Officials with the Fort Worden Public Development Authority pushed back on a city of Port Townsend proposal to create a financial oversight committee that would monitor the PDA’s finances.
The proposed committee was part of a raft of new changes suggested in an overhaul of the city’s regulations that created the Fort Worden PDA, and were prompted by the ongoing financial meltdown of the PDA.
During a discussion of the changes at last week’s council meeting, however, PDA interim executive director David Timmons said the creation of such a committee could hurt the PDA’s ability to attract investors willing to help the authority out of its financial hole.
While acknowledging the “financial irregularities” discovered last year that have generated news headlines, PDA officials also stressed the body blow the fort’s finances took from the hit of COVID-19.
“Yes, there were some issues internally that led to the situation, but you cannot deny that COVID impacts had an extreme effect on the PDA and its operations,” Timmons said during the joint PDA-City Council meeting.
“They are staggering in terms of the numbers,” Timmons said of the revenue impacts to an agency that had been long shadowed by massive capital needs.
“PDA had a case of walking pneumonia. Then suddenly, COVID hit and took them out.
“They knew they had some internal issues, they were beginning to address those internal issues, but it was too late,” he said. “By the time COVID came there was no way to react or respond.”
The PDA’s existential troubles were first publicly announced by Timmons in late October, who had been hired as a consultant by the PDA to guide the quasi-public agency’s recovery from the COVID-19 pandemic. Timmons later became interim executive director as former director Dave Robison retired during the PDA’s continued cratering into financial chaos.
MORE MONEY NEEDED
Timmons said he was currently in negotiations for refinancing the fort’s debt. PDA officials said earlier the fort needed to raise
$1 million in bridge funding, with the hope that repayment on loans could start in 2023 when the fort returns to the level of business it saw pre-pandemic.
“It’s critical to the recovery success that all the stakeholders support our request to the lenders,” Timmons said at last week’s council meeting.
“This is an all or nothing proposition. That’s something that the stakeholders have to understand,” Timmons said. “If we are not successful, it’s going to have significant impacts.”
The PDA’s existence hinges on the creation of a new business model, which would see the authority set up a series of nonprofits and shifting much of the existing debt into those corporations, and getting outside financial support, he said.
“We really don’t have anywhere else to go,” Timmons said.
He also noted that the Washington State Auditor’s Office is examining the fort’s financial irregularities, and added he was in almost daily contact with state officials.
HARD TO FIND
The irregularities were being fully addressed, Timmons added, and came about because of “losing control of and trusting too much in certain individuals and allowing that to go unchecked.”
“The issue there on the irregularities was not solely the fault of the board nor the current administration, but one of an individual who was looking to deceive,” Timmons said.
“When that occurs, it’s very hard to find, regardless of how diligent you are,” he added.
Timmons said such situations have happened in other communities, and noted a recent embezzlement case in Port Angeles.
They happen, he said, “right under your nose and you don’t even know it until it’s too late.”
PDA officials have long declined to publicly offer details that would set out the scope of the financial irregularities and how they came to be.
That continued last week, as Timmons again deferred to the upcoming release of the state’s accountability audit of the PDA.
“The issue of how and why will come when we get the audit report,” he told the council.
Still, PDA officials acknowledged the desire by the city, which created the PDA through charter, in greater oversight of the authority.
City officials were privately critical of the PDA last year, after Port Townsend learned of late financial reports by the agency. That criticism continued late last year, after Timmons announced the PDA faced a “house of cards” financial crisis.
The PDA board was told that millions in loans that had been budgeted for capital improvement projects, namely Makers Square and the glamping camping development, had been spent instead on day-to-day costs.
Debt of $5.1 million was coming due, and the fort needed $350,000 by the end of December or it would be broke, Timmons reported then. He also told the PDA board that employees had amassed debt on 19 credit cards.
The co-chairs of the PDA’s board of directors, Norm Tonina and Todd Hutton, responded to the criticism and the city’s call for greater oversight a few weeks later in a letter to the mayor and city council.
“We are acutely aware of the criticisms that have been expressed about the state of the PDA,” they wrote in a Nov. 16 letter to city officials. “Because of the financial irregularities that we have uncovered and revealed to the public, it is understandable that some in our community have lost confidence in the PDA and our leadership.”
They also noted the steps taken by the board in response: “When a member of our staff uncovered two very serious financial irregularities (totaling just over $10,000 combined), we immediately reached out to City Manager Mauro, Mayor Sandoval, the Port Townsend Police Department, and the State Auditor’s Office. We also engaged the services of a forensic accountant, who is also a certified fraud investigator, to verify the PDA’s preliminary findings, and we sought the counsel of a retired assistant district attorney who headed up a white collar crime unit.”
MONTH-TO-MONTH
Timmons and other PDA officials told the council last week the fort’s situation is still dire, and continues on a month-to-month existence.
“Everybody is angry and saddened, I get it,” Timmons said.
The fort has been struggling to make payroll and expenses, he said.
The board itself has come under criticism in recent months, with some in the community calling on members to resign.
Timmons told the council there has been talk of transitioning to a new board as the PDA adopts a new business model with lodging accommodations, event venues and restaurant operations at the fort — its main source of revenue — shifted to a nonprofit that would run hospitality services under a 25-year franchise agreement.
Current board members would be replaced with a new board willing to serve a PDA organization that’s been stripped down in size and serves as a holding company for the new nonprofits in charge of hospitality.
Timmons said the PDA had set a target date of June 1 for a new board.
“Call it battle fatigue; call it what you want. The current board is really struggling. I sense it. I feel it,” Timmons said. “I understand it.”
The PDA remains at an important juncture, he said.
“What I don’t want to do is have the oversight cause unintended consequences in terms of the critical negotiations we’re having with lenders and financial backers right now,” Timmons told the city.
PLEA FOR PATIENCE
“We’ve got to be very, very careful in terms of the message that we send. We have to be unified in our message,” Timmons said. “We have to approach this in a partnership.”
“And that’s what we ask for tonight,” he added.
PDA Board Member Cindy Finnie told city officials the PDA’s fort property — a 95-acre campus with 73 historic buildings — is an extremely complex and diverse undertaking to manage.
Finnie recalled when the PDA was set up and Washington State Parks agreed to the takeover.
“The fort at that time was deteriorating to the point where buildings were falling apart, the hospitality business was almost nonexistent,” she said. “It was just a very sad, sad place.”
“We ran into a major financial problem this past year,” she added. “But all businesses face trouble at some point in time. Corporations do, nonprofits do; even state and city governments have gone through challenging times.
“I know we could have managed through this had it not been for the pandemic,” she said.
“We were already on top of it and realized we had some things going on. But the pandemic made it worse and really brought us to our knees,” Finnie said.
Finnie acknowledged the criticism leveled at the PDA, but said there had also been some misunderstanding in the community, and noted the fort’s continuing challenge of a backlog of $100 million in deferred capital improvements that were needed.
PDA Board Member Jane Kilburn also stressed the need for the city to maintain its distance as the chartering agency from the PDA’s establishment as an independent entity.
While she praised proposed changes that would make the city’s ethics code apply to the PDA, Kilburn raised concern about the greater oversight role for the city that was being considered.
“If you take authority away from the board there’s no point in having a board,” she said.
FRUSTRATION NOTED
Hutton, one of the board chairs, again stressed the board had taken responsibility for the current crisis and reports of financial irregularities.
“I know that the mayor and the city manager particularly have been very frustrated,” Hutton said.
“I believe that we have taken full responsibility. We took personnel actions in two cases,” he said.
PDA officials have not publicly named anyone involved in the fort’s declared financial irregularities, although in the co-chairs’ November letter to city officials, they noted, “as a result of our investigation and performance review, the former executive director was relieved of personnel and financial management responsibilities.”
Hutton also told city officials it was the PDA that it “self-reported” the problem’s to the State Auditor’s Office.
“They did not find the irregularities; we found the irregularities and self-reported those,” Hutton said.
“What we didn’t do is fire ourselves,” he added. “We didn’t resign.”
“We really felt our obligation was to see this organization through to the better side of this crisis,” he said.
Hutton added that the fort remains in “a month-to-month cash crisis.”
Tonina, the other co-chair, agreed.
“We are in crisis. We have cash right now to get us through the month of April,” Tonina said.
PUBLIC CONCERNS
He also responded to public criticism that the PDA had not been transparent about its restructuring proposal.
In a letter submitted for the public comment session, Port Townsend resident Mark Blatter wrote that the PDA had failed “to fully answer the fundamental questions about why the PDA should restructure operations under a new private nonprofit corporation.”
“My biggest concern continues to be that the PDA presents this reorganization as a done deal,” Blatter added. “There has been no substantial public review of the case for reorganization or alternatives. While you tout your PDA board meetings as opportunities for comment, until tonight you have provided very little real information about the changes and your reasoning, and, as far as I’ve seen, no direct responses to questions and comments from the public.”
Tonina said the board was trying its best to be responsive.
“But this is an organization that is really dangling on a thread,” he said.
“We really need to continue to move forward ... to ensure that we continue to survive,” he said.
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