The Aquatic Center: A Financing Hodgepodge

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The initial cost of of what is now a reconstruction, not remodeling, of the aquatic center was estimated at $3.45 million. This estimate was based on an April 2011 Feasibility Study. Apparently, whoever did the study did not include discussing the pool depth requirements with Pima County or the competitive meet requirement with sanctioning organizations. Thus, as reported yesterday to you, a $1.1 million overrun just because of this one factor: Pool Depth.

The project is using a "fast track" construction method known as the Constuction Manager At Risk ("CMAR") process.  ("The CM is chosen based on qualifications, and then the entire operation is centralized under a single contract. The architect and CM work together in order to cultivate and assay the design. Then, the CM gives the client a guaranteed maximum price, and coordinates all subcontract work."  (Source:  "Construction Manager at-Risk State Statute Compendium', American Institute of Architects, 2005)).

As a result, project financing took place before final cost estimates were prepared. Thus, a 1.55 million financing shortfall.

"Haste makes waste", you think?

The funding for the project was to have come from Bonds ($1.55 million); from the bed tax contingency reserves ($500,000) and from existing parks and recreation department impact fees ($400,000). 

Corporate naming rights and sponsorship were to provide extra funding for "niceties" that were not included in the original proposal.  No company replied to the RFP issued for naming rights. No funds have been received for corporate sponsorships, though there have been two in-kind contributions.  Wednesday, Commission Legner noted that: "The community campaign has been the most successful to date with almost $5,000 in contributions."

We wonder if the town has asked the Oro Valley Chamber of Commerce, TREO, and MTVB, organizations into which the town has literally "poured money", to help "sell" the naming rights for the facility and to find sponsors. What better way would it be for them to demonstrate lasting value to our community!

So, faced with the need to finance an additional $1.55 million, the council cobbled together, in its late night session Wednesday, the following solution:

1. $250,000 donated in 2007 by Wal-Mart for the Naranja Park
2. $300,000 from bed tax contingency reserves, in addition to the $400,000 already encumbered
3. $  95,000 from the existing balance of the General Government Impact Fee Fund
4. $524,000 from a one-time "loan" from the General Fund to the project to be repaid from bed tax revenues over a 15 year period at the rate of $35,000 per year.
5. $386,000 from the $583,000 reserve in this year's budget that was designated for the council to use at their discretion.

In total, then, here's how the facility is being financed:

	Original	Additional	Total
Bonds	$2,550,000		$2,550,000
Parks and Recreation Department Impact Fees	400,000		400,000
Bed Tax Contingency Reserves	500,000	300,000	800,000
Loan From The General Fund To The Bed Tax Fund (Repaid over 15 years)		524,000	524,000
Money Donated By Wal-Mart For Naranja Park		250,000	250,000
General Government Impact Fee Fund Balance		95,000	95,000
2012-2013 Council Special Reserve to be designated for future use		386,000	386,000
	$3,450,000	$1,555,000	$5,005,000

Though we commend Town Financial Officer Lemos for figuring out a way to finance these additional amounts, the resulting financing structure is certainly a "hodgepodge". It is certainly not something she would have designed had she known the full project cost prior to funding the project.

Most of the funding should have been bonded, with the remainder coming from the bed tax.  However, to accomodate high school meets that will occur this fall, the town used this CMAR process as opposed to the traditional "design-bid" process, which would have uncovered the woeful shortfall prior to identifying funding sources.

Had it known the correct numbers, Council Members would have been better able to make quality decisions on what the facility should look like and how it should be financed.

But... "Haste makes waste."

As planned, $3.874 million of the $5 million will come from the bonds and the bed tax, assuming that the $524,000 being lent by the town to the bed tax is repaid.

This represents significant financial support that the Town or Oro Valley is putting into this project, support being provided during very difficult and uncertain economic times.  The non-bond, non bed-tax funds that are being spent are from either the general fund or its reserves or from funds that have a surplus at moment, funds whose use can only be obliquely related to the facility.

Haste really does make waste.  It also makes for rushed decision-making.  That's when mistakes happen.
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