Editors note: The Volusia-Flagler Y is $4.6 million in debt, and the ratio of debt to assets led the auditors, Olivari & Associates, to caution that that could cause problems with the bank carrying the biggest loan, which requires a minimum asset-to-debt ratio in its contract with the Y.
YMCA is Requesting $1.3 Million From City for Renovations & Improvements
Pat, here is a short analysis, I did in preparation for Tuesday night’s discussion on the YMCA expansion. There is no easy answer to this one. It appears based on Ms. Rogers response to the City Manager’s request for safeguards that the Y will not provide such safeguards.
Best, Bob Ford
Background: The Volusia Flagler Family YMCA has approached the City of Port Orange and has requested that the City invest $1,300,000 in renovations and additional construction (7500 square feet) for the Port Orange Y Facility. This proposal will be on the Port Orange City Council Agenda on August 27th.
The Port Orange YMCA is a subsidiary of the Volusia Flagler YMCA. The Y currently leases its Port Orange facility from the City and pays Port Orange $17,000 a month. As part of the Corporate YMCA, in 2012, the Port Orange Y contributed $343,037 (15.4% of total Port Orange revenues) to the central YMCA as overhead.
If the renovations are approved, this will be the third addition to the Port Orange Y since opening in 1989. The original Port Orange Y was built for 4,000 members. Current membership numbers about 6,610 membership units, or potentially 10,891 attendees. Attendance appears steady. However, the mix of memberships has changed with those paying full price declining and being replaced with subsidized memberships.
The Port Orange Y in 2012 had revenues of $2,227,362 versus $2,242,363 in expenditures. Revenues for the Port Orange Y have declined 10.91% during the 5 year period (2008-2012). For 2012, Port Orange Y had a deficit of $15,001 in expenditures over revenues. Data to date in 2013 suggests that Port Orange revenues are continuing to decline. The pro forma developed for City Council does not square with recent financial history.
The Port Orange Y is one of several facilities operated by Volusia Flagler Family YMCA. Membership revenues from the Port Orange Y in 2012 accounted for 30.6% of overall membership revenues for the corporate Y. A similar decline in revenues has occurred for the collective Y resulting in reduced assets (9.6 million in 2008 to 5.7 million in 2012). Available cash has continued to decline over the last 5 years.
The Volusia Flagler Family YMCA has proposed to reimburse the City of Port Orange for the 1.3 million dollar investment through an increase in lease payments over a thirty year period. Initial lease payments would not commence until 2016 with an initial lease payment in that year of $10,830 and then increasing to $59,375 in 2020 and then continuing at a slowly declining rate until payout. Included in the payments would be a 1% interest charge.
The YMCA believes that these renovations are particularly crucial at this time for two reasons. First, the current facility is nearing its 25th anniversary, and is in need of renovation. Increase in subsidized memberships has led to a need for additional square footage –a larger facility, without generating additional income to pay for additional space. Second, a L.A. Fitness has announced that it will be locating a new facility near the Port Orange Y. Other YMCAs facing direct competition from L.A. Fitness have experienced significant loss of members. The YMCA staff believes that updated and improved facilities will improve the YMCA’s ability to retain members. The pro forma presented to the City does not take into account potential losses in paying membership due to competition from LA Fitness.
Since its inception in 1989, the Port Orange YMCA has made a significant contribution to the quality of life in our community. Its location in the City Hall complex has helped center the city and has been a key asset for the city hall complex. It has been a major force in the City for the last two decades for providing key services ranging from childcare to rehabilitation and health services to our residents. While some may argue that increasingly centralized decision making by the corporate Y has reduced the home town appeal of the Port Orange YMCA, nonetheless, the Port Orange Y remains an important institution for Port Orange.
Without renovations, facing increased competition from LA Fitness, the present decline in full payment members could be acerbated with the Port Orange Y entering a protracted period of decline, reducing important programs for Port Orange, and in the worse-case scenario, the Y could fail, ending lease payments, and leaving the City with another empty building to maintain.
The low interest rate (1%) and delayed payments (starting low in 2016) could lead some to conclude this this expenditure by the City is in fact a thinly veiled subsidy since inflation will clearly erode the value of the dollars paid back to the city. Business interest may well argue that this tax supported subsidy will unfairly assist a non-tax paying entity, the Y, in competing against taxed exercise and fitness centers.
Should we be saddling the Port Orange Y with additional expenses during a period when the local and the parent Y have experienced decline in their revenues? Revenue declines at the Port Orange facility may be further acerbated by direct competition from LA Fitness. Increased lease costs coupled with revenue declines could result in further program and maintenance reductions at the Port Orange Y.
The Port Orange Y has been characterized as a donor Y. Over the last five years, the Port Orange Y has transferred between 16.1% and 15.4% of its revenues to the Corporate Y to cover overhead. In 2012 this amounted to approximately $353,000. YMCA’s representatives argue that this transfer represents reasonable overhead. Others argue that Port Orange is subsidizing overall Y operations, monies that should have been used for renovations and equipment upgrades for the Port Orange Y. Should Port Orange require that loan and lease repayments have priority in repayment over administrative overhead payment to the Corporate Y?
Since the 2008 merger of the East and West Volusia YMCAs, decision making has been increasingly centralized in the corporate offices. There has been concern voiced that YMCA corporate interests are increasing neglecting local concerns. Corporate costs/overhead appears high. Given that Port Orange taxpayers are being asked to make a substantial investment in the Y, how does Port Orange insure that the taxpayer’s investment and local interests are protected? Should Port Orange require representation on the corporate board to monitor its investment?
This will be no easy decision for Port Orange City Council. Port Orange’s financial reserves are limited. A decision to invest in the Y may mean that some other worthy project will not be funded. This decision must be judged in the context of competing priorities. The Riverwalk Park, golf course renovations, and additional soccer and ball fields are but a few of the competing projects for these dollars. Is a Y renovation the most appropriate use for Port Orange’s limited funds at this time?
Given the declining revenues experienced over the past five years, the question also must be raised; will this expenditure be sufficient to turn around YMCA’s finances?