The following charts indicate the target completion dates for each of the seven components of the Vision Iowa project, and the project budgets and sources of funding (double click on image to enlarge):
Impact on Taxpayers
With approval of the Vision Iowa contract, council will be committing $12.3 million towards the $34 million dollar project. Of the $12.3 million, $7.65 million was approved by the voters for the Library referendum that was on the ballot last November. This leaves $4.65 million yet to be approved.
As indicated in the preceding chart, the $4.65 million is distributed across four of the seven Vision Iowa components as follows: Performing Arts Pavilion ($500,000), Recreational Trails ($750,000), Federal Avenue Streetscape ($1,600,000), and a Parking Structure ($1,800,000). Thought on each of these components is included below.
Our City Administrator has been able to work with staff and outside resources the past several weeks to shore up our comfort level with the accuracy of the estimates for the taxpayer funded portion of the projects. While that process continues, we are working to identify and quantify risk to each of these numbers so we understand not only where we are starting these projects out, but where we might end up if some of the unknowns materialize.
Though not directly part of the Vision Iowa scope and application, I have requested that we add a contingency amount to the $4.65 million that represents an insurance policy of sorts (for worst case scenario planning purposes only) against potential overruns to deal with unknowns. Further, we know the city will incorporate additional costs required to complete these projects efficiently. For example, the Federal Avenue Streetscape dollars deal strictly with work above ground. We know we need to replace the infrastructure below the street before we complete the Streetscape project. I’d like to add these costs to the $4.65 million (for planning purposes only), and similar required work that is in the short and long term plans (but will require expediting) so we can come up with an accurate financial projection of the real impact over the next five years.
Once we have this revised number, I have requested that staff generate a cash flow forecast that demonstrates our total spending pattern over the life of the project, including the incidental work the city will have to incorporate to facilitate the projects. Then, once the spending forecast is made, we need to communicate the impact to property taxes for the average taxpayer over the life of the project to support the Vision Iowa program. The City Administrator believes these financial projections can be completed prior to May 6, when the council votes on the contract for the first time.
Park Inn/National Bank
This week the council was copied on the Phase II Comprehensive Market Study Report prepared for the Wright on the Park Board by Hospitality Marketers International, Inc., dated December 2007. The report is exhaustive (72 pages) not including an addendum and executive summary. I have reviewed this report in detail, and am encouraged by the findings of an independent analysis. Though there are risks to the business plan for a future service provider (as is common in any business venture), the report indicates the Park Inn Hotel can fill a void in the market, and should be the rate leader in this market place. As supported by this independent report, I believe that reopening the property as a hotel is viable. As I policy maker, I want to make sure we insulate the taxpayers, to the best of our ability, from the inherent risk to this phase of VI (see “Contract” below).
One of the attractive features of Vision Iowa is that as a community we can complete the Park Inn AND the City National Bank restorations without direct investment of taxpayer dollars, a commitment made to the community a number of years ago. All of the support is indirect, and is comprised of initiatives we would undertake as a community regardless of the disposition of the Park Inn Hotel.
Mason City Public Library
Council opinion on this project is now irrelevant……the voters approved the bond referendum for the lions share of the project last November. Vision Iowa will contribute $1,000,000 to the project, leaving $591,840 to be raised from private sources.
Performing Arts Pavilion
The blog preceding this one deals exclusively with my thoughts on the Pavilion and the existing Band Shell. My thoughts remain unchanged from when I posted the blog. The Vision Iowa grant does not give us the opportunity to save the Band Shell at the existing site. In my opinion, the various components of the Vision Iowa project will do more to benefit the majority of the community than saving the Band Shell where it sits. Given that I have to choose between the VI proceeds and the Band Shell, I choose VI. Accordingly, I support the inclusion of $500,000 in city funding as indicated above to support this aspect of the project. My hope is that a portion of the $500,000 could be used to move the existing Band Shell to Ray Rorick (or any other suitable location that meets the majority approval of the community).
Mason City Architectural Interpretive Center
This portion of Vision Iowa does not utilize taxpayer dollars. I think the Interpretive Center will be a nice cultural addition to the community, and it is funded entirely by Vision Iowa, private contributions, and a Great Places grant.
Recreational Trails
The need to improve the trails system has been a component of every study we’ve completed in the last decade. Vision Iowa has become the impetus to complete work we’ve talked about for years, but haven’t followed through on in terms of financial investment.
Federal Avenue Streetscape
This component is paid for entirely by the taxpayers, however, it is a project identified by both the Comprehensive Plan, and the Downtown Comprehensive Plan. Again, we’ve talked for years, but have not taken any action. This is an outstanding opportunity to enhance the mall entrance and the plaza, which will compliment restoration of the Park Inn, the City National Bank Building, Central Park, and a number of private business investments in progress and recently completed. That said, I want to develop a reasonable approximation of the cost of infrastructure repairs in this area so we understand the real impact on the taxpayers. It is important to remember that this initiative is in the city’s long term plans regardless of whether or not the VI initiative existed. It is not a question of “if” we spend the money, it is a question of “when”. By proceeding now, we can count money we’ll spend anyway against the required community match to leverage the $9,000,000 VI grant.
Parking Structure
Like the Federal Avenue Streetscape, a downtown parking structure is in the city’s CIP budget. It is there not because of the Park Inn restoration, but because it was identified as a need by the Comprehensive Plan and the Downtown Comprehensive Plan. The $1.8 million included in the VI application came right out of the city’s CIP. Like the streetscape, it is not a question of “if” but “when”. By proceeding now, we benefit the Park Inn and are able to count it as a portion of the community match. At this point, it appears we are down to three options for the parking structure.
One option is to demo several buildings on the west side of the north mall entrance. I do not support this option: I am not interested in tearing down these buildings, and one of the owners has told me he has no interest in selling. Given that I don’t like this option anyway, I absolutely have no interest in imminent domain, which would be required to proceed if the owner does not want to sell. In my mind, this option does not exist (and that has been my consistent position since last July).
The other options include building the structure in the Bank of America lot, or on the city owned lot west of City Hall. While the BOA option is closer to the Park Inn, this will be the more expensive of the options since we’d have to acquire the land. The financial realities may dictate the structure go in the lot west of City Hall. The important thing at this stage is that we know we have options that can be completed within budget to satisfy the requirements of the VI contract.
Financial Analysis
There are many ways of looking at this project, and in many respects, how you look at it depends on what you want to see.
For example, one could say that for a taxpayer investment of $12.3 million, we will be able to complete $34 million in community enhancements by utilizing our taxpayer investment to leverage state and federal grants and private contributions. This is equivalent to adding value to the community for thirty-six cents on the dollar.
Another way of looking at it is to deduct the $7.65 million from the taxpayer investment, since the voters decided we’d move ahead on the Library renovation regardless of what happened with our Vision Iowa application. This implies we are spending and incremental $4.65 million to leverage $26.4 million in added value to the community (bond referendum deducted from taxpayer contribution and total project since voters have already decided). This is equivalent to adding value to the community for 17.6 cents on the dollar.
Or, one could deduct the trails ($750,000), Federal Avenue Streetscape ($1.6 million), and the Parking Structure ($1.8 million) from the $4.65 million taxpayer investment, since these are included in the CIP regardless of whether or not we take VI money. This leaves only the $500,000 included for the Pavilion, but not yet agreed upon by the council. From this perspective, $500,000 of incremental taxpayer investment leverages the $26.4 million, the equivalent of adding value to the community for two cents on the dollar.
Admittedly, these costs do not include all the costs we will incur (as was pointed out earlier); we will have to spend more on underground infrastructure for the Streetscape. But, even if we were to triple the incremental investment (Northbridge has been used as an example of a project that tripled) and the $4.65 million turned into $14 million, the total taxpayer investment of $21.6 million (Library bond added) would then be leveraging $43.3 million in investment, equivalent to fifty cents on the dollar.
At 50 cents on the dollar, this would still be a good deal for the community. And I can’t imagine us overrunning costs by a factor of three; I really believe we have learned from Northbridge. With the due diligence we have in progress, I think we will be able to do a reasonable job of forecasting our risk and upside cost. Then, as mentioned earlier, we need develop our expenditure forecast and evaluate the annual impact to the average taxpayer.
Vision Iowa Contract
This is where the rubber hits the road. The Vision Iowa contract really pins us down as a community, but it is representative of the terms and conditions that have been imposed on other communities that have received VI awards.
Last Tuesday a conference call took place by various parties to the contract. The call included the Vision Iowa attorneys, a Cerro Gordo County representative and attorney, Chamber Director Robin Anderson and Jerry Stambaugh (the Chamber’s attorney), Brent Tout and Tom Meyer (the city’s attorney), and Councilman Weaver. A second conference call is anticipated this next Tuesday.
The contract establishes a completion date for all aspects of the project of June of 2011. The dates indicated in the table above are targets: in the final analysis, everything MUST be complete by June 30, 2011.
Vision Iowa will reimburse the city at a rate of 26% of eligible expenses that have been incurred, or $1 million dollars (whichever is less) per quarter, meaning it will take a minimum of nine quarters to receive the entire nine million. So, each of our projects will need to be coordinated from a scheduling and cash flow basis to match the total of funds available. This is another reason I’d like staff to generate an expenditure timeline so we can evaluate the annual impact to our people.
The contract runs for 21 years. If any portion of the projects default, or are not maintained at a professional level in accordance with the highest industry standards during the first ten years of the agreement, the various parties to the contract are obligated to repay the entire nine million back to Vision Iowa. For years 11 through 21, the repayment liability for default decreases by 10% per year. By way of example, if the Park Inn hotelier closed shop in year 15, we would be obligated to establish a new service provider in a timely manner or, repay $4.5 million of the $9 million grant.
Without question, the greatest risk to the project is the viability of the hotel. Having read the feasibility study, I am more comfortable. However, I am hesitant to expose the taxpayer to this risk; this is a decision to be taken very seriously.
During my meeting with Brent and Robin on the 25th, I was informed potential service providers to WOTP prefer a longer term agreement. The WOTP Board believes they can have a long term contract in place during the fourth quarter of this year. If that agreement can mitigate the risk, the taxpayers are in a strong financial situation.
So, What’s Next?
The council will be asked to give preliminary approval to the contract on Tuesday, May 6th. I see no reason why we would not do so at that time, as several checkpoints remain after that date. The Vision Iowa Board is scheduled to approve the contract on May 14. The remaining signatories (which include the Mason City Chamber of Commerce Foundation, Wright on the Park, The River City Society for Historic Preservation, The Mason City Public Library Foundation, the City of Mason City, and Cerro Gordo County) have 45 days thereafter to give final approval and sign the contract. That buys us some time to work through some of the financial projections I have mentioned throughout should they not be ready on May 6th.
Furthermore, once the contract is signed, it is unlikely we will be in a position to spend much, if any money, the remainder of this year. There is much design work to be completed. The highest probability for early spending in the program is for the Pavilion, which utilizes just $250,000 of Vision Iowa money. So, if the WOTP Board is unable to secure a long term contract with a hotelier by the end of the year, the city (council) retains the option to default on the contract. Our only obligation at that time would be to repay any Vision Iowa funds that had been received up to the time of default. So, we can in theory sign the contract within the designated time frame, and limit our exposure to $250,000 (or less) for the balance of the year. This gives us additional time to sharpen pencils and make sure we have identified risk to the taxpayer, and developed contingency plans to address this risk.
And, there is another key check point yet this year. The community, led by the Chamber and project partners, is contractually obligated to raise the entire $4,317,177 from private sources (rounded to $4.3 million in table at beginning of this blog) within 180 days of when the contract is signed. If this money is not raised (contributions and pledges up to three years), the whole deal falls apart. So, by December 31st, we’ll know if we have a long term contract with a service provider for the Park Inn hotel, and we’ll know if we’ve met our fundraising obligation. Our exposure between now and then is limited to what we spend the balance of this year at 26 cents on the dollar for “eligible” expenses.
Development Agreement
One of the items Brent, Robin, and I discussed on the 25th was the potential for putting a development agreement in place with all the contractual parties. This agreement would identify scheduling obligations for each party, and would prorate financial responsibility should the community default anytime during the 21 year duration of the contract. This development agreement would help establish the responsibilities and deliverables of each entity, while also helping mitigate liability. For example, the development agreement could obligate the WOTP Board to execute a long term agreement with a hotelier before VI funds could be expended on the project.
At this point, I would like to see the council pass a resolution of intent to execute a development agreement as indicated prior to final approval of the contract, with a stipulation that the development agreement be in place before public monies are expended. That too would buy us some time to develop and approve the agreement on down the road even as fundraising continues and we work towards the December 31 targets mentioned above. And, this further mitigates risk and keeps options open.
One thing we need to all be aware of is that the completion date for the overall program is June 30, 2011, As time goes by, construction schedules will be compressed, which in turn adds cost to meet the deadline. This is precisely why we need reliable project schedules and cash flow forecasts for each component and the total program, and each entity needs to be accountable to hold to the schedule at the agreed upon cost.
Final Thoughts
For years I’ve heard folks complain that we aren’t moving the community forward. This is a tremendous opportunity to add value to the community at a fraction of the total cost to the taxpayer. I’ve been to Dubuque, and I’ve seen what Vision Iowa funding can do to transform an entire community when the leaders have the courage to take an educated, calculated risk. We have that opportunity now, and we may never have it again in our lifetime.
There is a cost to each of us, to be sure. But there is a cost for doing nothing as well. As our population declines and we have more senior citizens on fixed incomes, we will be forced to increase taxes just to maintain status quo. And, it is entirely conceivable that such tax increases could surpass those we now consider not for status quo, but for growth. Arguably, this overall initiative will not add jobs, nor will it grow the tax base. But, it will contribute mightily to the quality of life for those of us that live here. And, it will further enhance our community and North Iowa as a destination. As we’ve discussed these past months with the Hotel/Motel tax referendum, tourism and retail are big bucks to Mason City, and these strengths help us hold the line on taxes.
I would be remiss not to touch base on the role of the Chamber in this initiative. The Chamber is not “running” Mason City. The Chamber has worked diligently with a number of partners, which include city representation, to create an opportunity for the community. The Chamber in and of itself cannot move this project forward. In the end it will come down to four YES or NO votes by people the community has selected to represent their viewpoints. The Chamber has done an outstanding job representing the community and creating an opportunity for the council and community to consider. It is not uncommon for the city to hire outside agencies to represent our interests, like when we hire engineering firms to apply for federal clean air attainment funding for overpasses. In this case, the Chamber worked for the community for free. And quite honestly, the Council could have never pulled this off……none of us have the time or the expertise to bring a project of this magnitude to the point we now find ourselves. It is worth noting we’ve debated the Federal Avenue Streetscape for years now, and nothing has happened. That is now but one component of a fascinating initiative. I for one would like to thank the Chamber and all the project partners for the hard work and dedication for creating an opportunity that could positively reshape the community.
I have been to three Vision Iowa meetings. The Board members are tough, savvy business men and women, and it is a difficult task to receive an award. It is amazing that we were not only successful with our application, but we were granted the entire remaining amount of funding. The Vision Iowa Board believes in this project, and they believe in Mason City. If that were not true, we would not be having this community dialogue.
Now, we need to believe in ourselves.
Scott Tornquist
