February 3, 2015 § Leave a comment
Councilmember, Town of Herndon
It can be reasonably asserted that the residents of Herndon, most of the Town’s Non-Profit groups and even some of the restaurants contribute more to the economic welfare of FNL (and the Dulles Regional Chamber of Commerce) than the other way around. The question is, “ Are the Town’s politicians, who supported giving subsidies to FNL in 2011 by making or mimicking phony claims, ready to change or initiate policies that would benefit the Town, its local non-profit groups, and its restaurants equitably?”
Friday Night Live is an immensely popular concert series in the Town. It attracts hundreds of visitors from Herndon and the surrounding areas. Volunteers from many non-profit groups give their time and energy to FNL, because they believe it gives the Town a positive image. Indeed, many outsiders associate FNL with the Town of Herndon and its businesses.
FNL uses town employees and facilities to hold the concerts. In 2011, the Town Council developed a new policy for sharing the costs of town provided services. Under the proposed plan, all non-profits were required to reimburse 50% of the town’s costs. After consulting with FNL officers, the then Vice-Mayor Lisa Merkel made the following motion:
§ “Friday Night Live! would reimburse 50% of the Herndon Police Department and the Dept of Public Works’ costs not to exceed $10,000.”
§ “If there are 12 or fewer concerts due to cancellations, Friday Night Live would reimburse the Town’s costs not to exceed $7,500.”
§ “The 50% share would remain the same as long as Friday Night Live! is a free event to the public and the Town is listed as a major sponsor of the event.” (Emphasis added)
The Council approved the motion by a vote of 5-2. The then Vice Mayor, Lisa Merkel, and Councilmembers Sheila Olem and Grace Wolf made, in essence, the following supporting statements: (1) FNL does not make any money; no other organization in town gives back all its money, except its expenses, back to the Town’s organizations and beneficiaries (2) FNL has contributed hundreds of thousands of dollars to the community; and, offers venue for other non-profits to raise funds, and (3) putting a cap on their share of the costs would be a goodwill effort on behalf of the town (see the actual quotes in the main report) . Little did anybody in the audience know that they were simply parroting the talking points given to them by Doug Downer, the Chamber’s Vice President for FNL. This report dispels many myths and false claims about FNL by conducting a robust review of information available from public and private sources.
Myth No. 1 – FNL Is Owned Or Run By The Town:
FNL is a brand owned by the Dulles Chamber of Commerce. It is organized and run by Doug Downer, the Chamber’s Vice President for FNL and a Town resident until recently. The Downer family has been active in Town politics for a long time.
Myth No. 2 – FNL Makes No Profits: Even though it is a non-profit organization, the Chamber does not act like one as far as FNL is concerned. FNL raises funds by (1) selling FNL sponsorships, (2) selling beer at FNL events, (3) retaining a portion of the sales (or tips) earned by non-profits and (4) charging food vendors “the right to sell food” fees. The Chamber’s 2012 tax return shows that FNL earned profits of $84,395 in 2012. The profits amounted to (1) 35% of the money contributed by all fund raising events and (2) about 13% of the Chamber’s yearly gross income. The percentages would almost double, if FNL sponsorship proceeds are included in FNL’s gross income. The Chamber’s tax return suggests that they are excluded from FNL’s income.
The Chamber treats FNL and all other fund raising events as profit centers. Over the last 20 years, FNL is estimated to have realized profits of more than $1.2 million even if sponsorship income is excluded from the estimates. In comparison, the Town has contributed as much as $1.5 million in in-kind services to FNL since 1995.
Myth No. 3 – FNL Has Been Transparent About Its Profits and Charitable Contributions: Even though it is not required to do so, FNL submits statements of expected profits, called Pro Forma statements, with its grant applications. Year after year, the Pro Forma statements give misleading impressions of FNL’s profitability. For example, according to its Pro Forma statements, FNL expected to earn only $22,517 in 2012. Its actual 2012 profits turned out to be $84,395. Similarly, its 2013 and 2014 grant applications showed abnormally low Pro Forma profits.
This practice of deliberately showing abnormally low Pro Forma profitability year after year (especially, in the face of high actual profits) appears to have been designed to ensure that the Town staff (or, town residents) would not (1) deny the grant, (2) ask for higher contributions, or, (3) just ask more questions.
Myth No. 4 FNL Has Been Transparent About Its Charitable Contributions: FNL has been anything but transparent about its charitable contributions. For example, according to the Pro Forma statements, FNL expected to give $21,500 in charitable contributions in 2012. According to its tax return, however, it gave charitable contributions of only $5,948 in 2012. Thus, it overstated its charitable contributions by $16,552.
Are these contributions truly charitable? It is not as if FNL earns its income as a result of its own efforts, and then gives a portion to different non-profit groups. Volunteers from several non-profit groups including the Optimist Club, Herndon Boosters, PTAs and PTOs help sell beer, popcorn, glowing necklaces and other products. Their efforts generate the sales revenue. FNL collects all of the money and gives a portion of it back to each group. On its tax return, FNL claims the returned portion as “charitable” contributions!
Pro Forma Statements show that FNL was expecting to receive $6,500 in “glowing necklace sales, $3,000 in “popcorn” sales, and $7,200 in beer tips (for the All Night graduation and volunteer party) for a total of $16,700. However, according to its Tax Return, FNL gave back only $5,948 to the non-profits. Therefore, it appears that FNL retained about $10,752 from the revenue generated by the non-profits. In turn, this implies that FNL’s claim of making “charitable” contributions is at best disingenuous.
FNL claims that it has provided opportunities to non-profit groups for raising money for themselves. That is true, but it is only half the truth. The town has also provided the opportunity, by not charging the full cost of providing its facilities and personnel to FNL as discussed in the next section. FNL has taken advantage of free facilities and discounted services to generate additional revenue by using the services of the volunteers. The record suggests that the Chamber has kept twice as much money as it has given to the non-profits groups.
Finally, FNL makes the “charitable” contributions as a matter of business necessity. It needs to make such contributions in order to receive its liquor (sale) license. The absence of a liquor license would mean that it would not be able to sell beer and wine and probably would not be financially able to hold the concerts. Business necessity notwithstanding, the positive publicity that comes with charitable contributions does not hurt FNL’s corporate image.
Myth No. 5 FNL Pays Its Fair Share of The Town’s Costs: Every year, FNL applies for grant from the town and requests support from the Police and Public Works departments. The cover letter does not mention the use of other services and facilities, which include the following:
▪ Use of Municipal Center
• The Outdoor Stage (behind the HMC) for
• The Main Lobby for holding FNL sponsorship parties
• Electrical Outlets and Electricity
• HMC Parking Lot for placing porta-johns
▪ The Town Green – A large open space between the Municipal Center and the Library for people to enjoy food, beverages and music, for vendors to set up their tents and for FNL to give sponsor parties.
▪ Town Streets and Parking Lots for the town and out-of-town concertgoers.
▪ Public Works employees for hoisting FNL and Sponsorship Banners, installing perimeter fences, cleaning the Town Green and surrounding areas and disposing of the refuse after FNL events, and reseeding the Town Green, if necessary.
▪ Town Supplied Equipment and Town Administration: Town resources used by the assigned police and public works employees including, but not limited to: town vehicles: town buildings; police cars (including all of the equipment in them): fuel for vehicles; support services provided to the assigned police officers; maintenance of vehicles, equipment, buildings, lawns, flower beds; maintenance of parking lots and local streets (they get much greater use during FNL events); cost of the supervisory staff (to select and assign the personnel, to establish policies, monitor performance, tally costs, submit invoices to the Finance department, prepare and send invoices to FNL, receive and record payments, process FNL’s grant application, etc). Such indirect costs associated with the use of personnel are normally classified as overhead costs.
In conformance with the cover letter of FNL’s grant application, the Town calculates FNL related cost by accounting only for the direct salaries and fringe benefits associated with the assigned Police and Public Works personnel.
If the Town were to include its overhead costs in its estimates, the costs of Town’s services would increase from about $25,000 per year to more than $50,000 per year. Similarly, if the town were to charge minimal rental costs for the use of the Town Green and other facilities, the estimated costs would exceed $90,000 per year. The total costs would increase even further, if the costs of noise and air pollution associated with FNL are estimated and included in the estimates.
By not collecting its fair share (or, by receiving only about $10,000/year from FNL), the Town loses about $40,000 every year if only overhead costs are included in the estimates, and (2) about $80,000, if even minimal rental costs for the Town Green and parking facilities are added to the Town’s own estimates.
Under principles of equity, one half of the Town’s costs would be considered an equitable share of the costs. This means, depending on our policy, FNL should pay the Town an additional sum of either $20,000 per year or $40,000 per year.
Myth No. 6 – FNL Makes Significant Contributions To Local Restaurants and Businesses:
The Town presumably benefits by attracting a large number of people from the surrounding communities. For the participants, it is a fun atmosphere, as it should be. The question is who benefits from this apparently welcoming atmosphere?
The Chamber earns about $85,000 per year by holding FNL events (apparently accounting for sponsorship income). It takes all of its profits and uses them to run its operations. Very little of the profit, if anything, comes back to the Town.
Sponsors and Volunteers
According to FNL’s website, a company buying sponsorship of $20,000, receives coupons worth $9,000 for free beer and $2,400 for discounted food. Thus, FNL creates a fun atmosphere by offering free beer, free music and discounted food for employees of the sponsoring businesses and volunteers from various non-profit groups. Unfortunately, it uses food vendors to create this welcoming atmosphere.
Hot and spicy foods generate beer sales; therefore, the presence of food vendors increases the Chamber’s profits. The Chamber should treat them well, but it hardly considers them as partners in this endeavor. In fact, it extracts every penny out of them for its own benefit. It requires them to (1) sell food at discounted prices to FNL sponsors and volunteers and (2) pay a fee for setting up tents and selling their products. In 2014, each of the full-time vendors was required to pay a fee of $4,000.
Over the years, many vendors have come and gone. Hard Times Café, Euro Bistro, O’Sullivans, Jimmy’s Old Tavern, JJ Deli and TurCuisine are some of the restaurants that have serviced FNL in the distant or immediate past. They have generally found that, except for receiving publicity and “free” advertising (in FNL’s brochures and promotional cards), it is really not worth the effort to sell food at FNL events. Almost all of them said they work extra ordinarily hard to make little or no money. Consequently, they deeply resent the discount prices and the indirect subsidies they provide to the sponsors and volunteers. One of the vendors estimated that he loses about $4,000 due to the discounts every year. The Town tacitly blesses these inequitable practices of the FNL.
Four of the past and current FNL vendors own or operate restaurants in the local area. One of them, JJ Deli, is usually closed for business in the evening; as a result, FNL has no impact on its regular business. The sales of Jimmy’s Old Tavern and the O’Sullivans have increased by 2 to 3 percent, because some of FNL patrons eat and drink before and after FNL events. Mediterranean Breeze, located in the proximity of the Town Green, has also experienced an increase in sales of about 3% by selling “carry out” pizza during FNL events, and by catering to FNL patrons after the events. Dominos Pizza believes that FNL has made little or no impact on its store sales, but participates in selling pizza at the events, because it receives “some” publicity. Ice House Café stated that it loses sales every Friday because its customers cannot find parking.
Taken together, the restaurants have experienced an increase in annual sales of about $120,000. While this modest increase might have helped some of the restaurants, it has not made a material difference in the economic well being of the majority of the restaurants. It may have given them hope that they will do well in the future.
The Town of Herndon
The town collects about $2,500 in meals taxes on the net increase in restaurant sales of about $120,000; however, this increase does not come close to compensating for the subsidy of between $40,000 and $80,000 that the town provides to FNL. Town residents, the vast majority of whom have no say in FNL matters, and do not go to the concerts, subsidize FNL and the Chamber by paying more in taxes.
In summary, it can be safely asserted that the residents of Herndon, most of the Town’s Non-Profit groups and even some of the restaurants contribute significantly more to the economic welfare of FNL and the Dulles Regional Chamber of Commerce than the other way around.
The question is, “ Are Town’s politicians, who supported giving subsidies to FNL in 2011 by making or mimicking phony claims, ready to (1) change the formula for reimbursement of the Town’s costs and (2) initiate policies to benefit our local non-profits and businesses including restaurants to a much greater extent?”
For a detailed report, click
To review the supporting data, please click the following links:
1. Table 1
2. Table 2
3. Table 3
4. Table 4
 The Town, not the FNL, should really take the primary credit for allowing the non-profits to raise money and contributing to the community spirit. After all, it allows FNL to use its grounds, streets, Town Green and other facilities free of charge. Furthermore, it permits free admission to the concerts.