Fort Worden Public Development Authority restructuring in works

Board to consider move to LLC to keep it afloat

PORT TOWNSEND — The Fort Worden Public Development Authority is eyeing restructuring to ensure the organization can remain solvent.

The COVID-19 shutdown this year resulted in low revenues during what was expected to be a banner year.

Operating revenues this year amount to about $1 million compared with $7 million in 2019, David Timmons, interim executive director, said last month.

In addition, the PDA didn’t qualify for Coronavirus Aid, Relief and Economic Security (CARES) Act funding.

The PDA board approved a resolution during a special meeting Wednesday that will allow Timmons to begin laying the groundwork for the change in operating model. It will discuss the implementation of the plan at 9 a.m. Wednesday.

“It sounds to me that this is a survival plan, and that’s what we need, a survival plan,” said Jane Kilburn, board secretary, on Wednesday.

The PDA is heading toward ending the year in a cash deficit, but as a public entity, it’s required to pass a balanced budget by Dec. 31, and the organization is not in a position to raise capital or take out a line of credit, Timmons said in a presentation to the board Wednesday.

Kitsap Bank agreed to defer payments for the line of credit for Makers Square and the Glamping project, and that reduced the loan guarantee from $2 million to less than $900,000.

That was “a big step forward” for the PDA’s recovery, Timmons said.

The PDA received a $200,000 private donation for operation costs, which served as a stop-gap for the organization but won’t last, Timmons said.

“We’re going to run out of money by year end,” he said. “That $200,000 donation is buying time, but time is running out.

“To survive and raise capital, the PDA needs a business plan reflecting its status as a startup operation and that investors would support, and this is inconsistent with a municipal corporation,” he said.

“We’ve got to really pivot and change.

“Part of this is coming out of this COVID environment in terms of where the COVID situation crushed the business plan of the PDA,” he continued.

“I see this as kind of an opportunity to create some new opportunities to restore our revenues and get back to where we were before, and be in a better position.”

The proposed restructuring plan would have the PDA form a hospitality-focused not-for-profit limited liability company (LLC) by Dec. 31. It would operate under a long-term franchise agreement under the PDA, Timmons said.

The LLC would provide hospitality services focusing on managing accommodations, food services, venues that support group sales, and routine maintenance of hospitality facilities.

A hospitality services LLC would help with long-term sustainability of the organization by being able to limit constraints of a municipal government model on hospitality business and would separate the routine maintenance of the facilities from the major capital needs, Timmons said.

The governance of the PDA also would be modified.

If the restructuring plan is adopted, it would have the PDA continue to oversee the current long-term lease with the state parks with a five-member board as a holding company. The board would still operate under the City of Port Townsend — which would remain the charter holder — with a prohibition on incurring debt without consent of the City Council, Timmons said.

The PDA staff would be reduced to four full-time administration roles.

The PDA as a holding company would oversee through two separate contracts the hospitality LLC and a second property assist management group, for which plans are still in development.

Both sub-organizations would support the various partners of the PDA and Fort Worden and community at large, Timmons said.

The success of the LLC requires securing support from private investors to bridge the startup of the hospitality services, because the organization will need a bridge loan from investors to secure cash flow for the hospitality services, he added.

The year 2021 would be a start-up period for the hospitality services LLC. The PDA would assign the LLC a 25-year franchise agreement to operate all campus hospitality services, with the LLC providing an initial management support fee to the PDA followed by a franchise fee after the second year, Timmons said.

Staff, resources and assigned facilities would be transferred to the new LLC. The liabilities for the hospitality services also would be transferred to the LLC during the first year.

The board supported the LLC concept plan, which allowed Timmons to begin working on initial steps that would be needed before the implementation vote.

The recording of last Wednesday’s special meeting and the full presentation for the proposed plan can be found at https://fortworden.org/category/pda-documents.

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Jefferson County Reporter Zach Jablonski can be reached at [email protected].

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