Elk Grove City Council Cautiously Dips Toes in Water, Gives Nod to $695k Aquatics Center Study

October 10, 2013 |

Even though they expressed concern over financial aspects of the city's proposed aquatics center, the Elk Grove City Council voted unanimously last night to approve a study to determine its financial feasibility.

The proposed center is part of the city's long-term civic center project and will be located on the corner of Big Horn Blvd. and Civic Center Drive. The initial aquatics center plan called for a competitive swimming facility but the city determined that it would include a privately operated water amusement park to offset the anticipated operating losses.

During their deliberations on the $695,739 study to be conducted by P3 International (P3), council members expressed concern on a variety of issues ranging from the Elk Grove Unified School District's unwillingness to provide capital for the project to the possibility that the entire aquatic center would be a perennial money-loser requiring annual taxpayer subsidies.

Council Member Pat Hume questioned P3 President Jeroen Gerrese if he could secure the $37 million of private equity needed to finance the project.

"We have identified, preliminarily, $10 million and we have made efforts to go to $14[million]," Gerrese said. "At this point we have gone to our equity partners and have described the project as we see it."

Gerrese also said it is hard to come up with an exact dollar amount needed until the feasibility study is concluded, but once that is finished he anticipates being able to secure complete funding.

In his questioning of Gerrese, Hume noted that the anticipated operating deficit of the competitive facility would increase annually to approximately $500,000 after five years.

"What we are hoping for is that the expertise they bring to the table, that number is less," Gerrese said. Gerrese went on to say the proposed manager of the facility, Harvest Family Entertainment, developed the figure on a worst case scenario.

Hume also questioned Elk Grove Assistant City Manager Becky Craig on the $13 million bonding debt obligations for the project noted in the staff report.

"Are those debt obligations borne by the city or borne by the project team," Hume asked.

"The city would be the issuer as the owner of the land and facilities," Craig said. "But the intent is for it to be a pass-through for their operating revenues to make the debt payment, but with the city as an issuer, we would be a backstop  and ultimate responsible if the revenues were not sufficient as contemplated."

Craig noted the $13 million bond obligations is exclusive of the $14 million the city has already earmarked for the project. Craig also said an independent consultant would examine P3's proposal to determine its viability.

Council Member Jim Cooper also expressed concern that revenue projections for the first five years show escalating losses. Cooper noted even with robust ridership, the city's transit system runs deficits requiring annual subsidies.

"Being responsible stewards, we can't keep digging a bigger and bigger hole," he said. "I want to do it, but it is a matter of how we do it and maintain at no cost."

Rounding up the bid amount, Mayor Gary Davis asked Craig if the city would own the study once it is completed and what taxpayers are getting for their money. Craig said if this team was not able to finance the project, the study could still be used.

"Do you believe there is $700,000 worth of deliverables in this," Davis asked Craig.

"I think if they provide the financing at the end of this, yes," Craig replied. "If the financing doesn't come through, then what we own is less the $700,000."

Craig went on to say that P3 needed to be paid to help find the financing.

"What we are buying will be used to help them find financial resources," she said. "And they have identified they need to be paid in order to do that, and it is not on a contingency basis." 

"What do you mean by that, the last part," Davis asked

"If it was on a contingency basis as we have discussed in our negotiations, they wouldn't get paid unless the financing was identified," Craig said.

During public comment Elk Grove resident Michael Monasky pointed out the billing rate for Gerrese was $335 an hour and clerical was $70 an hour. 

"I find that absolutely ridiculous," he said.