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HomeMy WebLinkAboutATTACHMENT D Commerce PFD Formation Feasibility Review STATE OF WASHINGTON DEPARTMENT OF COMMERCE 1011 Plum Street SE  PO Box 42525  Olympia, Washington 98504-2525  (360) 725-4000 April 3, 2024 Honorable Jay Inslee Washington State Governor PO Box 40002 Olympia, WA 98504-0002 Dear Governor Inslee: In accordance with RCW 36.100.025(3), the Department of Commerce is electronically submitting the final independent feasibility review for the Jefferson County Public Facility District formation project. This review is available at: Report: https://deptofcommerce.box.com/s/e7qsrlp0k44bqm6gdol3cl4hlzjdyoq7 Commerce’s primary role in this process is to contract for an independent review to provide objective and timely analysis of the financial feasibility of the proposed project. The statute further directs Commerce to make the review public and to submit it to the governor, the state treasurer, the state auditor, the public facility district and participating local political subdivisions, and appropriate committees of the legislature. We hope this review is helpful to Jefferson County and participating governments in informing decisions about their project. Sincerely, Mark Barkley Assistant Director, Local Government Division cc: Mike Pellicciotti, Washington State Treasurer Pat McCarthy, Washington State Auditor Mark McCauley, Jefferson County Project Manager Participating Local Political Subdivisions DocuSign Envelope ID: 32065395-CF5F-4970-87A8-6BD7F8B6A34F 4/3/2024 | 3:35 PM PDT ATTACHMENT D Independent Financial Feasibility Review Proposed PFD FormaƟon by Jefferson County, Washington for AquaƟc and Wellness Facility Prepared for Washington State Department of Commerce By Susan Musselman LLC Dated April 3, 2024 [THIS PAGE INTENTIONALLY LEFT BLANK] Cover photo shows the Mountain View Pool, located in Port Townsend, Washington. hƩps://www.olympicpeninsulaymca.org/locaƟons/branch/mountain-view-pool/ Page i Independent Financial Feasibility Review Proposed PFD FormaƟon by Jefferson County, Washington TABLE OF CONTENTS EXECUTIVE SUMMARY INTRODUCTION PFD Proposal Independent Financial Feasibility Review PFD FormaƟon in Washington State PFD Powers PFD Funding and Revenue PFD OperaƟons BACKGROUND ON EXISTING FACILITY The ExisƟng Pool Lease of ExisƟng Pool to the City City of Port Townsend – Lessee/Operator YMCA – Pool Operator STEERING COMMITTEE FormaƟon and Purpose Key Partners The City of Port Townsend Jefferson County Port Townsend School District Olympic Peninsula YMCA Jeffco AquaƟc CoaliƟon Page ii HEALTHIER TOGETHER FEASIBILITY STUDY Overview Project SiƟng Programming/Project Features Preliminary Capital and OperaƟng Costs Steering CommiƩee RecommendaƟons Capital Funding Plan - Base OpƟon OperaƟng Analysis - Base OpƟon PFD FINANCIAL CONSIDERATIONS Facility OperaƟons Revenue from 0.20% Sales and Use Tax Costs for PFD AdministraƟon Capital Funding Plan CONCLUSION PotenƟal Costs RelaƟng to PFD FormaƟon APPENDICES: APPENDIX A Provider of this Independent Financial Feasibility Review APPENDIX B Documents Reviewed in Performance of this Independent Financial Feasibility Review Page 1 Independent Financial Feasibility Review Proposed PFD FormaƟon by Jefferson County, Washington EXECUTIVE SUMMARY This independent financial feasibility review is triggered by the proposed formation of a Public Facilities District (“PFD”) by Jefferson County pursuant to RCW 36.100.025 and is provided by Susan Musselman LLC, through contract with the State’s Department of Commerce. A multi-agency steering committee has recommended formation of a countywide PFD in Jefferson County (the “County”) for the purpose of constructing an aquatics and wellness facility to replace an existing pool in the City of Port Townsend (the “City”). The steering committee, created pursuant to a Memorandum of Understanding, is currently made up of representatives from the City, Port Townsend School District (the “School District”), Jefferson County Public Hospital District #2, the County, Jeffco Aquatic Coalition and the Olympic Peninsula YMCA. A PFD, which may be formed by a city or county, is an independent taxing district and has all the usual powers and responsibilities of a municipal corporation. Among these is the power to impose certain taxes, to impose charges and fees for use of its facilities and to accept and expend gifts, grants and donations. In February 2023, the City contracted with a team of consultants to provide planning and architectural services for development of a recreation facility feasibility study to include an aquatics center to replace an existing pool in the city limits. The final report was dated September 18, 2023 (the “Study”). Steering Committee Partners  Jefferson County  City of Port Townsend  Jefferson County Public Hospital District #2,  Port Townsend School District  Jeffco Aquatic Coalition  Olympic Peninsula YMCA Page 2 The existing pool was built by the School District in 1963, is located on School District property and is leased to the City, which has operating control. The School District, as owner of the pool, and the City, as pool operator, recognize that the existing pool is nearing the end of its life and there is an interest in developing a new aquatic center. The Study included development of a level of conceptual design and an estimated project budget of $37.1 million for a new aquatics center. The capital funding plan contemplates $17 million of fundraising to include state and federal grants and philanthropy, with the other $20.1 million to be paid from proceeds of bonds to be issued by the proposed PFD. The Study concludes that the projected operating revenue from the facility as proposed would not cover anticipated expenses and includes an approximate $400,000 operating subsidy from the City to balance the operating budget. Without a subsidy, the projected revenues are not adequate to cover expected facility operating costs. The following table shows the estimated capital cost, as well as the estimated annual operating expenses and revenues, and the resulting subsidy requirement for the proposed project. One-time Annual Facility Options Capital Cost Expenses Revenues Subsidy Base $37,182,810 $1,268,557 $834,466 -$434,091 Source: Healthier Together Center Feasibility Study The Steering Committee recommended formation of a PFD by the County and that the PFD seek voter approval for a 0.2% (two-tenths of 1%) sales and use tax. Based on the implied taxable retail sales of $805,000,000 for 2023 it is estimated that a sales and use tax of 0.2% would result in annual tax revenue of approximately $1,610,000. Apart from the proposed facility, a PFD will need funding for its own administration, including initial organizational costs. These include staff, which may be full or part-time to coordinate the work of the PFD, insurance, planning resources, and funds to pay costs of administering an election for the proposed sales and use tax. Sales and use tax revenue would be needed to fund PFD administration, unanticipated operating shortfalls and reserves, and debt service. The Study consultant has estimated debt service for $20 million of financing, for 30 years at 5.5% will be $1,513,719, which is expected to result in financial shortfalls, at least in the early years. Page 3 Although significant work and studies have been performed by community partners, resulting in the recommendation to the County to create a PFD, the board of directors to be appointed to govern the PFD may modify the plans and budget for a new aquatic center. The specific programs, location, design and project costs referenced herein should be viewed as aspirational at this point. The PFD, if formed, is expected to seek a more detailed, project specific independent financial feasibility review prior to issuance of any indebtedness, or the long-term lease, purchase or development of a facility by the PFD in the future, as set forth in RCW 36.100.025. It is expected that the PFD will refine its project and capital funding plan prior to requesting an independent financial feasibility review relating to the issuance of any proposed debt. If the proposed PFD is formed, the PFD board of directors will need to refine estimates of revenue available from a potential sales and use tax and develop a budget for PFD administration, any operating shortfalls and reserves to determine how much revenue is projected to be available to support debt service on bonds. It is not the goal of this review to create, test or otherwise opine on the costs for capital or operations, but rather to identify costs specific to the formation of the PFD by the County. The PFD is expected to request a separate review that will focus on operating and capital costs, prior to the issuance of any debt, as required by RCW 36.100.025. The potential costs to be incurred relative to the proposed formation of the PFD by Jefferson County are summarized as follows. Additional detail, integral to this review, is included in detail in this report. 1. The PFD will need start-up funding to enable it to operate. 2. The PFD will need money to pay costs to undertake an election to seek approval for voter approved funding. 3. The PFD is likely to incur costs for additional studies, planning or review prior to seeking a vote on PFD-imposed taxes. 4. As proposed, the project requires significant fundraising for capital in addition to any capital financing by the PFD. 5. As proposed, the operational analysis indicates that the project will require an annual operating subsidy, which may be provided by the City. 6. The City is anticipated to incur costs related to the proposed PFD. 7. The County is anticipated to incur costs related to the proposed PFD. Start-up and ongoing costs should be expected for any PFD. It will not be possible for the PFD to do meaningful work without a source of start-up funding as they are required to seek voter approval prior to receiving direct revenue. For many newly-formed PFDs, this cost is covered by the forming entity or other stakeholders. Page 4 [THIS PAGE INTENTIONALLY LEFT BLANK] Page 5 Independent Financial Feasibility Review Proposed PFD FormaƟon by Jefferson County, Washington INTRODUCTION PFD Proposal A multi-agency steering committee has recommended formation of a countywide Public Facilities District (“PFD”) in Jefferson County (the “County”) for the purpose of constructing an aquatics and wellness facility to replace an existing pool owned by the Port Townsend School District (the “School District”) and leased to the City of Port Townsend (the “City”). The existing pool is currently operated by the Olympic Peninsula YMCA (the “YMCA”) pursuant to an agreement with the City. The steering committee, formed through a memorandum of understanding, was initially made up of representatives from the City, the School District, Jefferson County Public Hospital District #2, the County, the Port of Port Townsend, Jeffco Aquatic Coalition (“JAC”) and the YMCA. The City hired a consultant to assist the steering committee as it considered information and alternatives for planning and support for a proposed aquatic facility. The following statement is included in the background section of the final report prepared by the consultant: “Concentrated efforts have been made since 2001 by the City of Port Townsend, in 2008 by a nonprofit, in 2012 by Jefferson County, and 2014-2018 by the YMCA and Hospital District. The ongoing need and interest in replacing the exisƟng anƟquated pool and adding health and wellness components was documented through community feedback . . . ” The proposal subject to this independent financial feasibility review is formation of a PFD by Jefferson County to construct an aquatics and wellness facility. Page 6 Independent Financial Feasibility Review State law (RCW 36.100.025) requires an independent financial feasibility review to be completed prior to: (1) formation of a PFD by a county, (2) issuance of any indebtedness by a PFD, or (3) the long-term lease, purchase or development of a facility by a PFD. The independent financial feasibility review must be conducted by the department of commerce through the municipal research and services center or another contracted entity. This review is triggered by the proposed formation of a PFD by Jefferson County and is provided by Susan Musselman LLC, through contract with the State’s Department of Commerce. Information regarding the contractor, Susan Musselman LLC, is provided in Appendix A. The purpose of the review, as set forth in the statute, is summarized here: The review is to examine the potential costs to be incurred by the PFD and the adequacy of revenues or expected revenues to meet those costs. Upon completion, the independent financial feasibility review is to be a public document and must be submitted to the governor the state treasurer, the state auditor, the PFD and participating local political subdivisions and appropriate committees of the legislature. The PFD, if formed, is expected to seek a more detailed, project specific review prior to issuance of any indebtedness, or the long-term lease, purchase or development of a facility by the PFD in the future, as set forth in RCW 36.100.025. The primary documents reviewed in performance of this independent financial feasibility review are listed in Appendix B. Page 7 PFD Formation in Washington State State law allows for PFDs to be formed by cities, counties or contiguous groups of cities with an Interlocal Agreement under 39.34 RCW. The process and details relating to creation of a PFD are set forth in detailed statutes in Sections 35.57 (formation by cities) and 36.100 RCW (formation by counties). Upon formation, the PFD is an independent taxing district and has all the usual powers and responsibilities of a municipal corporation. Among these is the power to impose certain taxes, to impose charges and fees for use of its facilities and to accept and expend gifts, grants and donations. For a review relating to the formation of a PFD we, as an independent consultant, will necessarily rely upon planning and work undertaken by various parties to develop a vision and general proposal. Because the PFD will not be bound by the prior work and plan of the entity forming the PFD the review will focus on costs specifically related to the PFD formation and start-up needs. The specific programs, location, design and project costs described herein should be viewed as aspirational. PFD Powers A PFD is an independent taxing district and has all the usual powers and responsibilities of a municipal corporation. State law specifically provides the following: A public facilities district constitutes a body corporate and possesses all the usual powers of a corporation for public purposes as well as all other powers that may now or hereafter be specifically conferred by statute, including, but not limited to, the authority to hire employees, staff, and services, to enter into contracts, including contracts with public and private parties, to acquire, own, sell, transfer, lease, and otherwise acquire or dispose of property, to grant concessions under terms approved by the public facilities district, and to sue and be sued. Page 8 PFD Funding and Revenue Various charges, fees and taxes are legally available for imposition by PFDs under state law, some of which require majority vote by the electorate within the PFD. (1) Charges and fees for the use of any of its facilities (2) Admission charges (3) In limited cases, vehicle parking charges (4) Sales and use taxes, subject to voter approval (5) Lodging fees, restricted to certain lodging facilities, subject to voter approval (6) Within limitations, property taxes, subject to voter approval State law provides that the taxing authority of a PFD may not be restricted by the forming jurisdiction or by any action of the PFD. Additionally, PFDs are allowed to issue voted or non-voted general obligation bonds and revenue bonds, within certain statutory limits. PFD Administration As a municipal corporation, PFDs face expenses relating to administration and operation of the entity itself, including insurance, staff to coordinate and oversee the work of the PFD, prepare and distribute agendas, minutes and other information, perform accounting and generally administer the affairs of the PFD. These costs are present for any PFD. Until legally available revenue sources are implemented, a newly formed PFD will have no direct sources of revenue to pay these costs and will rely on start-up funding. Implementation of viable and legally available direct revenue sources will require approval by the electorate. Any such election will require prior funding. Page 9 BACKGROUND ON EXISTING FACILITY A multi-agency steering committee has recommended creation of a countywide PFD in Jefferson County for the purpose of constructing an aquatics and wellness facility. The facility is proposed to replace an existing pool owned by the School District and leased to the City, referred to herein as the “existing pool.” The existing pool is operated by the YMCA pursuant to an agreement with the City. The Existing Pool The existing pool, built in 1963, is located on the Mountain View campus in Port Townsend and owned by the School District. It is recognized by the School District, as owner of the pool, and the City, as operator of the pool, that the existing pool is nearing the end of its life and there is an interest in developing a new aquatic center. Lease of Existing Pool to the City As owner of the property and existing pool, the School District in 2009 leased the pool to the City, giving the City operating control. The original lease ran from August 2009 through August 31, 2017. A subsequent lease was entered into on June 24, 2014 and expires on August 31, 2032. The lease includes an option to extend through 2047. The lease states that the pool has operational and capital issues and is subject to possible closure if unexpected emergency repairs are required and funding is not available or it is not feasible to make the repairs. The City is responsible for considering and potentially funding and undertaking repairs. The lease also provides that the property may be used for constructing and operating a new recreational facility on the premises utilizing a fee based operational model and specifically allows for the City to partner with community non-profit agencies, such as the YMCA, to provide for additional improvements and facilities. The School District retained rights for approval of any new facilities constructed on the premises and the lease states that such approval “shall not be unreasonably withheld.” The School District uses the pool for its students and supports development of a new aquatic facility at the current site. Page 10 City of Port Townsend – Lessee/Operator The City has leased the premises and the existing pool from the School District since 2009. During that time, the City has invested in the facility, including roof repairs and mechanical (HVAC) repairs and upgrades. The City made lease payments to the School District, which started at $60,000 in 2009 and increased by CPI through 2019. Since January 1, 2020 the rent under the lease has been $1 per year. The City has maintained and operated the pool for use by the public and provides certain hours for the School District’s exclusive use as is agreed from time to time. Beginning in 2021, the City has contracted with the YMCA to provide day to day operation of the pool. YMCA – Pool Operator Since 2021, the City has had an operating agreement with the YMCA for operation and management of the pool on behalf of the City. The current agreement, dated December 14, 2023, is in effect through December 31, 2025 or until a new aquatic facility is completed or the existing pool is permanently closed or demolished, whichever is sooner. The agreement includes a 90-day termination provision, applicable to either party, and the potential to extend the term beyond 2025 . The YMCA has discretion and control in matters relating to management and operation of the facilities and is to make a good faith effort to maintain certain minimum hours of pool operations. The agreement provides for the YMCA to make the pool and programs available for use and participation by the public on a fee basis, without requirement for a membership. The YMCA is obligated to honor agreements in the lease between the City and the School District relative to use of the pool by the School District. The City’s agreement with the YMCA provides for payments to the YMCA, to subsidize the operating budget, in an amount that can vary each year and is typically around $300,000. The City remains responsible for completing any routine and major repairs to the pool facility and equipment, for which the City budgets up to $100,000 each year. In addition to operating the existing pool in Port Townsend, the YMCA operates the Sequim Aquatics and Recreation Center, in the nearby city of Sequim. Page 11 STEERING COMMITTEE Formation and Purpose In February 2023, the City, the School District, Jefferson County Public Hospital District #2 (the “Hospital District”), the County, the Port of Port Townsend, Jeffco Aquatic Coalition (“JAC”) and the YMCA entered into a Memorandum of Understanding (MOU) under which they formed a Steering Committee to undertake a planning effort and to support development of a proposed aquatic facility. Each of the parties to the MOU contributed funds toward planning costs, including $30,000 by the City, $100,000 by the County, $50,000 by the Hospital District, $5,000 by the school district, $5,000 by the Port of Port Townsend, and $3,000 by JAC. Funds were used to undertake a feasibility study, called the Healthier Together Center Feasibility Study, that resulted in a final report dated September 18, 2023 (the “Study”). As reflected in the Study, MOU and other documents, the creation of the Steering Committee represented an effort to bring together the interests of various entities into one plan. While the project may have initially been viewed by some as a City project, the Study reflects a user base that extends beyond the city limits. The Steering Committee considered formation of an independent entity under governance models that included a potential metropolitan park district (“MPD”) and a potential PFD. Models reviewed included two options for MPDs with boundaries larger than the city but smaller than the county, a city-formed PFD to coincide with City boundaries, and a county-formed PFD to coincide with County boundaries. The governance model has implications on potential revenue and it was determined that a countywide PFD provides greater potential than a city-formed PFD or MPD would have and may better match the potential user base. Since completion of the Study, the Steering Committee has continued to meet and has adjusted plans and proposals based on new information or feedback on revenue options. It has been stated that the partners to the MOU intend to remain committed to the goal of developing an aquatic center regardless of the final decisions on facility design and location. While the Port of Port Townsend initially participated in the Steering Committee, the Port discontinued its participation as of December 31, 2023. Steering Committee Partners  Jefferson County  City of Port Townsend  Jefferson County Public Hospital District #2,  Port Townsend School District  Port of Port Townsend  Jeffco Aquatic Coalition  Olympic Peninsula Page 12 Initially the Hospital District envisioned moving their rehabilitative services to the proposed facility but subsequently decided not to do so. The Hospital District plans to incorporate a 750 square foot area for wellness programs into the proposed facility. Key Partners The City of Port Townsend The City has been leading the effort to explore options for replacement of the existing pool, which is located in the city limits and is operated under control of the City. The City has loaned staff to the project and has funded various studies relating to the existing and proposed pool. The City paid the cost to obtain rough cost estimates and input on potential upgrades to the existing pool for consideration by the Steering Committee. City representatives have indicated that the City is considering the options for financial support the City could provide to the PFD, which support could come in the form of loaned staff, loans or direct funding. Based on the recommendation of the Steering Committee that a countywide PFD be formed, the City and County agreed to jointly fund this financial feasibility review which is required by the State prior to formation of a new PFD. Jefferson County The County’s involvement in planning for a new aquatic facility has included participation as part of the Steering Committee because there is an interest in supporting the activities. The County provided $100,000 of funding from the American Rescue Plan Act for this effort. The County has not provided funding for the existing swimming pool over the past 25 years. After being requested to consider formation of the PFD, County representatives have indicated that the County is considering the options for financial support the County could provide to the PFD, which support could come in the form of loaned staff, loans or direct funding. As stated above, the County and City are jointly funding this financial feasibility review. Page 13 Port Townsend School District The existing pool is located on the Mountain View campus and is owned by the School District. As the owner of the property and pool, the School District has an interest in using the pool for school-related sports and activities. If the PFD determines that the Mountain View campus is the preferred location for a new aquatic center, it is expected that the School District will lease property at that location to the PFD for a nominal fee. The School District supports the Mountain View site for location of the pool. Olympic Peninsula YMCA The YMCA operates and manages the existing pool under an operating agreement with the City. If the PFD determines that it would like to enter into an operating agreement with a third-party provider, it is expected that they will enter into an operating agreement with the YMCA on similar terms as the current agreement with the City. The Study states that the operating budget for the proposed facility is based on the assumption that the YMCA serves as operator of the facility and the YMCA provided input for development of the staffing plan and operating budget. Jeffco Aquatic Coalition JeffCo Aquatic Coalition (“JAC”) is a nonprofit corporation formed in 2007 to champion aquatic amenities and access in the county. The purpose of the JAC, as set forth in its bylaws, includes “working with community stakeholders to sustain the current publicly accessible aquatic amenities while simultaneously developing and implementing a plan that provides improved and financially sustainable aquatic facilities and programs for East Jefferson County.” Jac is designated as a 501(c) 3 non-profit corporation exempt from federal income taxes of the Internal Revenue Code. JAC has stated its intention to support the development of a new aquatic center through philanthropic fundraising and independently developing a campaign to support the proposed sales and use tax proposal if one is put forth by the PFD. Page 14 HEALTHIER TOGETHER CENTER FEASIBILITY STUDY Overview In February 2023, the City contracted with Opsis Architecture to provide planning and architectural services for development of a comprehensive recreation facility feasibility study to include an aquatics center with community health and wellness amenities. The contract incorporated the work of several subcontractors including a subcontractor to provide cost estimates based on the building program and conceptual building and site design, and a subcontractor to provide operational cost recovery projections and operational cost analysis. The consultants created the Healthier Together Center Feasibility Study, delivering a final report dated September 18, 2023 (the “Study”). According to background information in the Study, it is stated that: “In February 2023 Opsis Architecture and its planning/design team of specialized consultants initiated work with the project Steering Committee to develop a comprehensive feasibility study to identify, evaluate, and select a preferred site, develop a market analysis, verify the aquatic and other program needs, develop a conceptual design vision with total project cost estimates, and evaluate operational and funding strategies. Working with the Steering Committee, project guiding principles were developed to guide the planning and design process.” The Study includes, among other things, an executive summary and background information on the work undertaken to consider the ongoing need and interest in replacing the existing pool and adding health and wellness components. Project Siting The Study included evaluation of four potential sites in the Port Townsend city limits, using criteria developed by the Steering Committee. After evaluation of the four potential sites, the Steering Committee recommended the Mountain View campus as the preferred site and the City council in June 2023 approved a motion to endorse and approve the recommendation. The School District was a participant in the Steering Committee and supports the recommendation to utilize the Mountain View site, which is where the existing pool is located. Page 15 Programming/Project Features As reflected in the Study, two program options were developed for replacement of the existing pool, a base option focused on aquatics and a full build-out option, to include aquatics and recreation. Development of both options are based on the assumed location on the Mountain View campus in Port Townsend. A level of conceptual design was developed along with capital and operational cost estimates. The following project summary of the building program is excerpted from the Study: Base Option – Aquatics (29,700gsf)  Aquatics (6-lane 25-yard lap pool, recreation pool, whirlpool, and sauna)  Events (birthday party / meeting room)  Lobby with lounge seating  Wellness studio space for Jefferson Health Care  Binary locker rooms and universal / gender-neutral changing rooms  Administration, staff, and support spaces Full Build-Out Option – Aquatics & Recreation (40,200gsf)  Includes outlined base program spaces  Gymnasium (one (1) high school court with two (2) cross courts)  Fitness and group exercise space Source: Healthier Together Center Feasibility Study Page 16 Preliminary Capital and Operating Costs The Study reports a project cost estimate of $37.1 million for the base option with $1.27 million of annual operating costs and a project cost estimate $45.9 million for the full build-out option with $2.08 million of annual operating costs. The following table summarizes the estimated capital cost as well as the operating expenses and revenues, and the resulting subsidy requirement from the Study. One-time Annual Facility Options Capital Cost Expenses Revenues Subsidy Base $37,182,810 $1,268,557 $834,466 -$434,091 Full Build Out $46,517,939 $2,084,333 $1,731,761 -$352,572 Source: Healthier Together Center Feasibility Study It is not the goal of this independent financial feasibility review to create, test or otherwise opine on the costs for capital or operations, but rather to identify costs specific to the formation of the PFD by the County. The PFD is expected to request a separate review that will focus on operating and capital costs, prior to the issuance of any debt, as required by state law. Steering Committee Recommendations The Study states that the recommendations from the Steering Committee are to pursue the base option (estimated capital cost of $37.1 million) with a desire to implement the full build-out option if fundraising efforts allow, that a countywide PFD be created and a 0.2% Sales and Use Tax and a 2% Lodging Tax is recommended. The Steering Committee minutes, as well as a press release from the City, reflect that in December 2023 the Steering Committee determined that it would not be feasible to rehabilitate the existing pool due to estimated costs and the risk of unforeseen circumstances that may arise due in part to the condition of the existing pool. The Study states that the Steering Committee has committed $15 million of fundraising and assumes that amount will be available for capital costs. Since the Study was finalized, the Steering Committee increased the fundraising target to $17 million. It is expected that the PFD will fund the remaining $20.1 million through issuance of bonds. Page 17 The Steering Committee partners have stated that they will continue to meet as needed to support the proposal. Since the conclusion of the Feasibility Study and release of recommendations, there has been some interest in looking at other sites outside of the city limits and other project or construction approaches, either of which could change the proposed capital and operating costs. The County has agreed to lead a new task force to review potential sites outside of the city limits and explore alternative construction methods that may reduce project costs. The task force is to be made up of six representatives appointed by the County (two representatives from each of the three commissioner districts) and two representatives appointed by JAC. The task force is expected to report back to the Steering Committee, which will then provide additional information or recommendations to the Board of County Commissioners, the City Council and other partners. Capital Funding Plan - Base Option The Steering Committee recommendation at this time is to pursue the base option for the project. Based on capital cost estimates and the fundraising targets, the capital funding plan is summarized as below. Successful completion of fundraising will be needed to support the project’s potential budget of $37.1 million, given the relatively limited revenue expectations from the proposed PFD sales and use tax. The fundraising is a crucial component of the capital funding plan based on the current project proposal, representing over 45% of the estimated $37.1 million capital cost. Fundraising efforts are expected to include state and federal grants and philanthropy. Capital Funding Plan Capital Cost – base option $37,182,810 Fundraising commitment 17,000,000 Assumed PFD Bond Financing $20,182,810 Page 18 Operating Analysis - Base Option The Study includes an operational analysis with estimates of fee-based revenue and costs to operate and maintain the proposed facilities. Revenue projections in the Study were developed based on the demographics of the service area and comparisons to statistics and similar facilities, with assumed design, operating philosophy, priorities of use and fees and charges. The operational analysis includes projected staffing needs based on expected use of the facility, hours of operation, key amenities and operation practices of the facility. It incorporates assumptions of staffing, wages, utility costs, insurance costs and costs of equipment and maintenance, all of which are subject to change. The Study concludes that the projected annual facility operating revenue will not cover anticipated annual operating expenses. It was assumed that the City will subsidize operations with approximately $400,000 annually, equivalent to the current level of subsidy provided to the City’s existing pool. Annual Operating Analysis Facility Options Expenses Revenues Subsidy Base $1,268,557 $834,466 -$434,091 Full Build Out $2,084,333 $1,731,761 -$352,572 Source: Healthier Together Center Feasibility Study Page 19 PFD FINANCIAL CONSIDERATIONS After review of the legally available revenues for a PFD, the Steering Committee initially recommended that the PFD seek voter approval for a 0.2% (two-tenths of 1%) sales and use tax and a 2% lodging tax. Upon further investigation it was determined that the revenue potential from the 2% lodging tax is not meaningful and should not be pursued. Although there are several revenue options statutorily available for PFDs, only sales and use taxes or property taxes, both of which require voter approval, are practical options for the proposed PFD. Tax or other revenues will be needed to pay for PFD administration, unanticipated operating shortfalls and reserves, and debt service. Facility Operations As stated earlier, the Study concludes that the projected annual facility operating revenue will not cover anticipated annual operating expenses. The evaluation of revenues and expenses directly related to facility operation in the Study have included a $400,000 operating subsidy from the City, which is required to balance the operating budget. Without a subsidy, the projected revenues are not adequate to cover expected operating costs. Statutorily Available Revenue Options for PFDs (1) Charges and fees for the use of any of its facilities (2) Admission charges (3) In limited cases, vehicle parking charges (4) Sales and use taxes, subject to voter approval (5) Lodging fees, restricted to certain lodging facilities, subject to voter approval (6) Within limitations, property taxes, subject to voter approval Page 20 Revenue from 0.20% Sales and Use Tax If the voters approve the imposition of a sales and use tax at the rate of 0.2% it would be collected on the countywide taxable retail sales base – both the unincorporated County and the City of Port Townsend – subject to certain exemptions in state law. The tax proposal requires approval by a majority of voters casting a vote in order to pass. Timing of collection of sales and use tax is based on detailed statutes, which necessitates a delay between the date an election is certified and the date new tax revenue is collected and disbursed to the taxing entity. Taxable retail sales in the County for 2022 (the latest full year available from the state Department of Revenue (the “DOR”)) is reported to be approximately $785,630,000. DOR data for 2023 shows that the taxable retail sales increased approximately $20 million during the first three quarters of 2023 compared to 2022, which could imply a tax base of $805,000.000 for 2023. Based on the implied taxable retail sales of $805,000,000 for 2023, it can be estimated that a sales and use tax of 0.2% would result in annual revenue of $1,610,000. Jefferson County Taxable Retail Sales 2022 $785,630,000 2023 $805,000,000 (Est) Page 21 Costs for PFD Administration The scope and purpose of the Study was specific to development of capital and operating costs of the proposed aquatic center. Apart from the proposed facility, a PFD will need funding for its own administration, including initial organizational costs. Significant financial needs of the PFD will include:  Staff, which may be full or part-time, to coordinate and oversee the work of the PFD, to direct investments and account for financial matters of the PFD, create agendas, take minutes, prepare and distribute information, and generally administer the affairs of the PFD.  Resources to assist the newly-appointed board members in their review of the project proposal and in making decisions on siting, design, construction and financing. This may include project design work and/or various studies.  Development of sufficient planning to determine a project cost and financial needs, and method of communicating the plan and needs to the electorate.  Funds to pay the costs of administering an election. General administrative costs (staff, insurance, meetings) will be ongoing costs for the PFD and will presumably be paid from sales and use tax if one is approved by the voters. Until tax revenue is available, the PFD will need a source of funding for these costs. Some of the project-related costs may be able to be capitalized into the project if it is eventually funded and undertaken, but money will be needed to pay the costs before then. While the newly appointed PFD board members will have the benefit of the Study and the recommendations of the Steering Committee, the PFD will be responsible for its own due diligence and planning for the project and costs for this work will likely need to be paid prior to requesting voter approval of a sales and use tax. All of this work will require funding commitments for the PFD and it is best that these be addressed prior to formation of the PFD. Funding may be provided through agreements among the County, City and/or other partners. Staff may be volunteers or loaned from the County, City or other partners. Page 22 Capital Funding Plan The capital funding plan set forth in the Study, as later modified by the Steering Committee, contemplates $17 million of fundraising with the balance to be paid from proceeds of bonds to be issued by the PFD. Fundraising is expected to include state and federal grants and philanthropy. As the sole source of income to the PFD, the estimated sales and use tax revenue (estimated to be $1,610,000 per year, based on estimated 2023 taxable retail sales) would need to provide for PFD administration, operating shortfalls and reserves, and debt service. For illustration purposes only, if $210,000 is budgeted for administration, operating shortfalls and reserves, this would leave $1,400,000 available to cover annual debt service. The Steering Committee’s consultant has estimated that debt service for $20 million of financing, for 30 years at 5.5% will be $1,513,719, which would result in financial shortfalls, at least in the early years. It is likely that any financing plan will require a coverage factor, to ensure there is a cushion between expected revenue available for debt service and actual debt service, which will further limit financing capacity. The actual capital funding plan to be developed by the newly formed PFD will be influenced by decisions about the project, the actual amount of fundraising achieved, amounts budgeted for PFD expenses and reserves other than debt service, bond interest rates and financing terms and structure. The PFD, if formed, will need to refine the estimates of revenue available from a potential sales and use tax and develop a budget for how much of the overall revenue will be needed for PFD administration, operating shortfalls and reserves to determine how much revenue is projected to be available to support debt service. Capital Funding Plan Capital Cost – base option $37,182,810 Fundraising target 17,000,000 Assumed PFD Bond Financing $20,182,810 Page 23 CONCLUSION This review is related to the proposed formation of a PFD by Jefferson County and is to examine the potential costs to be incurred by the PFD and the adequacy of revenues or expected revenues to meet those costs. Although significant work and studies have been performed by community partners, which resulted in the recommendation that the County form a PFD, the board of directors appointed to govern the PFD may explore and develop a different approach to and budget for a new aquatic center. The specific programs, location, design and project costs referenced herein should be viewed as aspirational. The PFD, if formed, is expected to seek an independent financial feasibility review prior to issuance of any indebtedness in accordance with RCW 36.100.025. At that stage, the PFD will need to have firm plans relating to the location, design, capital and operating costs and financing plan, as well as have in place voter approval for any required taxes or funding and any agreements relating to grants and gifts and with third party operators or partners. Potential Costs Relating to PFD Formation The potential costs to be incurred relative to the proposed formation of a PFD by Jefferson County and the adequacy of revenues or expected revenues to meet those costs follow. 1. The PFD will need start-up funding to enable it to operate. a. The proposed PFD will not have its own source of revenue to pay administrative expenses, including organizational costs, insurance and administration prior to seeking and receiving voter approval for taxes. b. The PFD will need formation-related documents, insurance and staff to coordinate and oversee the work of the PFD, prepare and distribute information, and generally administer the affairs of the PFD. c. This cost is present for any new PFD and can be addressed through agreements with the County, City and/or other partners, to cover the period before PFD-implemented revenues are available. Page 24 d. If the proposed PFD tax is not approved by the voters, the PFD would not have the means to repay any borrowed funds. e. No such plan or agreements are in place at this time. 2. The PFD will need money to pay costs to undertake an election to seek approval for a voter approved PFD funding. a. All viable revenue sources for the PFD will require a vote of the County electorate, which will require pre-election expenditures for communication and payment of election costs. b. These costs will depend on many factors, but a minimum of $60,000 (if part of General Election) to $110,000 (if part of a Special Election) is a suggested placeholder for planning until better information is available. c. This cost can be paid through funding agreements with the County, City and/or other partners. d. There will be no assurance that any tax proposal will be approved by the electorate. e. No such funding plan or agreements are in place at this time. 3. The PFD is likely to incur costs for additional studies, planning or review prior to seeking a vote on PFD-imposed taxes. a. The PFD board of directors will need to do its own due diligence and planning for the project, which will likely require funding prior to seeking a vote on a tax referendum for PFD revenue. b. The PFD board of directors could decide to study different options for the location, design and cost of the project rather than pursuing the proposal recommended by the Healthier Communities Steering Committee. c. While some of these costs can be capitalized into the cost and financing of the eventual project, the money will be needed prior to having PFD revenue. d. If the proposed PFD tax is not approved by the voters, there will be no ability to capitalize or reimburse these costs. e. No funding for project planning costs prior to a successful tax referendum has been identified at this time. Page 25 4. As proposed, the project requires significant fundraising for capital in addition to any capital financing by the PFD. a. The project proposal includes a commitment from community partners to provide fundraising efforts targeting $17 million of the project costs. b. This level of fundraising, representing over 45% of the estimated capital cost, will be a critical component for a successful funding plan for the project as currently envisioned. c. The County (pre-formation) or the PFD (post-formation) can mitigate (but not eliminate) this risk by entering into a memorandum of understanding or similar agreement to clarify and solidify these commitments. d. Fundraising efforts are expected to include state and federal grants and philanthropy and any agreements can clarify which partner will pursue specific funding sources. e. If formed, the PFD will need to refine and adapt the project plan and financial model based on actual fundraising results and project plans prior to moving forward to project financing. 5. As proposed, the operational analysis indicates that the project will require an annual operating subsidy. a. The Study projects that the operating revenues will not be sufficient to cover operating expenses and will require an annual subsidy. b. The City has agreed in principle to provide a subsidy of approximately $400,000 each year, which would balance the projected budget. c. The PFD would need to budget additional funds or reserves to recognize the potential for additional operating shortfalls, or enter into agreements with other parties cover this risk. d. There is no agreement in place formalizing any operating subsidy for the proposed project. Page 26 6. Expenditures by the City related to the proposed PFD a. The City has led the effort for the Healthier Together initiative and administration of the Steering Committee. b. Presently, the City provides approximately $400,000 of funds annually toward operation of the existing pool and has indicated that it is willing to provide similar financial support to the operation of the proposed new pool if it is located in Port Townsend. c. The City has a strong interest in supporting an initiative to replace the existing pool which is nearing the end of its life. d. The City may incur additional costs related to formation of the PFD if it enters into memorandum of understanding or other agreements with the County and/or community partners prior to formation of the PFD, or with the PFD after it is formed. e. If successful, formation of the PFD, approval of new tax revenues, and operation of the pool by a new entity, will eliminate the City’s need to make additional investments in the existing pool. 7. Expenditures by the County related to the proposed PFD a. The County will incur legal costs related to the formation of the PFD, and may have costs for consultants, advisors, outside attorneys and/or county staff. b. The County may incur additional costs related to the formation of the PFD if it enters into memorandum of understanding or other agreements with the City and/or community partners prior to formation of the PFD, or with the PFD after it is formed. APPENDICES APPENDIX A Provider of this Independent Financial Feasibility Review APPENDIX B Documents Reviewed in Performance of this Independent Financial Feasibility Review A-1 Appendix A Provider of this Independent Financial Feasibility Review This review is conducted by Susan Musselman LLC, an independent consulting firm contracted by the state Department of Commerce for this purpose. Susan Musselman LLC was formed in 2018 by Susan Musselman, Principal, for the purpose of providing selected consulting services to municipal entities in the state of Washington. Ms. Musselman began her career in public finance in 1982 and in 1996 formed her own independent financial advisory firm for the purpose of assisting governments in the Northwest with development and execution of financing plans. Her clients included cities, counties, school districts, state agencies, public facilities districts, fire districts and universities, primarily in Washington. After 17 years, Ms. Musselman sold her financial advisory firm and subsequently retired from the regulated securities advisory work. Thereafter, she formed Susan Musselman LLC to provide a limited level of general consulting relating to capital projects, revenue estimations and budgeting. Ms. Musselman has direct experience as an advisor relative to formation of PFDs, including development of formation documents, and financing for various PFDs. As consultant to the state Department of Commerce, she has provided independent financial feasibility reviews relating to formation of a PFD by Asotin County and for development of a Sports Complex and Event Center by the Lewis County PFD. It is hoped that the information provided in this review will be helpful to the State and the County, its partners and constituents as formation of the PFD is being considered. B-1 Appendix B Documents Reviewed in Performance of this Independent Financial Feasibility Review The performance of this independent financial feasibility review required access to and review of certain information and documents prepared by others, including the following. 1. Meeting minutes of the Steering Committee relating to the project. (https://cityofpt.us/engagept/page/healthier-together) 2. Presentations from workshops, open houses and various meetings (https://cityofpt.us/engagept/page/healthier-together) 3. Healthier Together Center Feasibility Study, final report (https://cityofpt.us/sites/default/files/fileattachments/engage_pt/page/20561/0918 23_healthier_together_final_report_and_appendices.pdf) 4. Memorandum of Understanding among the City of Port Townsend, the Port Townsend School District, Jefferson County Public Hospital District #2, Jefferson County, the Port of Port Townsend, Jeffco Aquatic Coalition (“JAC”) and the Olympic Peninsula YMCA, signed by the parties between 11/29/22 and 2/27/23 5. Lease between the City of Port Townsend and the Port Townsend School District, dated 6/24/2014 6. Operating Agreement between the City of Port Townsend and Olympic Peninsula YMCA, signed 12/14/2023 7. Professional Services Agreement between the City of Port Townsend and Opsis, signed by the City on 2/8/2023 8. Various statutes relating to PFDs, in Chapter 36.100 RCW 9. Actual taxable retail sales data from the Department of Revenue (https://apps.dor.wa.gov/researchstats/content/taxableretailsaleslocal/report.aspx) 10. City Press Release Regarding Steering Committee Recommendations (https://cityofpt.us/sites/default/files/fileattachments/engage_pt/page/21901/2312 11_city_of_pt_press_release_healthier_together_recommendation.pdf)