3.0. SR 10-17-1996 - Laserfiche WebLink

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Page 3 facility. MSF offices were closed the week of September 2, so clarification of this issue was not possible prior to materials being distributed to City Council members. 6. A major concern is the probability of developing and maintaining the fitness center revenues over the 20-year bond repayment term. The fitness facility is subject to any current and future competing facilities, both private and public. We understand the fitness center to be a very basic facility. Current and future competing facilities may prove more attractive to the changing population of the Elk River area. 7. The projections also assume that the MSF will be able to fund 10% of the project cost ($260,000) at the time the City issues bonds, plus all of the equipment to make the facility operate. The Financial Statement for year ending November 30, 1995 shows only $250,000 of cash and cash equivalents available. They expect to have a fund drive to generate the revenues necessary to fulfill their commitments to the project. 8. When issuing the bonds, the City will pledge to the bondholders that it will continue to own and operate the facility for the life of the bond issue. In doing so, the City wi!i be obligated to subsidize any operating shortfalls since the first dollars must go to the bonds. Conclusion The City has the authority to issue bonds for the construction of this facility. Given current estimates, the use of gross revenue recreational facility bonds meet the current market thresholds for issuance. MSF has pledged to provide funding for 10% of the facility plus all equipment purchases. We recommend the City verify the existence of such resources before the City proceeds with any final financing program of its own. As to the operating estimates, we are impressed with MSF's track record of volleyball activities. The centralization of these activities in one site should enhance their delivery, and hopefully expand revenues. However, given all volleyball and gym activities and assuming all related ancillary snack bar type revenues occur, these sources constitute only 55% of total revenues, or 70% assuming other advertising revenues. The fitness center revenues of 30% presents the greatest unknown, and requires the most comfort on the part of the City that such revenues will be in place for the next 20 years. The City can bring its own perspective into the likelihood of other competing fitness facilities, both public and private, being developed, and their impact on this facility. We suggest the City review this potential, its impact on revenues, and probable sources of payment should the facility not generate sufficient revenues to cover both debt service and operations, where by the City would be required to fund any shortfall. Given the outcome of this discussion, it may or may not be appropriate to discuss with MSF a reduced project scope, and cost. After these discussions and then based on the City's comfort level with the ability of the facility to finance both debt service and operations, the City may wish to negotiate a contract for MSF from its other operations to reimburse the City for any shortfalls, which the City would be required to fund.