What a mess. The $108 million Port Townsend Aquatic Center as proposed to City Council would default in its first year. To calm skeptical taxpayers, numbers are being juggled, massaged and manipulated. Millions of dollars magically disappear from cost entries in order to turn red ink black. Looking closely, one can see there is no money to pay for administration and management during and after construction, thus making the project appear less costly to taxpayers.
But under the pixie dust, above the smoke and mirrors, behind the curtain, the hard, cold reality remains unchanged: economically distressed Jefferson County simply cannot afford something so costly.
Red Ink Turned to Black Ink (Not Quite)
At the same time they were seeking City Council’s endorsement for their proposal, promoters of the aquatic project did not disclose that their calculations showed the aquatic center could default in its first year of operation.
On October 16, 2023, City Council was asked to endorse the proposal from the aquatic center Steering Committee for a $37.1 million aquatic center and county-wide sales tax to pay for it. $22.1 million would be borrowed through a bond supported by sales tax receipts. $5 million, council was told, would be raised by the Jeffco Aquatic Coalition, $5 million from state grants and $5 million from federal grants.
The impressive 30,000 square foot facility being proposed would greet visitors with a high-ceiling, gleaming atrium with expansive glass walls, leading to the natatorium.
There swimmers could choose from the cool water 25-yard, 6-lane competition pool (where their form and speed could be judged by those in bleachers built to hold 100 spectators), or they could dip in the warm water of the 3,000 square foot recreation pool, where they could also walk against the artificial current of a “lazy river” feature. Afterwards, they could kick back in the $106,000 whirlpool/spa.
On other occasions, they could rent out the “birthday room” or knock around a ball on the new pickleball courts outside. There would be very nice universal locker rooms, showers, offices, storage space and parking for about 130 vehicles.
Of course, neither the city nor the county has the money on hand to build this facility. Money must be borrowed — $22.1 million, according to the “final” report.
In our previous reporting, we examined the pro forma upon which the Steering Committee was operating. A pro forma is a projection of annual debt service payments (principal and interest) versus expected revenues from the new county-wide sales tax the committee is proposing. Its purpose is to determine if the bond can be repaid.
The city’s own analysis showed that the project would default its first year. Sales tax revenues would not be adequate to pay the project’s debt. The specter of default loomed even though the pro forma assumed a pollyannish interest rate of 4.5% — something we won’t likely see again for years.
The Steering Committee, City Manager and its Parks and Recreation Strategy Director knew this when they sought City Council’s endorsement of their proposal on October 16. I noticed that in the 316 pages of the Report and its appendices in council’s “packet,” there was no pro forma to show if the project could shoulder the debt load they were proposing. In all those pages not even a cumulative interest amount was stated. That is an important number.
In calculating the actual cost of the project, there’s more to it than just the construction costs. The cost of borrowing money must also be considered. That simple calculation was omitted from the material presented to City Council.
So I asked for it. Carrie Hite (Director of Parks & Recreation Strategy) sent the pro forma to me, accompanied by an email in which she wrote: “You ask some great questions and the pool’s financial viability is something we continue to explore.”
This was October 18, two days after the “Final Report” had been submitted to City Council with a request for their endorsement. I then wrote the article reporting that the city’s own internal analysis showed the aquatic center unable to pay its debts and going into default its very first year.
After that report, city staff and the Steering Committee got to work to come up with a more attractive financial picture.
They made stuff up.
What they did was run several new pro formas at 5.5% interest, since their unrealistic 4.5% rate was so obviously invalid. 5.5% is still a very favorable interest rate for a project like this. As of this writing, investment grade 30-year municipal bonds might merit that rate.
But the bond for the aquatic center could very well not enjoy that coveted rating and would have to offer a higher interest rate. How much higher is difficult to say as each bond would be priced according to its individual risk characteristics, and would not enjoy the benefit of a bond agency’s screening and rating.
Consider this: the bond would be floated by a brand-new Public Facilities District (PFD), with no track record, no assets, no money in the bank, nothing in the way of collateral.
The cost of the proposed aquatic center is so large and squeezed so tightly into the limitations of the county’s tax base there are no reserves. If there is a year when the economy hiccups, if costs shoot up unexpectedly, if something big breaks, if the aquatic center does not see the very optimistic 800% increase in use required the first year of operation — there is no cushion, no way to pay bills and no way to meet debt obligations.
This would be a risky bond for investors.
It would be a revenue bond, which would carry a higher interest rate than a general obligation, levy-guaranteed bond paid with property taxes. As the Municipal Research and Service Center explains, “Revenue bonds are not backed by the full faith and credit of the city, and therefore investors consider them somewhat less secure than general obligation bonds. As a result, the interest rate that bond buyers demand may be higher than those on general obligation bonds.”
It will also likely have to be guaranteed by the city or county. It is highly unlikely that anyone will hand over $22.1 million to an untested group of people with no security for the loan other than a guess at future sales tax receipts. Without the city or county putting their assets behind it, this bond could well be rated as below investment grade. That means creditors would demand to be paid a higher interest rate in exchange for accepting more risk.
Enough for a lightning primer in public finance. Let’s look at how $2.1 million has to disappear to turn red ink black.
In response to another request, Carrie Hite provided the latest pro formas they have been considering. You can open the PDF here.
The first 6 years of red ink from the Aquatic Center’s latest pro forma. Note “$20M Bond” is a typo in the city’s pro forma, which should read “$22.1M Bond, 30 YR, 5.5%”.
Now you see it, now you don’t.
There is no way the proposal submitted to City Council can work. Not at 4.5% interest over 25 years, as we have reported. And definitely not at 5.5% interest, when the deficit would swell to more than $246,000 in the first year!
The Steering Committee looked at stretching out the term of the bond to 30 years in the hope periodic payments would be affordable. That won’t work, either. The first year shortfall would still be more than $120,000, as shown in the image above.
So what they did was reduce the amount of money to be borrowed by $2.1 million, stretch out the term of the loan to 30 years and cross their fingers as they sat back and waited for Excel to do its thing. Voila! There’s enough money to make it work — just barely.
They’ve also played with cutting the amount financed to $17 million so the numbers look better.
But this project will still cost $37.1 million to build. It has not been redesigned. Nothing’s been cut. Where will that $2.1 million or $5.1 million in savings come from?
Manna from Heaven
In the “Final Report” (now you understand why we have put that between quotation marks) the Steering Committee told City Council they hoped to raise $15 million, with $5 million each coming from gifts, state grants and federal grants. Maybe now they will tell officials and taxpayers they are going to raise even more in order to have to borrow less. So where are those extra millions going to come from?
Regarding those state and federal grants, the minutes of Steering Committee meetings, found at the end of the appendices to the Final Report, are vague at best on this subject. “Maybe,” “could,” and “perhaps” are used a lot. The only state grants discussed are for work outside of the pool, like for a gym. But there is no gym in the proposed design. There is no state grant for building a pool mentioned in the minutes.
The federal grants discussed would only be for seismic resiliency, that is, covering the additional cost of building stronger for earthquakes. But minutes also reveal that the cost of adding seismic resiliency has been shown to exceed the extra money grants contributed in previous projects.
So much for the certainty of state and federal grants.
So maybe wealthy, generous people will give not only $5 million, but go as high as $7.1 million, maybe $10.1 million.
You Go First
The Jeffco Aquatic Coalition has shown no evidence it has raised $10,000, let alone $10.1 million for the aquatic center. According to minutes of the steering committee, they want a tax measure on the ballot before they start their capital campaign. So far, not enough money to buy some faucets has been raised from private giving or state and federal grants.
There is definitely a rush to get this on an April 2024 ballot.
They want taxpayers to go first. Raise taxes, start making most things more expensive in Jefferson County — from Amazon purchases to socks to home construction and improvement — and then they will start trying to get the rest of the money.
So what happens if taxpayers across the county agree to pay higher taxes, the taxes kick in, but the rest of the money needed doesn’t come through?
Seriously, what happens?
Umm, Didn’t You Forget Something?
The budget in the Final Report maxes out all possible sales tax revenue. The numbers are so tight there is no debt or operating reserve. As we have reported, we are being told that the operating costs for the proposed PT Aquatic Center will be about 40% lower than the comparable experience of the Shore Aquatic Center in Port Angeles, which sees about $2 million a year in operating expenses.
Hite suggested in The Leader that the difference in operating costs can be explained by the Shore Aquatic Center having four “tanks” or pools — a competition pool with diving area, a spa/whirlpool, a wellness pool and an activity pool with a “lazy river.” Port Townsend’s aquatic center would have only two, she said.
Actually, PT would have three pools: competitive, warm water with the “lazy river” and whirlpool. Both facilities have almost exactly the same square footage. The PT Aquatic Center would have a sauna, as does the Shore facility. One could predict that the design of the PT facility would be more expensive, with its higher roof line and graded slope, than that of the Shore center.
Regardless, having an additional small pool, the wellness pool, is only a difference in construction costs, not operating costs, and certainly does not explain how the PT Aquatic Center could operate on $742,000 less than the Shore center. Most operating costs are labor. As discussed below, the fact that there is no provision for administration and supervision of the PT Aquatic Center may go a long way to explaining why its projected operating costs are so low. If operating costs inch up just a bit, the PT Aquatic Center ship capsizes.
A closer inspection of the feasibility study provides some answers. We can see what’s been carved out so the PT facility will have lower operating costs than its counterpart not far away.
For one thing, the Shore facility has an executive director. He interacts with the board, manages the tax revenues and grants, oversees state-mandated audits and reporting, responds to public records requests, etc. He oversaw the $20 million upgrade and expansion in 2020. He supervises the facilities manager, head lifeguard, maintenance crew — everything from physical plant to hiring and firing to dealing with the public and government agencies. He has support staff to help him in this essential work.
The budget for the proposed “base” PT aquatics center, on the other hand, not only does not provide for an executive director, bookkeeper and other support staff, it does not even provide funding for a facility manager. (See p. 55 of Ballard*King feasibility study).
Shore’s 2023 financial reports shows $158,500 in salaries for administrative staff. The PT Aquatic Center budget is zero.
Shore spends $112,000 on its Front Desk supervisor and crew; the PT Aquatic Center is budgeted for only $66,378, with no supervisor.
Shore’s budget also includes salaries totaling $118,700 for janitorial and maintenance versus the PT Aquatic Center’s budget of only $71,868.
Shore sees janitorial and maintenance expenses for its new facility at the annual rate of $33,200; the PT Aquatic Center budgets only $18,000.
Shore has learned its insurance costs $93,900 annually; the PT Aquatic Center budget is only $20,000.
Shore spends $71,100 on childcare; the PT Aquatic Center budgets nothing for childcare.
Shore has learned from experience to budget $190,000 for materials needed to maintain and repair its 3-year old facility; the PT Aquatic Center budget is only $18,000.
The unexplained discrepancies go on and on until the PT Aquatic Center is budgeted to operate at about $742,000 less annually than the comparable Shore Aquatic Center.
How can such a large facility be run without anyone in charge?
Answer: local government would provide management and administration and bear the cost.
That is an explicitly stated assumption in the Ballard*King budget. (See p. 46). Accordingly, no costs associated with administration are entered into the aquatic center budget; these costs would be off the books in a local government budget. But neither the city nor county governments are going to manage the aquatic center. The city that is heading over a “fiscal cliff” certainly doesn’t have the money.
It is being suggested that the YMCA will manage the facility. But there is no money anywhere in the budget to pay the YMCA.
And who, pray tell, is going to build the new aquatic center?
Not the city. Not the county. It will be a brand new agency called a Public Facilities District (PFD).
This new agency will have to complete the design, engage architects, engineers, put together bid packages, solicit and analyze bids, negotiate contracts, hire and pay construction costs, inspect and approve work and change orders, seek and manage grants, meet state auditing and reporting requirements, comply with public records and open meetings law, serve the appointed board of the PFD, etc. They will need an office, telephones, copiers and lighting so they can see while they work.
The Port Hadlock sewer project needs a crew of about a dozen people to oversee construction.
There is no money in the budget for anyone to get the new aquatic center built and opened!
Even after construction, the PFD will have legal obligations and work that must be done as a governmental entity. But there’s no money to fund a PFD. None.
As If More Consultants Were Needed — Actually, They Are
The Final Report recognizes the work of seven consultants, including a “public engagement consultant.” Missing from the list is a much more critical consultant: the bond, or financial consultant. It is a wise and common practice for public agencies that will be seeking bond financing to engage the services of a bond consultant, such as Northwest Municipal Advisors, who have worked with local governments and public entities in Jefferson County.
They create pro formas using realistic market rates because they work in the bond market every day. They understand that bond financing is very different from, say, mortgage financing. An amortization schedule for a municipal bond will be quite different than the simple pro formas being considered by the Steering Committee. When it comes time, the bond consultant would be the debtor’s negotiator with lenders.
The bond consultant may arrange the short-term bond anticipation note — the equivalent of a line of credit to be used to keep the project going before the funds from the long-term revenue bond are available. That also has been overlooked in the Steering Committee’s calculations.
The interest that would start being due at the beginning of the project will likely be capitalized and rolled into the principal of the long-term revenue bond, raising the dollar value of the amount financed — another omission from the Steering Committee’s calculations, but something a bond consultant would catch.
Then there will be the bond underwriter who raises the capital for the bond.
State law and IRS regulations require engagement of bond counsel. They provide a professional opinion that everything is legal (to oversimplify matters) and that the bond would qualify as tax-exempt.
All of these people have to get paid. Their compensation will come out of a percentage of bond proceeds, which is accomplished by increasing the principal amount of the bond. Thus, a $22.1 million bond would be increased to, say, $22.5 million or maybe more to cover these fees. Taxpayers effectively borrow money to pay these people, as well as borrowing money to pay capitalized interest. That raises the periodic payments and increases the cumulative interest paid over the term of the bond.
None of this is factored into the calculations underlying the “Final Report” and Recommendation — most likely because the Steering Committee spent money on a “public engagement consultant” instead of a bond consultant. The operating and financing costs are thus seriously understated, as PR to sell this to the public was prioritized over crucial bond expertise
The work is hugely incomplete. There are holes in the budget, with necessary items not budgeted, and hopes and prayers plugging the gaping holes. Taxpayers are being rushed into taking the first leap into the murky waters with city councilors being herded into endorsements without getting a complete picture of how bad this thing is.
Cherry Street Project on Steroids
This really is a mess. It is much, much worse than what we saw with the Cherry Street Project. There are so many parallels with what went wrong with what was also a well-intentioned, but fatally flawed undertaking.
Faulty financials:
The Cherry Street Project was created with “bogus” numbers. The feasibility study for the aquatic center, on which everything must stand, is, frankly, garbage. The community is supposed to bet $108 million on the judgment of a consultant who thinks that Mountain View Pool is in Kala Point and Port Ludlow’s pools are on Bainbridge Island. That consultant, as we just discussed, wrote a budget for the aquatic center that has no one in charge.
Like the “bogus” numbers underlying the Cherry Street Project, the bogus numbers underlying the aquatic center are being ignored in a rush to get this on an April ballot.
No unbiased, non-vested confirmation of feasibility:
The Cherry Street Project was pitched and defended by consultants hoping to land a nice contract to execute the project. The same thing is happening here.
Only those who stand to gain a piece of the action — be it Opsis, the architect, or the YMCA — are presenting this project to the public and decision makers. There has been no independent double-checking of the (shoddy) work of the consultants — except by the volunteer citizen journalists of Port Townsend Free Press.
Rush to approve despite warning signs:
There is a rush to just get the money from taxpayers and figure it all out later. We saw this with the Cherry Street Project when hard, cold numbers spoke failure, but city councilors charged ahead out of a sense of haste and not wanting to get bogged down with details or appear to be a dissenter and nit-picker.
If Cherry Street taught a lesson it is this: it is a lot easier to avoid sliding into a project than it is to get out of one.
We were a voice crying in the wilderness when no one wanted to hear of any problems with the Cherry Street Project. Our analysis — which was always based on the very documents and data available to city council and city staff — proved correct. It was a tragedy that the Cherry Street Project ended in such a costly failure and that it dragged out so long.
City officials say they learned their lesson from that fiasco — but have they really?
Seven years later, chalking up a loss of $2 million, the City of Port Townsend has accepted a bid to tear down the never-rehabbed, asbestos-ridden Cherry Street “demonstration project”. That loss pales in comparison to the $100+ million gamble of the proposed aquatic center.
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For reports on the many other red flags and alarms in the critical feasibility study upon which this shaky edifice is built see:
Unsustainable. In less than five years, Port Townsend will burn through its reserves and be unable to maintain its current level of services. Its finances will “fall off a cliff.” Those exact words were used by city staff in its presentation to the joint session of City Council and its Financial Sustainability Taskforce on May 8, 2023.
The graph at the top of this article shows what’s coming. Starting this year, the city will begin consuming its reserves. The burn rate accelerates each subsequent year until in 2028 the city starts dropping through the “policy level” that represents its ability to maintain existing services. You might notice that the graph shows a significant peak during the past couple of years. Those were years of a massive infusion of federal and state money and savings due to cutting staff during the pandemic lock downs. It was an unreal time of external munificence that won’t be repeated
The unpleasant and, for many people, painful solution will necessarily involve raising existing taxes and the imposition of new taxes. This will make the cost of living in Port Townsend rise even faster, hastening the shrinking of the city’s middle class and making life ever harder for workers. Taxes get passed through to everyone one way or another. Port Townsend already is not a family-friendly place; things are going to get worse for households on limited budgets trying to raise children. A higher cost of living exacerbates conditions already faced by employers who cannot attract workers or keep on their payrolls younger people who are forced to choose a community that better fits their paychecks. Higher costs in Port Townsend have also driven out some of the creative class. An older, wealthier demographic emerges, including a greater concentration of people moving here to spend their last years and those with surplus money capable of acquiring second homes.
An alternative would be to put ambitious, costly plans on hold and immediately impose austerity measures. This will be the involuntary consequence anyway if, very quickly, something “radical” is not done. That was the message of Steve King, the city’s public works director. He shared hard truths I can’t remember hearing at any previous city council meeting. He informed council that, “Our tax structure absolutely requires growth.” He said that a “radical” change was needed to achieve a significant rate of growth not seen here in recent memory.
The necessary growth would mean, he said, something like building 75 new homes annually — an unheard of accomplishment under the city’s difficult-to-build regulatory regime. Not discussed at the meeting was radically promoting growth by making Port Townsend much more business friendly in order to attract new employers that would create better jobs than those the tourist trade generates. That requires relaxing business and environmental controls, governing with a very light regulatory touch, and dramatically reducing the cost of doing business here — the opposite of our current high taxation, tightly controlled, closely planned, anti-growth dominant culture.
Five years to go before the city launches off that cliff. It took six years to take a first stab at loosening city codes that were making it difficult to add ADUs — even though the need for housing was declared a “crisis” back in 2017. That same year, the city, with the enthusiastic support and advocacy of its current mayor and deputy mayor, began wasting a pile of money, staff time and public resources on the fiasco of the Cherry Street Project. This supposedly “affordable housing” endeavor has sucked up over $2 million in city funds, bond capacity and land. Entering its seventh year, the project provides housing only to rats, raccoons and the squirrels that I have observed entering the building through holes chewed in the building’s eaves. It is also a publicly-funded place for kids to party and do who-knows-what-else inside the vandalized derelict on the hill over the golf course.
“Lean Thinking”
The May 8 meeting partially focused on how to craft a message to persuade taxpayers to accept a higher tax burden. One slide boasted of steps that have been taken to slow the impending launch into a fiscal abyss.
King informed council it would take at least another $1.5 million annually over future decades to start to turn around the city’s dire streets problem. It will take another $750,000 annually just to keep things from getting worse. The touted “efficiencies,” as anyone with some sense of proportion will realize, are insignificant. The cliff up ahead has been visible since at least the time the current city manager began employment. That’s three years ago, yet this is all that can be claimed in the way of meaningful efforts to cut costs.
Notice that “lean thinking” is cited as an example of an efficiency achieved. What is “lean thinking”? Some kind of thought experiment? An image of an unhealthy overweight person imagining a fit, trim twin in the mirror comes to mind.
At the same time it confronts an impending fiscal crisis, city leaders are spending scarce resources on dreams of a grand new pool and exercise facility. Just a basic pool alone, as was stated during the May 8 meeting, will cost $25 million. Opsis, the Portland, Oregon consultant working for the city, pegs the minimal cost at more than $30 million and running as high as $52.7 million.
The city is also tossing around ideas for remaking the golf course, though it has no money to do anything (already needing volunteers to trim the grass).
And even as a poison hemlock forest again engulfs the Cherry Street Project the city is moving forward on its largest housing project ever – the Evans Vista development. The land was acquired with grants, but the city has shelled out at least $500,000 on consulting services while also using considerable costly staff time for a project that may be a decade away from making the faintest impression on the city’s housing market.
In an act that cannot qualify as “lean thinking,” in October 2022 council approved a large increase in compensation for the city manager, John Mauro. They boosted his salary by 10% and threw in a “retention bonus” of $12,500. They also increased his vehicle allowance and doubled the city’s contractual obligation to provide severance pay from 6 to 12 months. Not long after this act of municipal generosity, Mauro went on a five-week vacation.
Mauro’s base salary is now $189,297, up from his starting salary mid-2020 of $156,000. In addition to his base salary, he also gets 13% of his salary contributed to his retirement account, almost $25,000 annually at his current rate of pay. When he was hired, he received a $20,000 relocation allowance to move him here from New Zealand. His current automobile allowance of $6,600 is equivalent to driving more than 10,000 miles, at the current IRS business mileage rate. One could reasonably wonder how and why the city manager is driving more than 10,000 miles annually on city business. How is that possible? For background on Mr. Mauro, please see our report, Who is John Mauro, Port Townsend City’s Manager?, in which his previous employer in Auckland contradicted published claims about the job Mauro held as an employee of that city.
Just three days before the meeting with the Financial Unsustainability Taskforce, city council had to admit it was going to blow its 2023 budget. It approved a “supplemental” budget that recognized the need for an additional $4.7 million above what had been anticipated. Bills from consultants drove the budget-busting, er, supplemental measure. These consultants are being used to advance the Mountain View pool/rec center and golf course projects. Council was also told that expensive consultants were doing work normally done by staff engineers, as the city has been shorthanded in that department.
At the same time it was claiming it needed more money to pay consultants to fill holes in its engineering department (not to be confused with filling holes in the streets), the city hired a new marketing manager. She will work on “engaging the public,” according to a Peninsula Daily News report, on “decisions including the Port Townsend Golf Course, an aquatics center, streets, housing and…” (get this) “financial sustainability.” In other words, she will be working on selling the public on projects the city acknowledges it cannot currently afford and trying to convince taxpayers to accept tax increases for the sake of “sustainability.”
Recently the city sought to recruit a Director of People and Performance, with a salary ranging from $107,00 to just over $130,000. Desperately needed licensed engineers with a minimum of 6 years experience, meanwhile, were being offered jobs starting at under $75,000, with a top range of $92,000. The opening for Director of People and Performance position has been closed. The city is still looking for three engineers and a Deputy Public Works Director/City Engineer. In the meantime, more expensive consultants are doing those jobs and/or services are being curtailed.
As for that Cherry Street Project, in August 2022 it looked like the city would sell the building and property. City staff projected the sale might net $320,000. City council was going to decide whether to impose conditions on the purchaser that required them to build a certain number of “affordable” units, or unload the property for the best deal that could be had. The city has already passed up a $1 million cash offer. City Manager Mauro blew off Keith and Jean Marzan of Morgan Hill who offered to bail the city out of the mess it had created for itself and pledged to build affordable housing on the site (see our report). When Mauro presented the history of the Cherry Street Project to city council last year, he failed to mention that he had rejected this cash offer, which was about three times more than the city could hope for now. I spoke with a council member immediately after the meeting. She said she had never been informed of the $1 million cash offer that Mauro dismissed.
(On May 15, the City Council during its business meeting went into executive session to discuss a real estate sale or lease. The property in question was not identified during the meeting.)
Whether it sells the property or not, until 2040 the city will be making annual payments of $61,896 on its $1.4 million bond principal and interest obligation assumed to rehab the 70-year building barged across the Strait of Juan de Fuca from Victoria, B.C. Netting $320,000 from a sale would be swallowing about a $2 million loss (the land alone was valued at $600,000 by the city in 2017).
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Cherry Street Project, May 2023. Top two photos, back of building; bottom photo, front view.
Taxes and More Taxes
Even with the annual 1% increase in property taxes city council always imposes, in five years the city heads into “red ink,” in the words of Mayor David Faber. Just treading water — not demanding more from taxpayers already paying high taxes — means red ink washes ashore very soon. Streets will continue to deteriorate and services will decline. Intermittently and futilely patching crumbling streets guarantees even more costly repairs down the road. Public Works Director King said in the May 8 meeting that replacing a failed street, as Lawrence Street has become, costs 4-5 times more than required to properly maintain a street. He said that F Street and San Juan Avenue “are next” for failure. “We will,” he said, “continue to see those streets go down, and pretty much [then] the whole town is shot, not just the side streets.”
The kind of growth King intimated is necessary to prop up the city’s existing fiscal structure is not going to happen in the time remaining before the edge of the cliff is under city leaders’ toes.
If the city sold all available disposable land identified by city staff, an option discussed at the meeting, it could raise maybe $2 million. The Cherry Street Project was not identified as one of those properties. But even adding the possible proceeds from sale of that failed project, it is still not enough to avert the upcoming cliff dive.
An idea was floated to lease space at City Hall and charge a rental fee for the pool, raising maybe – maybe – $150,000 annually. That’s a big if and would put the city in competition with private landlords for some uses. As mentioned, getting streets into sound condition will cost $1.5 million a year for a long time. The aquatic center city leaders want will require, according a May 10 Leader article, an annual subsidy of $750,000 “for the base option.”
Some “efficiencies” were suggested, along the lines of the “efficiencies” listed above. Let’s be serious. None of this would make much of an impact. Not on the list, by the way, are salary freezes or more modest annual raises. The trajectory off that fast-approaching precipice incorporates maintaining annual 4.5% to 5% raises for staff.
That leaves raising or adding taxes. The Sustainability Task Force and city staff have plenty of ideas on how to get more out of homeowners, shoppers, business owners, renters… everybody.
Those ideas include the obvious: raising property taxes. A proposal was discussed to raise property taxes by $.50 for every $1,000 of assessed value, and adding this to the basis for annual 1% overall property tax increases. That would mean a $250 increase in the first year for a property assessed at $500,000, which would then increase annually thereafter. This would be a permanent tax increase.
Other ideas for bringing in more money to city coffers: raising the water, sewer and stormwater utility tax; increasing taxation of electric and telephone services; a higher B&O tax; charging parking fees on 500 parking spaces (which requires additional enforcement and administrative costs); increasing user fees; imposing a “transportation benefit district” sales tax; imposing a “transportation benefit district” license fee; imposing a $5,000 per housing unit impact fee; enacting a metropolitan park district property tax; imposing a parks and recreation district levy; imposing a parks and recreation service area levy; collecting a public facilities district sales tax; adding an affordable housing sales tax; and raising development service fees.
This was one of the most important city council sessions in years. It received decent coverage by Peter Seagall of the Peninsula Daily News. It was ignored by the city’s own newspaper. Staff’s PowerPoint presentation is here. You can view and hear the entire 2.5 hour meeting at this link. You will hear city leaders laughing and joking. Yet the situation is so serious that having the county take over the city’s police department, parks, library, planning and engineering services was presented for consideration.
Here is the full list of our reporting on the Cherry Street Project since our first article:
Port Townsend’s most ambitious, costliest “affordable” housing project. Barged from Victoria, B.C. the Carmel House, the building at the center of the Cherry Street Project, sits empty and blighted above PT’s golf course. The 2022 work plan for the City of Port Townsend includes no work on the Cherry Street Project except paying down the $1.4 million indebtedness the city incurred to get the thing rehabilitated. The building has been vandalized and is home to rats and raccoons.
The lessons of this abject failure run throughout our coverage since 2018. The first lesson is, simply, don’t believe what you read in The Leader. From the beginning, the newspaper “of record” has done nothing but act as a stenographer for city leaders and activists. It has been a willing participant in every PR effort to put lipstick on this pig. The Leader has never reported the true cost of this boondoggle, or any of its many failures.
Its most frequent tack was to proclaim “Progress!” even when failure was painfully clear to everyone. The Leader has never asked a hard question of the city or the housing activists — the former Homeward Bound Community Land Trust, recently rebranded as Olympic Housing Trust — who defaulted and wasted millions of dollars in public largesse. The Leader has never looked behind the candied words of the project’s backers, nor dug into public records that show taxpayers have been misled and lied to. Instead, the Free Press has done the work our city’s newspaper should have been doing.
The second lesson is in the dysfunction of an ideologically and politically homogeneous legislative body that operates by peer pressure and virtue signaling. The ultimate failure of this project was evident from the beginning. The city failed to inspect the building before purchasing and floating it across international borders.
Lo and behold, there was a Canadian hazardous materials inspection detailing the presence of asbestos and lead paint the city never saw until a couple years later. The project never could “pencil out” as a viable affordable housing project — not that numbers, which represent taxpayer dollars, seemed to matter to council members. It was more important to make a show of doing something grandiose and kind of artsy about affordable housing than it was to crunch numbers with an eye to reality.
Most shocking of all, the city’s own pro forma for the large loan it extended to the activists showed they would default in a couple years. Council shushed up the lone council member who noticed that and rushed the loan through. By the way, we found and reported that the loan contained a $400,000 hidden interest subsidy that was to be shouldered by taxpayers.
How could an unavoidable, predicted default not matter to City Council? That leads to lesson number three, the antidote to the problem observed as lesson number two.
There must be real diversity in a legislative body to make it work. The City Council that saddled taxpayers with the Cherry Street Project all came from the same political and ideological petri dish. They were a clique of the elite and the woke. It was more important to them to get along, reinforce a narrative, repeat feel-good/look-good buzz words, and nod in agreement than it was to get things right. Someone strong who stood outside the clique and didn’t seek their approval and friendship was needed on council to fight their headlong rush into failure.
The fourth lesson is that Port Townsend Free Press was needed back in April 2017 when council rushed into the Cherry Street Project by buying the Carmel House sight unseen. At least we’ve been hounding this story since we launched in May 2018 with our first article focusing on Cherry Street. Now taxpayers know the ride that has been their misfortune (there’s 17 years left on the bond that funded the defaulted loan, so the ride’s not done).
According to The Leader‘s uncritical reporting, the Cherry Street Project was to have been finished and occupied in the Fall of 2017 with a renovation price tag of only a couple hundred thousand dollars. We did the first of many public records requests and dug into the financial documents to get the real story, published May 28, 2018, just a little after the Cherry Street Project’s first birthday: “Cherry Street “Affordable” Housing to Cost More than $2 Million.” The latest cost estimates put the total cost of the project above $3 million. With the spike in construction costs, count on the price tag being higher today and in the future.
Still a mystery is why the city turned down a $1 million cash offer in September 2020 to bail them out of this mess. Not one city council member ever publicly raised a question about why the city manager gave the back of his hand to Keith and Jean Marzan when they offered to take the mess off the city’s hands and actually build some affordable housing on the site.
The Leader‘s last article on Port Townsend’s hugely disastrous, most expensive, most ambitious affordable housing project was October 1, 2020, when it proclaimed that “Port Townsend will forge ahead with the troubled Cherry Street Project, but with a new nonprofit partner.” The paper accommodated the city’s need for some positive spin on the heels of the activists’ default on their generous loan.
Since that rosy proclamation by The Leader, the only work on the project has been repairing some of the vandalism when teenagers launched a refrigerator through a window and broke out almost all the glass in the blighted 1950s asbestos-and-lead contaminated derelict. Oh, and putting up some fake “this site under video surveillance” signs.
Here is the full list of our reporting on the Cherry Street Project since our first article:
“I wouldn’t change a thing about what we did.” Mayor David Faber said that about the Cherry Street Project at a December city council meeting. The topic of that meeting was whether Port Townsend should purchase 14.4 acres on the edge of town, the Evans Vista project, to build the equivalent of a separate village of affordable and low-income housing. It would be a massive project that Michelle Sandoval, mayor at the time, predicted would be “incredibly expensive.”
The Cherry Street Project will be five years old on May 10, 2022, yet remains unfinished. Windows facing the street are boarded up; windows at the rear are broken out, the result of vandalism. The city is paying off a 20-year bond with a principal and interest obligation of around $1.4 million. Hundreds of thousands of dollars have been spent. Valuable land is tied up with a derelict building. The last estimate was that another $1.8 million would be required to rehab the old building.
In preparation for an article on the Cherry Street Project’s fifth anniversary, I emailed Mayor Faber regarding his “I wouldn’t change a thing about what we did” assessment of the Cherry Street Project. I asked him,
“What would you say was done correctly in the inception and execution of the Cherry Street Project? Were no mistakes made, since you “wouldn’t change a single thing” in retrospect?”
A fair question, particularly since the Mayor has insisted that he and others have learned from the Cherry Street Project and the Evans Vista Project won’t be a repeat. It is our policy to print in full and verbatim all written responses and statements we receive to our inquiries.
Mayor Faber did respond. But he had conditions. He first wanted an off-the-record “chat” to “set some ground rules.” Here is his complete and verbatim response:
Hi Jim,
I’m happy to have a conversation with you, provided we first have an off-the-record chat to set some ground rules. If you can’t agree to do that, then please, by all means, continue misconstruing my comments without my involvement as is your right, even if you are needlessly creating division for clicks.
Give me a call whenever you want: (360) 821-9374.
Best,
David J. Faber
At first I thought this would be a great idea and agreed. (Golly, a chat with the mayor!). But then I realized that agreeing to an “off-the-record chat” to “set some ground rules” was problematic. Why should anything the Mayor has to say about a housing project be off the record? Why did we need ground rules for a Q&A on the Cherry Street Project? I had never had a request like this in fifteen years of writing for a major newspaper or my own investigative news sites.
Mayor Faber,
Upon further reflection, it would be better if you wrote out the ground rules you want for an interview. If they are to govern any future exchange and what goes into a published article, it does no good to have them “off the record.” So, please just send the ground rules you want and we can proceed from there if they are agreeable. I can’t remember any public official ever insisting on an off the record conversation to set ground rules. I don’t seek a free running conversation, just answer to a question but I will fairly consider your proposed ground rules.
I send out written questions and publish the entire answers so that nothing gets misquoted or left out. My written question to you is still open and your response will be published verbatim and in full. A written exchange requires no ground rules. And, if you would like to say more on the Cherry Street Project than my question covers, please add that to your response and it will also be published verbatim and in full.
Awaiting your proposed ground rules and written answer and expanded statement, if you choose to respond. I think this is the best way to proceed to avoid any misunderstanding or accusations following publication.
I am keeping my editors informed of this exchange, by the way.
Sincerely,
Jim Scarantino
Mayor Faber responded the next morning:
No, I think it would be best for us to have a conversation. If you disagree, then fine, enjoy writing half-truths without my further involvement.
Best,
David J. Faber
I let Mayor Faber know that I was awaiting instructions from my editors and would get back to him. We talked about it and jointly made a decision to reject his pre-condition of an “off-the-record chat” to “set some ground rules.” Here’s the response of Port Townsend Free Press to Mayor Faber’s unusual request:
Mayor Faber,
My editors and I appreciate your invitation to have a conversation with you on the Cherry Street Project. We cannot, however, agree to keeping from the public any statements made by the Mayor of the City of Port Townsend, and, therefore, do not agree to any off-the-record preconditions. (That is why I have not called you, because you seem to have set the condition that that conversation would be off-the-record). Everything said in the interview or any telephone calls is public information and subject to publication.
To ensure there are no misquotes or misinterpretations in any article resulting from the conversation, I will tape our exchange and you are certainly welcome to do the same.
Our invitation to you to publish on our site any statement you wish to make on the Cherry Street Project remains open.This gives you the opportunity to put your best case to the readers directly, without going through a reporter relating what you have to say or not putting it as you would want. As I have stated several times in our exchanges, any written responses to our questions or submitted statements are published verbatim and in full. We recently did this with County Prosecutor Kennedy, by way of example. And we still invite you, if you choose, to provide a written answer to the questions that initiated this back-and-forth: What would you say was done correctly in the inception and execution of the Cherry Street Project? Were no mistakes made, since you “wouldn’t change a single thing” in retrospect?
Lastly, in your emails you have implied that I have been “misconstruing [your] comments without [your] involvement” and that I have been publishing “half-truths without [your] involvement.” You are invited to include in a statement to be published your explanation of what has been reported at the Port Townsend Free Press that misconstrued your comments or constituted half-truths regarding the Cherry Street Project. Of course, I would hope that in our conversation you will also explain those statements further.
Please let me know how you wish to proceed.
Jim Scarantino, Contributor, Port Townsend Free Press
Mayor Faber has not responded.
Mayor David Faber presiding at the April 4 meeting
There has been no substantive discussion in City Council of the reasons for the abject failure of the Cherry Street Project… ever. It would be useful on the fifth anniversary of the Cherry Street Project for the mayor to offer a few words on why he insists he would do things the same again. Insiders have known, as we have reported previously, that this thing was headed for a train wreck from the beginning. None of our reporting, based on what we have learned from public records requests and documented with photographs, has ever been disputed by Mayor Faber or any other city official. Keeping taxpayers in the dark is not why we publish the Port Townsend Free Press and we won’t participate with Mayor Faber in holding anything back from the people who are footing the bill for City Hall’s mistakes.
Our offer to Mayor Faber to publish his answer to our questions and any other statement his wishes to make about the Cherry Street Project remains open.
Lipstick on a pig. The side of the Carmel House the public sees from Cherry Street shows new plywood sheeting where windows were broken out during the extensive vandalism on January 3, 2022. It looks like maybe the city is somewhat taking care of its largest, most costly housing project. To deter further vandalism, city crews also posted warnings that the building is under video surveillance. And, wonder of wonders, after years of swinging open to the wind (and me calling out this negligence), the front doors have finally been closed.
It’s all for show. Get a little closer and you’ll see shards of glass everywhere in the weeds. The refrigerator teenagers launched through a picture window is still where it landed.
Walk around back and you’ll see the city has done nothing to protect the building from the elements. All the broken windows are still broken and uncovered. My favorite is the one that looks like a cat in the window (featured at top).
The rest are just ugly, and admit snow and rain, dirt, insects, birds and bats. The place already was overrun with rats and home to raccoons. And, once again, it appears the grounds have a homeless camp.
Those surveillance cameras that are supposed to be watching and recording are nowhere to be seen. It’s the same cheap trick homeowners play when they think they can scare off burglars with fake “Protected by ADT” signs.
The city is jumping into a huge development project with its acquisition of the Evans Vista property at the first traffic circle coming into town. City leaders contemplate building hundreds of units and possible commercial spaces — an entirely new village at the entrance to the city. Yet, it can’t even take care of this single dilapidated, fantastically expensive derelict of a building.
Why be so confrontational by calling it “Faber’s Folly?” David Faber, our current mayor, like the two mayors before him — Deborah Stinson and Michelle Sandoval — has been a vocal supporter of the project, from his years on Council to his current position. He pushed the financing through over pleas of caution and requests for due diligence from former councilor Bob Gray. The financial documents in front of Faber at the time showed the project was doomed to default. Despite the abject failure of this boondoggle, Faber recently boasted “I wouldn’t change a single thing about what we did.”
Faber owns this, as does City Councilor Amy Howard, who also overrode Gray’s calls for caution and due diligence to protect taxpayers. During the discussion on going huge with the Evans Vista village, and with the failure of the Cherry Street Project hanging over council, Howard, now our Deputy Mayor, echoed Faber’s delusional braggadocio and declared she, too, had no regrets.
What this means is that our Mayor and Deputy Mayor have no regrets about saddling taxpayers with the tab for their gross negligence — a nearly $1.4 million debt, highly valuable land rendered unavailable to provide housing for people instead of vermin, and the cost of tearing this thing down and cleaning up the site, an inevitability the politicians think they can ignore. As I have written elsewhere, the costs sunk into this project already exceed $2.2 million and the last cost estimate predicted at least another million would be needed before the first of eight modest apartments would be ready. That was before construction costs began soaring.
While the city suffers under the affordable housing emergency that is depriving businesses of workers, and workers of a place other than a car to call home, the city-owned lot occupied by the rotting Carmel House is unavailable for any kind of sensible housing project, public or private.
The housing crisis is so bad a downtown business owner, who moved here from Asia and invested his savings to pursue a dream in a new country, is on the verge of moving out because he can’t find a home for his family when he loses his lease in less than a month.
Our city leaders have been dithering around since they joined the county’s declaration of a housing emergency… in 2017. We fought and won a World War in less time. It will be many more years before the “incredibly expensive” Evans Vista project (to quote former Mayor Michelle Sandoval) provides a single room of human habitation. I will be writing about this project in my next article.
The only Cherry Street Project related work in the 2022 city budget is simply paying the monthly principal and interest on the bond, with a decade-and-a-half of debt service still to go. Nailing up some plywood boards to partially mask vandalism damage and buying the false surveillance camera signs was presumably off-budget.
To “Faber’s Folly,” let’s add “Howard’s Hovel.” Faber and Howard earned the honors. They were on council when the city approved the Cherry Street boondoogle and when it thumbed its nose at a $1 million offer from Keith and Jean Marzan to take the project off their hands and actually get some affordable housing built. No one else who dumped this wasteful lemon on taxpayers is left in city government. Let’s hope the new council has functioning brains and enough backbone to cut the city’s losses, bulldoze the decaying hulk and put the land to better use.
By the way, Howard’s Hovel/Faber’s Folly turns 5 years old in a few weeks. Somebody, bake a cake.
