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Businessman raises red flags over PACC's financial analysis
A financial analysis of the proposed Performing Arts and Conference Center (PACC) has raised multiple red flags from one of Federal Way's most successful businessmen.
At an estimated $32 million, the polarizing PACC would be the most expensive project in city history. Supporters say the PACC will be a catalyst for economic development in the downtown core near the transit center. Opponents call the project a potential boondoggle.
Along with public discussions, the city's economic development department and PACC advisory group have sought feedback from Jeff Stock, who is best known as CEO of Wild Waves Theme Park. Stock is a former professional soccer player who owns Omni Properties and coffee company Caffe D’arte. Stock also owned and operated Wild Waves from 1992 to 2000 before selling the park to Six Flags for $19.2 million.
In an Oct. 10 letter obtained by The Mirror, Stock said the PACC would be an asset to the community that provides jobs and makes a positive economic impact.
However, he expresses reservations with the project's pro forma, which analyzes the PACC's anticipated costs from construction to operations.
The city's pro forma estimates about $670,000 in revenue in the PACC's proposed first year. However, the pro forma also factors in best-case scenario fundraising and grants in order to bridge the gap in the total operating cost.
In the first year, for example, the PACC would net $1.297 million in revenue for a profit of about $22,000. That's based on projected operating expenses of $1.275 million, according to the pro forma.
If counting on revenue alone, without any fundraising and grants, the first year of the PACC's operation would yield a shortfall of nearly $625,000.
Stocks letter notes that the pro forma is overly optimistic in its revenue and fundraising goals.
"The one thing I found disconcerting is how the shortfall conveniently is made up through donations to get to the exact number needed to show a positive cash flow," Stock wrote. "Pro forms like these lose credibility to me because I feel they are worked from the bottom up."
In his letter, Stock expressed reservations about the pro forma's lack of a reserve fund for maintenance, along with the reliance on a limited fundraising pool in Federal Way.
"Another thing to think about is the PACC could cannibalize the Dumas Bay site, and this should be brought into the equation," the letter said, referring to the facility on Dash Point Road that houses the Knutzen Family Theatre.
The letter also addresses the city's plan to leverage Community Development Block Grants (CDBG) to finance the project.
In August, the city council voted 4-3 to move forward with an application for the U.S. Department of Housing and Urban Development (HUD) Section 108 loan program. The program allows cities to borrow against their CDBG funding to pay for capital projects. If approved, the city would borrow about $3 million and repay the money through CDBG funds over the term of the loan.
"Debt service on a loan of this size for 20 years, I am told, would be in the neighborhood of $200,000 per year," Stock wrote. "And this loan was not included in the pro forma."
After reviewing the current pro forma, Stock thinks the city should be prepared to allocate at least $500,000 per year from its annual budget — compared to the $200,000 annual city expense that was originally estimated.
"I think it would be irresponsible to continue on the basis of thinking the city only needs to fund $200,000 per year," Stock wrote. "I understand a majority of the council is in favor of the PACC, but I cannot support this project unless the city is willing to commit to contributing a minimum of $500,000 per year."
City spokesman Chris Carrel said Stock's letter is a welcome part of the public discussion process. Carrel said the city has not yet had an opportunity to fully review the letter.
"The pro forma is intended to generate more discussion — at the council level and with residents — and the letter is an example of that happening," Carrel wrote in an email to The Mirror. "We look forward to further discussion on the main points he raised."
The pro forma analysis team includes professional experts in the performing arts, conference and hospitality industries, according to the city, and includes the director of the Edmonds Arts Center.
The pro forma that Stock received Sept. 10 was slightly revised Sept. 17 to show reductions in expenses. The new pro forma predicts a profit of about $22,000 in the first year, but the version Stock has analyzed shows a profit of about $2,100.
The changes stemmed from a Sept. 5 meeting in which city council members and the public asked questions of Joe McIalwain from the Edmonds Center for the Arts.
"We are some ways away from a 'final' pro forma and a next step in the decision-making process," Carrel said.
• To read Stock's letter, click here.
• To read the PACC's pro forma, click here.
This report includes information from past Mirror reports.