King’s Pointe Resort is turning an operating profit but will far short of servicing its debt unless the city takes action. City Manager Jim Patrick told The Storm Lake Times on Monday that the resort posted net income of $366,947 in 2013. Still, the city has to kick in about $500,000 a year in sales tax revenue to pay off bonds sold against the project.
Patrick does not think Kinseth Company, which operates the resort for the city, can double or triple operating profits from the motel/restaurant. He suggests to the city council that it refinance about $12 million worth of bonds that have balloon payments in 2025. The effect would be a lower interest rate paid by 1-1.5 percentage points, Patrick figures, or about $200,000 per year in less interest expense. Interest rates are much lower today than they were when the bonds were issued. Payments would be extended five to six years, Patrick said.
This does not mean that the resort is going down. To the contrary, Patrick says that Kinseth has improved financial performance every year. A significant piece of revenue was supposed to be tax revenue from 72 condo units at Sunset Bay, which is no more than a pile of aging concrete enmeshed in litigation. The project was undone by the great credit crash of 2008. Business travel and conferences are the first things to go during a recession, and King’s Pointe thus was born trudging uphill.
It was anticipated and explained before anyone voted that this project would require sales tax revenue. But not this much. The council promised it would not increase property taxes — and it has not.
It is well worth it to the community to have the resort here. There is no question it has lured activity into Storm Lake which mitigates the sales tax expense. There would be no big country-western shows along the lake, no blues band on a February night, and no place to book a wedding reception since Siebens Forum and KC Hall were spoken for.
King’s Pointe is worth having.
So it makes sense that we lighten the load until revenues can catch up to expenses. It is a sign of smart fiscal management to refinance during a time of record low interest rates, which may be heading up again as the economy gains steam. It should not be misconstrued as distress.
The resort financing was a headline note in the city budget for next fiscal year, which was presented to the council on Tuesday after this edition went to press. The main news is that the total city property tax rate will drop 54¢ per $1,000 taxable valuation. That’s a 4% drop from last year’s levy of $13.56.
The city is dropping its tax rate and has less free sales tax revenue for discretionary purposes. Yet it is investing nearly $35 million this year in sanitary sewer, storm sewer and water system improvements. Plus it is fixing up streets, adding to the parks and thinking about developing residential lots.
Patrick said the city has done a good job of mining state and federal funds.
We should say so.
One small item from the budget we wish we could change:
The Jim and Eloise Prichard family was gracious and generous enough to donate to the city a lot at the end of College Street that will connect Sunset and Circle Parks. The budget proposes to make improvements, including a trail, plantings and possibly a gazebo. Again, the city is making the most of grants. The local Paxton Family Trust would pay most of the $100,000 estimated development costs.
Our inclination seems to be when we see a green space to put something there.
We wish the city would just leave it undisturbed. This tiny piece is almost like a little nature area.
The generosity of the Paxton Trust is gratifying. We would not even be talking about this were it not for the Prichards and the trust’s generosity.
Yet the main purpose of the lot is simply to link the two well-established parks. This is one place that does not urgently need improvement.
The funds probably could have a greater impact in another park, such as two new ones that the city is in the midst of developing on the east and north sides of town.