The resort boat floats
BY ART CULLEN
The Storm Lake City Council finally disclosed Tuesday evening what it has been meeting about behind closed doors for at least a couple months: Kinseth Hospitality’s contract to manage King’s Ponte Resort has been terminated. People are not saying why the change was made. Perhaps we will never know. Maybe it was personalities, maybe it was lack of communication, we just don’t know for certain. It wasn’t for financial performance.
From a numbers perspective, King’s Pointe has been doing better than most people realize for the past few years. It appears to us that the resort that opened in 2008 is covering all its financial obligations and should not need much support from the city treasury.
Our understanding is, according to Bruce Kinseth, vice president for the firm, that King’s Pointe had an operating profit in Fiscal Year 2016 of $259,000 after paying for management fees, interest expense on bonds, funding depreciation and providing for furniture, fixtures and equipment. Principal payments come out of that $259,000 and leave a little cash in the black to invest back into the resort or return to the city treasury.
The previous year King’s Pointe had a $526,000 net profit, from which principal payments were made, leaving the city with at least $250,000 in bottom line profit. Remember that this was the year after the Hillshire plant fire and during the avian flu crisis when local motels were filled with temporary workers.
The point is that even in an ordinary year like FY16 King’s Pointe made a profit sufficient to cover its operations and debt service while funding depreciation. That’s great news.
City Finance Director Brian Oakleaf recently started work at City Hall after having worked at King’s Pointe for Kinseth as general manager. Understandably, he is swamped learning the city’s finances and is slated for a major budget presentation on Monday. He could not say off the top of his head whether King’s Pointe will need much more city support in the form of local option sales taxes. Oakleaf said he would look into it as he digs deeper into the budget and attempt at some point to give the public a better understanding of the resort’s immediate and long-term finances, and whether it is self-sustaining.
It appears to be.
It is expected that two hospitality companies will make their pitches to the city council to manage King’s Pointe in the next few weeks. With Oakleaf’s unique experience in the industry to advise in the choice, the city should be able to come up with a solid successor to Kinseth that can capitalize on the groundwork that the North Liberty company sowed over the past seven years.
The resort opened as the credit crash caused the Great Recession of 2008. Initial years of operating losses were covered by funded depreciation and the furnishings account. Those funds were repaid from sales tax revenues. The city also has set aside $400,000 per year in sales tax revenue to cover potential losses.
The sales tax revenue appears not to be necessary for the resort.
That’s huge for two reasons:
First, it proves King’s Pointe is a success. It is not a mistake by the lake. It is a profitable tourist attraction that brings more business to other motels and restaurants. It puts a better face on Storm Lake. It is profitable and not a drain on the city as some might try to portray it.
Second, our assumptions about how to manage the resort fiscally should evolve. Sales taxes otherwise reserved for the resort could be deployed over other departments that sorely need the funding. Sales taxes may be used only for capital expenses or property tax relief. Creative budgeting can use sales tax revenue to relieve the general fund that relies on a capped property tax rate. You may not use sales tax revenues to pay cops’ salaries, but sales tax revenues applied in the right places could save a cop’s position.
The Monday council meeting may be worth your while to attend. You will get a preview on what we have been told will be a tough budget that will require painful decisions, like last year. The pain could be lessened if we take a realistic appraisal of King’s Pointe’s needs and prospects.
THE COUNCIL has made two of its three biggest decisions this year behind closed doors: to sever its relationship with Kinseth, which has big implications for the resort and thus city operations, and to extend City Manager Jim Patrick’s contract. We don’t know why Kinseth was run off. We don’t know what the council thinks of Patrick’s performance, other than he didn’t get a raise. (The third biggest decision was voting for a budget early this year that hiked residential property taxes by 9%.)
Important discussions like these don’t deserve the secrecy they get. The public should know when the council is about to sever such a visible and important partnership as it had with Kinseth. The meetings were closed, the city claims, because firing Kinseth could result in litigation. Well, so could getting out of bed in the morning. There was no litigation, no filing and no reported threat. This discussion could have been in public without harming the city one bit. The city doesn’t even have to say what the topic of the closed session is, which leads to confusion.
The city manager can fire any employee, set a course of work for departments or represent the city in sensitive negotiations. The manager has much authority, relatively high pay and a lot of latitude. Managers’ performance reviews should be public. The public should understand how its top official is performing.
Way too much business goes on behind closed doors when there is no need for secrecy. These are but two examples. Often the first instinct is to keep the public’s business secret. That should always be the absolute last resort.