Olympic Times

City of Port Townsend issued the following announcement on Jan. 1.

The coronavirus pandemic reduced Fort Worden Public Development Authority revenue by $5 million in 2020, and while expenses were cut by $3.75 million, the entity finishes the year with a $1 million operating loss.

The $5 million income decline is “unrelated to any irregularities or activity like that,” PDA Interim Executive Director David Timmons reported at a Dec. 29 special meeting of the PDA Board. The financial hit is “straight up” the number caused by the pandemic’s hammer on the PDA’s business model so reliant on conference center and hospitality services, Timmons said.

Timmons reported the PDA is ending 2020 with $1.7 million in total income and $2.6 million in expenses, “a million-dollar operating loss this year.” The PDA earned $5 million less from 2019 to 2020, and spent $3.75 million less from 2019 to 2020, Timmons noted.

Two pieces of good financial news were reported. During the pandemic, campus partners (non-profits and businesses) did their part by staying current on lease payments and their share of utilities. “The partners did step up and they were a big help,” Timmons said. Also, as Timmons works to unravel the PDA’s complicated finances, he discovered $347,000 in one grant that had not been drawn yet. Also, a check is in the mail to the PDA for $543,000 on another grant.

LOOKING FOWARD

The PDA’s tenuous business model was laid bare by the pandemic and made worse by decisions the previous administration made to use grant money intended for specific projects to instead pay staff and operating expenses in March through June, for example. The PDA had also been using credit cards (some of them, overdue) to pay expenses. There’s also the matter of $2.1 million in lines of credit due Kitsap Bank (with payment deferred at least to January 2021).

The Washington State Auditor’s Office is conducting an accountability audit. It has previously been reported that two transactions totaling $10,000 may be under legal scrutiny.

“The problem we’re having now is we’re literally trying to reconcile from [2015] coming forward and tie all of these financial reports together,” Timmons said, apologizing for the delay in producing those numbers sought by the State Auditor’s Office and the PDA board.

BUDGET DECISIONS

The Dec. 29 special meeting agenda called for approval of a 2020 supplemental budget. Timmons explained that state law sets spending limits tied to an entity’s adopted budgets for operations and capital projects. Upon further review of available PDA records, it is clear the PDA does not reach the threshold required for a supplemental budget, Timmons said, so no board action was needed.

PDA documents show a 2020 Operating/Hospitality budget of $6,093,695 and an actual (year to date) amount of $2,675,110. The Capital Improvement Fund was adopted a year ago to be $6,401,065 and now, the actual (year to date) amount is $3,090,471.

The PDA is transitioning into a new business model. In terms of hospitality services, Timmons said he is “not there yet to be able to present a line item budget” so he put together reports from 2020 to carry into 2021 as basis to establish budget number.

After discussion, the PDA Board passed a resolution to adopt an Enterprise Services Fund budget for fiscal year 2021 of $5,765,481. The proposed 2021 budget is strictly a “placeholder” document, Co-Chair Todd Hutton emphasized. “Next year’s budget may not look anything like this.”

For example, there is $1.7 million in room rental revenue on the books for 2021 which needs to be reconciled with available cash and projections on how many of those reservations will be realized. Absent a crystal ball, it’s impossible to tell, Hutton noted, with “an enormous amount of work to be done.”

PDA Board Treasurer Jeff Jackson talked about staff working on revenue forecast models focused on lodging, food and conference center capacity for example, to determine profitability and expenses for 2021. Expected to help the PDA determine which business models to open and when, Jackson said the modeling does not account for long-term maintenance costs on state-owned Fort Worden building. Most of which date from 1902-1942.

Board member Herb Cook asked if by adopting the 2021 budget, the PDA estimates it will achieve $5.7 million in revenue for 2021. Yes, Timmons, responded, from all revenue sources.

“There is kind of a glimmer of hope that things are coming back,” Timmons said of Fort Worden business activity expected by summer of 2021.

Timmons also explained the legal requirement to pass a budget. Without an approved budget by year’s end, staff or board members approving expenditures prior to budget approval can be held personally liable for those expenses. Timmons said the “placeholder” budget serves as the bridge into 2021.

During the meeting’s Public Comment section, Port Townsend Mayor Michelle Sandoval asked for clarification on the liability point. Timmons explained that state law requires an adopted budget for authorized expenses. If expenses are authorized without an approved budget, the person making those spending decisions ¬ the executive director, finance officer and/or board – can be held personally liable for those expenses.

MAKERS SQUARE

Regarding the Makers Square project – renovation of under-utilized buildings for permanent and temporary tenants and programs – Timmons reported that the PDA had mistakenly leased the property twice to two different entities. The answer is to erase one transaction and have the Makers Square LLC lease assigned to the Fort Worden Foundation. “The PDA essentially can’t lease to two separate legal entities,” Timmons noted, in cleaning up a mistake made by the previous administration. The PDA Board approved the recommended change.

Also, the Makers Square LLC lease needs to be amended to incorporate sub-recipient grant agreements for grants that PDA has sponsored and passed through for the project. These agreements need to adhere to current requirements.

Timmons reported “a lot of things that we’re finding that we’re just going to have to take care of,” regarding Makers Square, with a target closing date in January.

The PDA Board approved the recommended changes.

Several times during the Dec. 29 meeting (as he has done in previous meetings since being named Interim Executive Director in late October upon the retirement of Dave Robison as executive director, Timmons referred to the time it’s taking to reconcile PDA finances.

Timmons noted that the PDA’s finance staff amounts to 1.5 full-time  people who need to reconcile books back to 2015, prepare documents for the State Auditor’s accountability audit, prepare budgets and work on grant applications.

“We’re making progress,” Timmons noted, but “we’re just so far behind to catch up.” 

Timmons said that he hopes the backlog of financial information can be sorted with a formal report by March 2021.

The next PDA Board meeting is to be either Jan. 13 or Jan. 20, 2021.

Original source can be found here.

Source: City of Port Townsend