Potential funding strategies

Funding, and choosing the appropriate financing mechanism, should be a major consideration when planning for any project. When the potential project is a municipal facility, it’s especially crucial to explore funding scenarios and do as much detailed legwork as possible in the early planning stages, as we’ve done throughout the Merriam Parks & Recreation Facilities Master Plan process.

Upon completion of the Facilities Master Plan, city council will have information related to three options:

  1. “Band-Aid” the current facility;
  2. Demolish a part of it and rebuild; or
  3. Build a new facility.

Public preferences
Question 14 of the statistically-valid survey asked: “It is likely Municipal Bonds would be required to finance development of a new or renovated community recreation center. Please indicate which option you would most likely support the city taking.” In response, six percent said they would support a property tax increase; 25 percent supported a local sales tax increase; 24 percent supported a combination of an increase in local property and sales tax; 21 percent did not support a tax increase; and 24 percent said they didn’t know.

As the master planning process comes to a close, we’re especially focused on understanding the potential funding strategies before us. While not experts in this area, our job as city staff is to clearly explain the funding strategies available for two of the three options (partial demolition with rebuild, or building new).

Potential funding strategies
Based on staff’s experience with these types of projects, issuing municipal bonds is the favorable option. There are two types of bonds – revenue bonds and general obligation bonds. Revenue bonds use the revenue and interest generated from a facility to repay the debt. This is not a preferred option as it carries a higher interest rate and could negatively impact the city’s bond rating (currently Aa2).

The preferred and more acceptable bonding option is the general obligation bond, which uses the full faith and credit of the city’s taxing power and requires a vote of the public. There are two taxes that can fund a general obligation bond – property and sales tax. Based on survey findings, 24 percent indicated a combination of increases, so staff sought a better understanding of the city’s capacity for raising property tax. Currently, Merriam residents pay 14 cents of every dollar of revenue generated in personal property tax. This is the lowest tax rate when compared to nearby cities Roeland Park (25 cents), Mission (27 cents), Prairie Village (34 cents), and Shawnee (36 cents). Although this comparison shows capacity to raise personal property tax, it is not the recommendation of Merriam staff.

Sales tax considerations
Instead, staff determined that a sales tax increase would be the best option. The unique quality of sales tax is that anyone spending money in Merriam contributes to this revenue source. Therefore, the city would greatly benefit from its strong “pull factor” —  a term that refers to the number non-residents a community “pulls” in for shopping purposes. This value is one way to assess the relative strength of a local retail economy.

A community’s pull factor also determines how well it holds onto existing business and attracts new business, as opposed to losing businesses to other places. A pull factor above 1.00 indicates that a community attracts more business than it loses. Currently, Merriam’s pull factor is 4.67, the highest in the state of Kansas. How this relates to Merriam residents is that for every $1 of sales tax generated, a Merriam resident has contributed approximately 18 cents.

Potential impact on residents
A partial demolition or building a new community center is going to be expensive. While an estimated cost is unknown, preliminary numbers indicate the “build new” option to be approximately $25 million.  How would this amount impact Merriam residents? First, staff estimates the bond payment on $25 million to equal a debt service payment of $2 million annually for 20 years. Currently, a ¼ cent sales tax would generate $2 million, of which staff estimates (after calculating the pull factor) only $360,000 would be paid by Merriam residents. Since Merriam’s population is approximately 11,300 residents, this option is estimated to cost residents $32 per year — or one McDonald’s Happy Meal per month.

One option to explore for sales tax would be to renew the ¼-cent sales tax when it’s scheduled to expire. The renewed tax could include recreation improvements. According to state statute, staff believes that two votes would be required if the “build new” option is pursued. There would need to be a vote regarding financing through sales tax, as well as a vote to support building new recreational facilities.

Next steps
As decisions are made about which option is most suitable, bond council will help clearly define the process and ballot language, as well as more accurately provide financing details.

More detailed costs and information about the third option (to build new), will be presented at a public meeting on December 13, at 7 p.m. at the Irene B. French Community Center. The final Facility Master Plan will be presented to city Council on January 9, 2017 at 7 pm. Council’s acknowledgement of the completed plan will lead to a discussion regarding which of the three options the city should pursue.

On the sales tax I would take out the word Merriam and just say one option to explore is… Then the transition to voting on the new building seems odd.  Maybe something like.. According to state statute staff believes two votes are going to be required if the build new option is pursued.  There would need to be a vote regarding financing through sales tax as well as a vote to support building new recreational facilities.

What do you want for Merriam’s Parks & Rec facilities? Tell us on Dec. 13!

The City of Merriam is developing a Parks & Rec Facilities Master Plan and residents are invited to provide input and comments on a draft of the plan at the Irene B. French Community Center on Dec. 13 at 7 p.m. The presentation will feature a summary of recommendations based on previous public input (meetings, surveys and studies) and information gathered throughout the process by consultants.

Master plan recommendations will address facility locations, amenities, funding and performance expectations for potential future community center and aquatics facilities. Final recommendations presented to city council for review will include public input and serve as a guide for the future of Merriam’s recreation facilities.

WHAT: A public meeting about Merriam’s Parks & Recreation Facilities Master Plan

WHEN: Dec. 13, 2016 at 7 p.m.

WHERE: Irene B. French Community Center, 5701 Merriam Dr.

Budget Implications

An integral component of any facility is the cost to operate. The current facilities have a known cost since operation of these facilities have significant history. The annual operating budget for current facilities is $913,290. This budget does not include capital improvements or emergency fund repairs.  Budgeted revenues for 2016 are $192,440. This represents a cost recovery of approximately 21 percent.  Another way to look at these figures is that in order to operate these facilities, $720,850 of general fund support of public funds is necessary.

Preliminary high level accounting has been provided for the proposed new facility concept. The initial revenue is anticipated to reach $1,167,570 with expenses estimated at $1,532,460. As with the current facility comparison, these figures do not include capital improvement or emergency fund repairs. The dramatic difference between old and new stems from purposeful design. Creating spaces with amenities City of Merriam residents have identified as needs / wants will drive demand. Based on this model, cost recovery is estimated at 76 percent. The general support of the facility would be reduced to $364,890 which is almost half the cost required to operate the current facilities.

Even though these are preliminary figures that do not include the capital investment necessary to build, these budgetary figures will be key components in future discussions. Operational costs are always greater than the initial capital investment. No matter which of the three options are chosen to meet the current and future needs of the residents of Merriam, understanding the impact the decision will have over the course of time will be a critical topic of discussion.

Joint meeting of steering committee/city council helps bring plan closer to completion

On Wed., Nov. 2, members of the Recreational Facilities Steering Committee and the city’s governing body attended a joint meeting to discuss the final direction of a Facilities Master Plan. The goal of the meeting was to narrow down concepts of what a new facility might include, including a preferred conceptual site design.

The meeting highlighted anticipated capital and operational costs associated with the concepts. Amenities presented in the concepts were based on top preferences respondents identified in a statistically-valid survey. Those attending the meeting were provided the opportunity to provide feedback by placing a dot on the conceptual site design, to indicate preferences, and including whether or not to include indoor aquatics.

One result of the meeting was a consensus decision that if facilities were built, they would be located at the north end of the property in Vavra Park to maximize potential parking capacity with the community center positioned on the east and aquatics on the west. At this time, the plan includes both indoor and outdoor aquatics.

Capital costs to build these facilities ranges from $23–$25 million, including site preparation. Operational costs are anticipated to be in the $1.3–$1.5 million range, but cost recovery is anticipated to be $1.1 million, meaning that approximately 25 percent of the operation would be covered by taxes and 75 percent recovered in user fees. This is a significant shift from current operations which are 18–20 percent cost recovery for IBFCC and 40– 50 percent for the MAC.

Next, consultants will update concept using feedback from the Nov. 2 to develop the Facilities Master Plan’s final stage, which will include even more detailed capital and operational costs. This information is critical for the creation a draft Facilities Master Plan document scheduled for a presentation at the Dec. 12 city council meeting.

Following the council presentation, the public will have an opportunity to provide input on the plan Dec. 13, at 7 p.m., at the IBFCC. Once public feedback collected from the meeting is reviewed, a final document will go before city council on Jan. 9. The acceptance of this document by council will simply acknowledge the work accomplished, an understanding implications associated with building new facilities. A decision about which of three options to pursue will begin in the Spring of 2017:

  1. fix mechanical / structural issues in existing facilities;
  2. demolish and remodel sections of existing facilities, or
  3. build new, will be a 2018 budget discussion topic.

FAQ: Parks Facilities Master Plan

What is this I hear about our recreational facilities?

The community center and aquatic center are at the end of their useful lives, and the costs of maintenance and repairs are becoming unsustainable. Instead of perpetuating the use of expensive Band-Aids to fix problems, the city council chose a proactive and thoughtful process to explore several possible solutions. Remember, the pool is more than 30-years-old and sections of the community center are more than 100-years-old!

What’s wrong with the current facilities?

We’ve gotten a lot of use out of these facilities, but constant, expensive and unbudgeted repairs to their systems and structures continue to increase. Additionally, neither facility meets Federal ADA requirements or current life-safety and building code requirements. To achieve compliance in these areas, many of the needed updates trigger a cascade of repairs to other outdated systems, which increases costs and makes updates more difficult and expensive. It is also useful to know the current community center was not built for use as a community center, and its layout was not designed or intended for its current use. Another issue is the community center is situated in the floodplain, so the basement is below the water table and regularly floods.

Can’t we update our current facilities?

Absolutely — that is an option. We have a good understanding of what updating our current facilities would cost. In 2014, Larkin Aquatics did a comprehensive study of the aquatic center, including mechanical, electrical, plumbing, and ADA requirements. That detailed report indicated needed updates to the aquatic center will range between $600,000 – $900,000 plus an eventual $3,500,000 to replace the basin. At the same time, the city hired Susan Richards Johnson and Associates to complete a similar comprehensive analysis of the community center. That analysis provided detailed solutions addressing the continued use of the existing facility with costs ranging from $6,000,000 — $10,000,000.

So why are we talking about new facilities?

When contemplating the high costs of updating the existing facilities, it became financially prudent to ask, “What would a new facility cost?” There was also a stark realization that spending all that money to update our facilities would still leave the city with a 30-year-old pool and a 100-year-old community center. Firsthand experience dictates that in another 30 years it will probably be easier and less expensive to maintain a 30-year-old facility than to maintain 60-year-old and 130-year-old facilities. At that point, the concern quickly became that the cost of keeping the existing facilities, even if updated, might actually cost taxpayers more over the next 30-40 years than building something new that (1) meets the needs of our current and future community; (2) is more appropriately sized; and (3) uses current building codes, modern materials and modern systems. We needed more details to make an informed decision.

Where are we now?

A steering committee of Merriam residents was appointed to work with Pros Consulting to determine what a new facility would look like that appropriately meets the needs of the community. That process involves collecting public input via surveys and public meetings, and includes a market study, business plan, and a financial analysis. The final Facilities Master Plan will provide a clear understanding of what the community wants in a new facility, if a new facility is the desired option to address our facilities needs.

What will a new facility cost?

Currently unknown — we’re not there yet. A detailed cost estimate to build and annually operate a new facility will be included in the final Facilities Master Plan. That final plan will go before city council on January 9, 2017, and include a concept based on features and amenities residents said they want. However, the facility should be designed in scope and size to annually support itself at an appropriate level of funding.

What happens after the final Facilities Master Plan is presented to City Council on January 9, 2017?

On January 9, 2017, the city council will only vote to acknowledge receipt of the final plan and the recommendation of the steering committee. The city council’s acceptance of that recommendation and final plan will not bind the city council to any one specific choice, it only provides the required details needed to begin the larger conversation about the future of our recreation facilities.

When will a decision be made on the facilities?

As with all major capital projects, it is anticipated the preferred solution will be discussed in public meetings as part of the 5-year capital improvement project budget. These discussions will begin in March 2017.

How will the city pay for updated or new facilities?

Currently undetermined — we’re just not there yet. Depending on the preferred solution, the funding strategy would include budgeted reserves, the issuance of bonds, or a combination of the two options. More than likely, any solution exceeding $5 million will require issuing bonds.

Will there be a vote if bonds are included in the funding strategy?

If funding involves issuing bonds or raising property and/or sales taxes, a public vote is recommended (and likely required by law).

Where can I get more information about this issue?

The next steering committee meeting will be on November 2, and a draft final plan will be shared with the city council on December 12th. The following day, on December 13 at 7 p.m., there will be an Parks Facilities Master Plan open house for the public at the Irene B. French Community Center.

All information is posted on www.merriam.org as it becomes available. Also, this blog is dedicated to the project and is updated weekly with new posts.

Community members tour area facilities

On Monday, October 24, four city council members, three steering committee members, one citizen, two city staff members, and three consultants toured five area recreational facilities. Each facility provided a unique perspective into how a variety of local communities provide recreational services.

Here’s a rundown of facilities the group toured:

Olathe Community Center
Age: 2 years
Size: 71,168 square feet
Construction Cost: $28.5 million
Annual Operation Cost: $1.978 million
Features/Amenities: indoor pool, fitness center, meeting rooms, child watch, walking track, dedicated indoor child play area, three regulation gymnasiums, artwork
Miscellaneous: Located in a park setting

Sylvester Powell Community Center, Mission
Age: 17 years/renovation after 5 years
Size: 80,000 square feet
Construction Cost: $16.5 million
Annual Operation Cost: $2.125 million
Features/Amenities: indoor pool, fitness center, walking track, meeting rooms, 3 regulation gymnasiums, congregation space for adults
Miscellaneous: closest community center to Merriam

High Blue Wellness, Belton
Size: 56,000 square feet
Construction Cost: Unknown
Annual Operation Cost: $1.6 million
Features/Amenities: indoor pool, outdoor aquatics, specialized fitness space, one gymnasium
Miscellaneous: located in a park setting

The View, Grandview
Age: 13 years
Size: 60,000 square feet
Construction Cost: $12 million
Annual Operation Cost: unknown
Features/Amenities: small indoor pool, art space, congregation space, incorporation of art, meeting rooms, fitness center, gymnasium

Gamber Community Center, Lee’s Summit
Age: 8 years
Size: 19,000 square feet
Construction Cost: $3.75 million
Annual Operation Cost: $453,600
Features/Amenities: meeting/congregational space, incorporation of art, park setting, outdoor amenities, small fitness center, small classrooms
Miscellaneous: originally built as a senior center

The tours were intended to provide examples of building layout, perceived value of services offered, as well as the size, scope, and operations (including staffing requirements) of similar amenities. Overall, it’s beneficial to see similar spaces in use when discussing options for building a new space. It is also helps to hear about lessons learned during the planning and construction process. Lastly, because of the varying ages of the facilities toured it allowed the group to see how interior details can be an important factor to consider when budgeting for long-term operational costs.

Next Steps
As we near the end of the process to develop a Facilities Master Plan, mark your calendars for a public meeting at the Irene B. French Community Center on December 13 at 7 p.m. This is when the Master Plan consultants will present their draft recommendation of what a new facility should include to meet the community’s needs. After receiving public input, the consultants will present the final recommendation to Merriam City Council at the January 9 council meeting.

Upon acceptance of the recommendation, city council will begin discussion about how to proceed. Council will also review estimated costs for two other complete concepts that were developed as part of a previous assessment. City staff’s objective will be providing council members with the detailed information needed to make the most informed decision.

What the community wants and how to fund it

Recently, some residents have requested specific information about funding for building new recreational facilities. This indicates that city staff needs to do more public education about this issue and how the Parks and Recreation Facilities Master Plan fits into the overall process currently underway.

Background

In 2015, Susan Richards Johnson and Associates completed a Comprehensive Facility Assessment of the Irene B. French Community Center that provided three options for moving forward with the aging facility:

  1. Infrastructure repairs to the existing facility with minor renovations to improve building flow
  2. Demolish a portion of it and renovate the existing community center
  3. Build a new community center

In spring 2014, Larkin and Associates conducted a similar assessment to explore future scenarios for the Merriam Aquatic Center and its infrastructure concerns.

Results of the studies made it apparent that something needs to be done with these facilities, and that developing a Facilities Master Plan would be a critical next step. Public input plays a large role in working toward the Plan’s completion, and during the process, staff has gathered much data about what the community wants — what types of facilities residents want, and even the types of features the facilities should include. The Master Plan and recommendations will be presented to Merriam City Council on December 12, but no council action will taken until the January 9, 2017 council meeting.

Where support is limited

Recent survey findings have provided valuable information about what the community wants. These findings were presented in the past couple of blog posts. This post will look at areas where support is limited. The best indicator of this can be found responses to the following three survey questions:

  1. If a new aquatic center is developed, which includes features you chose as most important, how often would you or other members of your household use the facility?
  2. If a community recreation center is developed which includes features you chose as most important, how often would you or other members of your household use the facility?
  3. It is likely municipal bonds would be required to finance the development of a new or renovated community recreation center. Please indicate which option you would most likely support the City taking?

Findings showed that 36% of respondents stated they are not sure if they would visit, and 22% indicated they would visit a new aquatic center less than monthly even if it included features deemed most important.

Regarding the community center, 58% were not sure if they would visit and 49% said they would visit less than once per month. National benchmarking statistics indicate that 70% of a cities’ population would not use facilities similar to those discussed. Merriam’s survey responses are greater than benchmarks, so it’s important to delve deeper into the data based on household demographics.

Regarding an aquatic center, households with children under 10 had the lowest percentage of usage certainty at 6%, while household 55 and older were most unsure at 63.3%. Those who would visit less than monthly ranged from a low for households 55 and older at 13.5%, to a high among households 20 – 54 with no children at 34.7%. Clearly, families with children still in the household say they would use it most.

As for a community center, once again households with children under 10 had the lowest percentage of uncertainty at 17%, while households 55 and older were highest at 37.7%. Those less likely to use it monthly were households 55 and older (20.1%), to a high among households with children 10 – 19 (24.1%).

The funding issue

The next factor to consider is the funding question in which five options were presented: increase local property taxes, increase local sales tax, increase a combination of property and sales tax, no increase in taxes, or unsure. This data reveals that those unsure ranged from a low for households with children under 10 (18.5%) to a high among households 55 and older (27.6%). Those unsupportive of any increase ranged from a low in households 20–54 with no children (16.8%), to a high for households 55 and older with no children (27.1%).

Unsurprisingly, the issue of funding could become controversial. Upon completion of the Facilities Master Plan process, staff and City Council will have a clearer understanding of the costs associated with construction, but also the needs and support of Merriam residents.

At the end of the master planning process, staff will recommend a facilities concept and a funding strategy. If the funding strategy includes issuing bonds, staff will recommend an initiative that requires a vote for the public residents to voice their support and decide how to proceed.