Masters, pre-production is well underway: Staff and volunteers are sewing costumes, building artists’ booths, painting and landscaping.

But another drama is unfolding behind the scenes at the Irvine Bowl in downtown Laguna Beach. Lease negotiations on the roughly six acres that the festival rents from the city have halted abruptly, fueling a battle that has become both public and bitter.

The latest salvo was fired by the festival’s board of directors, which mailed a letter last week to every resident and business owner in the city, trying to drum up support for its newest proposal to rent the prime property on Laguna Canyon Road for $1 a year. If not, the letter warned, the festival may have to move from the canyon spot where since 1941 it has offered up its annual Pageant of the Masters, a show of artworks re-created by live models and set to live orchestral music.

“The current lease situation is killing us in Laguna Beach,” said Sherri M. Butterfield, the vice president of the board of directors and a Mission Viejo councilwoman.

The rent, now set at 13.75% of the festival’s gross receipts, has amounted to about half a million dollars in recent years. With rising expenses, the festival is hard pressed to fulfill one of its missions--donating an estimated $150,000 a year in scholarships to promising high school students and grants to arts organizations, festival officials said. The nonprofit organization also cannot afford to make the necessary capital improvements needed, board members said.

But city officials, who pride themselves on Laguna’s reputation as an arts community, said they have offered numerous times to reduce the percentage and set aside other money for maintenance and repairs.

“Everybody’s a little bit frustrated,” City Manager Kenneth C. Frank said. “We thought several times we were virtually in agreement” on a new lease.

The Chamber of Commerce of Laguna Beach, concerned that the festival might actually leave the city, also has gotten involved, at least to the point last week of asking both sides to continue talking.

In an interview, chamber President Bonnie Rohrer acknowledged that festival crowds boost sales for downtown merchants, restaurant owners and hotel operators. But she could not confirm the festival board’s estimate that it adds $6 million each summer to the local economy.

“We can’t tell people how to run their businesses,” she said. “We just desperately want it to work out.”

City officials never knew about the $1-a-year lease proposal until they read it in the festival’s public mailing. But the annual summer event is not expense-free for the city, which provides at least $20,000 in police protection. The festival also creates immense parking and traffic problems. Moreover, city officials said, they as landlord have seen maintenance and repairs be ignored for years even though annual audit reports given to them by the festival board often show a surplus.

“I can assure you that the festival is definitely not losing any money,” Frank said.

Negotiations to extend the lease, which expires Sept. 30, 2001, began more than two years ago and were initiated by the city. Two council members, Paul Freeman and Wayne L. Peterson, first represented the city in negotiations. They were replaced after a year by Steve Dicterow, the current mayor, and Councilman Wayne J. Baglin. By February, city officials said they believed that they were close to an agreement on a new, 20-year lease.

They were wrong. In March, the festival board sent city leaders a letter proposing to lease the property for $310,000 a year or buy it for $3.4 million.

“No other lease payment offers will be made or contemplated beyond what is presented in this letter,” it said. In April, the letter was published in a full-page advertisement in a local newspaper.

“We have said to them that we are willing to negotiate,” Councilwoman Kathleen Blackburn said. “We thought we were making progress.” A letter sent to the festival board in April reiterated that position.

Festival leaders conceded that they never approached the city with this newest $1-a-year idea, but said that as they talked about it among themselves, they realized that some other arts organizations in California have such arrangements.

The city cannot sell the property because of deed restrictions and other legal issues, officials said. But the council will not agree to a flat rate, as opposed to a percentage, on a 20-year lease because of inflation.

“This is a gigantic problem,” said Phil Freeman, the board president and a potter who has exhibited at the festival for 42 years. “The more we make, the more the city gets.”

Of the city’s latest offer, Freeman said: “It’s a short-term fix.”

While the rent rises each year (because the gross receipts increase), costs are rising too, board members said. Less and less money is available to fix the roof, add more bathrooms or replace the deteriorating wooden stage.

“We’re on a ‘going-out-of-business’ curve,” Butterfield said. “In 10 years, we can’t exist anymore.”

Despite the city’s efforts to help with capital improvements, Butterfield said the offer was tied to the creation of a four-member committee--two from the festival board and two from the City Council--that would decide how the money is spent. A tie vote would grant decision-making power to the city, as property owner.

“We’re uncomfortable with that,” she said. “We feel we’re in a better position to know what’s needed most.”

City officials, meanwhile, said they are perplexed by the recent turn of events, but declined to comment on specific allegations or criticize the festival board. They also said that they do not want the festival to move out of Laguna Beach.

“We’d rather focus on taking care of business than some PR fight in the newspaper,” Councilman Paul Freeman said. “We’re not going to get down in the mud. We want to work with them.

“There is unanimity [on the City Council] on reducing the rent and unanimity on a real partnership,” Freeman said. “Until and unless the festival wants to return to the table, we’re not going to carry out this discussion in the media or direct mail.”