FINANCING

3. FACILITY FINANCING/CONSTRUCTION 75 Pts. Due 4/30

This project will allow group members (2-3) to develop financing for the construction of a sport facility from scratch by utilizing the fund raising and financing ideas discussed throughout the semester.

Facility Construction

Your group has been hired as an outside consultant by the Bay Area Parks & Recreation District and is charged with the following responsibilities:

1) You will develop two feasible financing strategies for the project (#1 Private; #2 Combination Private/Public). Each of the funding options must be sufficient to cover both the construction and operational costs for the project.

2) For each of the two financing alternatives that you identify, furnish the following information:

a) A detailed explanation of what you have planned for the debt retirement (sources of revenue, coverage rate, discounted payback period, total interest paid)

b) The economic feasibility and/or realistic nature of your financing option. Example: are the taxes/prices/attendance estimates… realistic?

c) A discussion of the relative pros and cons of adopting the financing option from both a financial as well as political (public support) perspective

d) Detailed table that illustrates the financial information for the alternatives that are identified (e.g., bond retirement schedules on Excel). Tables should include explanations of all revenue generated. All calculations and assumptions should be explained and easy to follow and well organized. Show all formulas.

3) Finally, provide a rationale justifying the “one best strategy” your group would recommend that the District adopt from among the list of two options that you have identified and explained.

Information: The Bay Area Parks & Recreation District Wave Pool Proposal –

COSMA Goal #1, #2, #3

Currently, the residents of the Bay Area suffer from a significant deficiency in the provision of swimming opportunities. The Park and Recreation District serves just over 40,000 people in the center of a rich hospitality and tourism community. The original Districts ‘city pool’, which served the community for 50 years, was recently closed and demolished because of its age and safety concerns.

District staff recommended that instead of building another traditional pool, a wave pool should be constructed. There were two primary reasons for this suggestion. First, they believed that a wave pool offered a superior recreational experience to the consumer. The second reason was that the wave pool would be more advantageous economically. Experience from other communities suggested that it was probable that revenues from such a facility would at least equal operational costs and perhaps even exceed them. Thus, instead of losing $75,000 per year as the traditional pool had, the wave pool could likely be counted on to break even until the payback period and potentially profit after.

There are approximately 200 wave pools operating in the United States. Most of these are in the private sector, where they have been popularized by the development of aquatic theme parks, but some are operated by government agencies.

When the wave activating mechanism in a wave pool is set in motion, waves roll from the deep end, where they are the highest, down to the shallow end, declining in height as they dissipate along the widening fan shaped pool. The usual operation is to switch on the waves for 10 minutes every 20 or 30 minutes, so those who do not enjoy the waves can swim also.

To determine the cost and attendance projections, the District hired a consulting firm which specialized in wave pool facilities. Their preliminary feasibility study determined that the total development cost of the wave pool project would be $ 6.0 million (See Exhibit A). The consultants estimated initial annual operation and maintenance costs to be $375,000 (See Exhibit B). The uniqueness of the facility led the consultants to project substantial local and regional (50 mile trading radius) demand with annual attendance estimates ranging from a most conservative scenario of 100,000 to the most optimistic of 150,000 users per year, of which half would be children. The suggested admission price was set at $10 for adults and $5 for children. The study implied that the wave pool would be profitable, but did not calculate a detailed pro forma (“according to form”) analysis.

Recently, the wave pool has been a main story in the local media. A number of citizens have expressed concern about the proposed development. Several people spoke out against the project because of their concern that waves would make the pool unsafe for small children. A vocal segment of the community residents argue that if the wave pool is capable of making profit, then the private sector, not a public agency, should build and operate the facility. Some community members oppose any tax money being spent on the project.

Despite these mounting public concerns, the Bay Area Board of Directors has decided to go forward with the project. They voted unanimously to set aside a 5-acre tract of land in one of the community’s most accessible parks for development of the wave pool facility. The major issue facing operation of the proposed facility is financing.

The present aggregate value of property in the Bay Area District is $350 million. The average home value is $200,000. The district has no outstanding debt, so it can legally use all of its 2% debt ceiling capacity. Revenue bonds are currently rated at 8.0% and general obligation bonds are 6.50%.

Other potential financial assistance opportunities have been identified as follows:

State Recreation Development Assistance Fund

1) Competitive grant for one-time project funding

2) Grants amount up to $150,000

3) Covers new recreation facility construction or facility renovation

State Association Forestry Fund

1) Competitive grant, one-time per project funding

2) Grant amount up to $35,000

3) Covers tree planting

Community Economic Development Program

1) Competitive grant, one-time per project funding

2) Grant amount up to $40,000

3) Projects must provide regional economic benefits

4) Covers business development costs, including infrastructure and startup

Bay Area Adopt-A-Park Foundation

1) Annual fundraising averages $25,000

2) Covers all types of projects and programs

EXHIBIT A: CONSTRUCTION ESTIMATE FOR BAY AREA WAVE POOL

ITEM COST

Bathhouse & Concession Stand $223,000

Wave Pool $2,250,000

Water Playground $300,000

Water Slides $850,000

Picnic Shelters $325,000

Chemical Storage & Maintenance Building $100,000

Utility Connection $300,000

Parking $350,000

Lighting $175,000

Landscape $300,000

Signage $10,000

Park Furniture $15,000

Permit Fees $2,000

Architectural $500,000

Contingency $300,000

TOTAL $6,000,000

EXHIBIT B: ANNUAL OPERATION AND MAINTENANCE COSTS FOR BAY AREA WAVE POOL

ITEM COST

Management Salaries $150,000

Maintenance Salaries $50,000

Lifeguard and Instructor Salaries $50,000

Office Equipment and Supplies $5,000

Pool Chemicals and Maintenance Supplies $50,000

Advertising $5,000

Memberships $4,000

Electricity $50,000

Telephone $1,000

Water and Sewer $10,000

TOTAL $375,000