Why the Fort Worden PDA Failed and the Lessons To Be Learned
In the 1965 movie “Flight of the Phoenix,” the survivors of a plane crash in the Sahara make a new plane from the old one and fly it out of the desert. It was ten years ago this fall that I went to the new director of the Fort Worden Public Development Authority (PDA) and suggested that he needed a similar strategy for it to “fly” financially. Little did I realize then that it would take so long to crash and that the failure would begin so immediately.
Cleared For Takeoff
The PDA was an independent public agency set up by the City of Port Townsend with its own board of directors appointed by the city. Former city manager David Timmons put former planning director Dave Robison in charge of negotiating the transfer of Fort Worden from state government to the PDA. Robison, perhaps because he was eager to get the PDA director job, agreed to an onerous deal: that besides operating the core buildings, the PDA would also, in several years, take over the maintenance of dozens of old and unneeded buildings.
Using the “Flight of the Phoenix” analogy, I proposed to Robison that I would help him get a grant from state government to create a business and investment plan for financial sustainability. I believe that the PDA used about two-thirds of the grant for preparation of a site plan later used to justify glamping and Makers Square. The PDA had already begun to fail.
Not Enough Lift
Even with a greatly-reduced budget for the business and investment plan, I still took a deep dive into the numbers, analyzing where visitors came from, reconstructing the accounting statements to determine the relative profitability of different departments, and profiling competitors which went after the same group business.
I found big problems in the operations: that the accounting systems were almost useless for making management decisions about day-to-day operations and that the margins on those operations were grossly out of line with industry averages. The margins on the rooms, for example, which provide the bulk of operating cash flow for almost all hotel operations, were half the industry averages, and food and beverage operations were a negative 15 to 20 percent, and not near zero as they should have been. Overhead was twice the industry average.
Besides the management and accounting problems, I found two big problems with the property itself that meant that without substantial and carefully targeted investment, the PDA would never be able to improve the buildings, much less maintain dozens that were unnecessary.
First, there simply weren’t enough salable beds that with good margins would generate cash flow. The engine in the plane simply did not have enough cylinders. Barracks that could have been renovated to generate cash flow were given away to Peninsula College or left unused.
Second, there was nothing to do on rainy days at the Fort and there were no quality meeting rooms, which meant that the PDA could not sell off-season. I recommended good AV equipment, rainy-day amenities, and covered picnic shelters with fireplaces on the bluff where families could make memories together.
Flights of Fancy
Pétanque court installed on back lot.
My recommendations fell on deaf ears, for the new model for the Fort already seemed fixed: McMenamins hotels, which are targeted at adults who spend much of their stay eating and drinking. Close to a million dollars went into converting an old brig into a bar, and a new pétanque court went in on a back lot. The lowest cost for an individual booking soared to hundreds of dollars per night.
Using grants, donations, and a big loan from Kitsap Bank, the PDA put the big money into glamping and Makers Square, both fads of the time. Those projects not only distracted the board and staff from essential operational and accounting improvements, but used up the financial capacity for additional lodging, the financial necessity.
Interestingly, the PDA did hire consultants to prepare pro formas for glamping and Makers Square, but they were designers, not business people, and they made unrealistic or bad assumptions. For example, the pro forma for Makers Square projected that it would barely break even, but would justify itself by increasing room sales. The problem is that most of those sales would come in the peak season when those rooms were already sold. The cost overruns on glamping speak for themselves.
The $2 million glamping project featured these “luxury” tent sites projected to cost $125,000 each. Installations were never completed and though their expected life is ten years, only a few years post-installation the unused tents are already deteriorating.
Moral Hazards, But No Control Tower
The high and unpayable debt resulting from glamping and Makers Square highlights a moral hazard in state law: cities can set up PDAs that may benefit them, but they are not liable for the debt they may take on. This encourages them to take risks for which they do not bear the consequences.
Had the city been responsible for the PDA’s debts, it might have paid more attention to the original deal that made the PDA responsible for maintaining all those old buildings. It might have commissioned a detailed business and investment strategy before closing on a deal. It would have hired experienced professionals to review new debt. And it would have made sure that the PDA board was doing its job.
A board’s primary responsibility is to hire and fire the executive director, to make sure that director is doing their job. The PDA board had too many retired professionals unwilling to be independent and put in the necessary review time. One spent much of his time doing building inspections. I wrote another with an impressive background in finance and the travel industry about my concerns for the PDA’s viability. They did not respond.
In 2021 the board pushed out long-time director Robison, but not without considerable angst about its reputation. A 3/18/21 Port Townsend Leader article quoted an email from board treasurer Jeff Jackson saying, “I get we’re transitioning but not fast or clear enough and the three of us look partially ineffective.” That article quotes a press release from co-chairs Todd Hutton and Norm Tonina saying that Robison’s tenure was, “Ending on a high note.”
Rearranging the Flight Deck
Management blamed the PDA’s crash on Covid, but conditions were already precarious. The embezzlement and diversion of funds took time to clean up after, but there does not seem to have been a plan for how to repay the restructured debt. It is anybody’s guess why the PDA spun hospitality operations out into a separate entity when those operations didn’t make money in the first place.
Fort Worden will now go back to the state, which, with its budget challenges, probably won’t maintain buildings even at current minimal levels, much less improve them. Don’t expect a big turnaround in operations, for the state had no real business strategy when it previously operated the buildings. Fortunately, core users like Centrum provide a base of business, but all those long-term questions about how to compete and sell off-season room nights will still exist.
A Way Forward
For decades now there have been kumbaya retreats at Fort Worden about the meaning of “lifelong learning.” This misdirection resulted in a lack of focus on the improvement of day-to-day operations, which brought the Fort and the PDA to where they are today. There are ways of improving this property such that it would be financially self-supporting. However, the big challenge isn’t the business operation of the Fort — it is its governance.
Simply put, does the community care enough about the Fort Worden complex to put the right people in charge? The experience with the pool and the PDA show that city government is not up to this task, but another form of governance could work if there was enough of the community watching out for its future.
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PHOTOS: Stephen Schumacher
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Earlier Port Townsend Free Press reporting on the Fort Worden PDA:
Fort Worden PDA Out of Money, Must Privatize to Survive
Criminal Investigators Called into Fort Worden PDA Mess
Fort Worden’s Promised Financial Oversight Never Happened
Fort Worden Glamping A Soggy Mess
Fort Worden PDA Finances Plagued With Problems From Beginning