Submitted by Suanne Z. Thamm
Reporter – News Analyst
August 11, 2019 – 2:00 p.m.
Each year during the budget preparation cycle, Fernandina Beach city staff and city commissioners are faced with the continuing problems of significant, ongoing debt in two of the city’s enterprise funds: the golf course and the marina. As enterprise funds, these operations were established to pay their own way from their own revenues, not relying on general citizen support via ad valorem tax revenues. But due to extensive debt, incurred under previous administrations, that has not been the case. Unlike the airport and utilities enterprise funds, which are self sustaining, the golf course and the marine rely on annual infusions of revenue from the city’s General Fund to keep operating.
The City of Fernandina Beach engaged the consulting services of Stantec, Inc. (formerly Burton & Associates) to provide an integrated financial sustainability analysis of the city’s General Fund, Golf Fund and Marina Fund. Principal – Financial Services Mr. Erick van Malssen and Consultant Peter Napoli of Stantec presented the results of their analysis to the Fernandina Beach City Commission (FBCC) at the August 6, 2019 Regular FBCC Meeting. While they found the General Fund healthy with cash reserves significantly in excess of the 20 percent mandated by law, they found that the Golf and Marina cash flows are structurally unsustainable and require significant increases to revenues or annual cash support from the General Fund.
In conducting their analysis, Stantec considered data provided by the city: Audited Financials which establish available fund balance; Current (FY 2019) Year-End Estimates; FY 2020 Proposed Budget.
They also considered the projection of Budget-based cash flows by line item escalation factors for revenues and expenses; the historical Budget vs. actual cash flow analysis; and the specific analysis of three significant items: Ad valorem and property projection; debt service amortization schedules and both funded and unfunded Capital Improvement Projects.
Because the city’s General Fund is so healthy at this point, the city could decide to use money from the reserves in excess of the 20 percent mandate to be retained in reserves to address the debt problems of the Golf Course Fund and the Marina Fund.
The General Fund has been contributing $220K per year to support the Golf Course Fund. Continuing this level of support, by FY2024, the cash flow deficit in the Golf Course fund is projected to increase from the FY2020 level of $1.264M to $2.030M. Should the FBCC decide to retire this debt sooner, they could up the support from the General Fund by $600K for each budget from FY2020-22 and $500K in FY2023. The General Fund is healthy enough to support such a subsidy. By FY2023 the Golf Fund would have climbed out of debt and begun to show positive cash flow.
While there may be light at the end of the tunnel for the golf course fund within five years, the situation for the marina fund over the same term, even with the extensive improvements underway, does not seem as positive.
The city’s General Fund supports the Marina Fund with $300K each year. The cumulative cash flow deficit going into the FY2020 Budget is $2,627M. With the same level of support from the General Fund, that deficit is expected to balloon to $5,256M by FY2024, with cash out exceeding cash in for the forseeable future. It would take additional cash support of more than $5M to eliminate this debt by FY 2024. The report’s conclusions are presented in the slide below:
Stantec will return to future city Budget Workshops with the FBCC to explore other scenarios. The FBCC may decide to disregard, adopt or modify any recommendation put forth. The FBCC will also consider other possible ways to increase revenues to the Golf and Marina Funds.
Other ideas
Over the years various ideas have been floated as ways to solve the Golf Fund and Marina Fund debt problems, ranging from selling the operations to rolling over the enterprise funds into the General Fund. The sale of recreational land must be put to the voters in accordance with the city’s charter. Due to the amount of debt any potential buyer would need to take on with a sale makes the attractiveness of purchasing either the golf course or the marina problematic. Rolling over the enterprise funds into the General Fund would require a dramatic increase in the amount of reserves the city must maintain.
In late 2012 local developer Bob Allison brought forth a plan to convert a portion of the golf course into a high end RV park. Allison demonstrated the need for such a facility and presented financial information detailing how it would generate significant revenue for the Golf Fund. However, opposition from the neighboring community could not be overcome, and the FBCC did not adopt the plan.
The city has been exploring adding new features to the golf course that would enhance revenues. However, these would not on their own retire the debt.
The Marina Fund has been hampered by the storm related closure over the past three years due to Hurricane Matthew. Even when the marina gets up and running by the end of this calendar year, increased revenues from the rental of boat slips and fuel sales will not be sufficient to overcome the outstanding debt. There will continue to be ongoing expenses with respect to maintenance and periodic dredging. Earlier recommendations by the city’s marina consultant called for landside development to help keep the marina afloat. However, such ideas conflict with the call for a waterfront park with clear vistas and sight corridors.
The general view of the public with respect to both the marina and the golf course has been that these activities are essential to retaining the character of the city and the community.
The next FBCC Budget Workshop is scheduled for Tuesday, August 13, at 6:00 p.m. in City Commission Chambers.
Suanne, great summary. Just as a point of clarification. Bob Allison’s plans for an upscale RV park did not impact the current golf course layout, but was to be located on part of the property originally conveyed from the airport boundaries to be used for future expansion of the course, but never developed as such. As to the marina, the policy of using revenues from the upland portion of the city-owned properties would be a major shift. Currently, responsibility of the maintenance of the uplands falls on the General Fund and the Parks/Streets departments.
Before you determine how to get the marina out of debt, I think the commission needs to decide if they want to insure the marina, in the event of future storm/hurricane damage. Left uninsured, you rely on FEMA for funds and as everyone has seen that comes with a incredibly steep timeline and lost revenue. Insuring the marina would be a large cost, but if a big one hits, it may well be worth it. After that decision is made, then you can decide how to reduce or eliminate the marina debt with or without the added expense of annual insurance premiums.
Great question Brandon that the City has been dealing with for decades. Back in 2014 the Commission seemed to move to more of a self-insurance model taking advantage of a FL municipality insurance pool. I thought a condition of the FEMA partial repayment is some level of insurance for the marina going forward; although i could be mistaken. As with any insurance premium, you have to balance the risk versus the repayment reward. In this case, adding insurance costs isn’t going to help their operating profitability/loss situation even if the existing debt is taken off as there will still be the dredging expense, although hopefully less frequent. Unfortunately for the marina is often comes down to a choice between the lesser of two negatives.