Financial woes beset county-owned services building

Low rents, payments on a $2 million loan and building repair and upkeep don’t cover costs, commissioners learned.

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WALLA WALLA — Officials said Monday a county-owned building seems to be operating like a financial house of cards.

The Community Service Center at 1520 Kelly Place was bought and remodeled in 2011, upon approval of Walla Walla County commissioners based on recommendations they were given at the time, according to Commissioner Greg Tompkins.

“I made a bad decision based on bad information,” he said at Monday’s commission meeting.

Today, three years later, the county has a building with more than eight years left to pay a loan remainder of $1,658,722 and filled with tenants who hold 10-year, low-rent leases.

It’s going to be difficult to pay things back, said Harvey Crowder, interim director of Walla Walla County Department of Community Health.

The plan seemed sound and a good fit with the county’s desire to bring several social services to one location when then-director of Department of Human Services Daryl Daugs brought the idea to commissioners several years ago. His idea was to buy a building in which the county was already renting office space, fix it up and open the rest to community partners serving much of the same population as DHS.

Money was pulled together — a $2 million loan from the county investment fund, a state Department of Commerce grant of $1 million, and $2 million from DHS reserves. The $2 million debt to the county investment fund was to be repaid over a 10-year period at an interest rate of 3.86 percent.

In August 2012 four tenants moved into the newly-remodeled and renamed Community Service Center: Blue Mountain Action Council, Helpline, Blue Mountain Heart to Heart and Rising Sun Clubhouse.

The agencies, all of whom serve low-income and at-risk populations, agreed to lease office space in 2012 for $1 per square foot with no rent increase for five years. Those leases include all utilities except for telephone service.

Central Washington Comprehensive Mental health also recently leased space, at a rate of $1.25 per square foot.

Crowder, appointed interim director after Daugs left the job, began sounding the alarm in August 2013, telling county commissioners the loan repayment schedule and lease rates were not a good match. Total yearly costs projected for this year to house the agencies comes to $421,049, and rent equals $325,044, making expenses over revenue ring up at $96,005, according to Crowder’s information.

The 10-year loan is a time limit recommended by the state auditor’s office for money loaned by county investment funds and managed by Walla Walla County treasurer Gordon Heimbigner. Further complicating things, those 10-year contracts spring from a state Department of Commerce grant requirement that use of a facility partially financed by that department must serve low and moderate income people for at least 10 years, Crowder pointed out.

Even as the building’s occupants are willing to talk about sharing maintenance costs of the building’s common areas, the money doesn’t add up, Crowder said in a memo to commissioners.

To make up the difference between rents and the $273,000 payment for 2014, DHS will have to use $122,000 of operating fund reserves, he said. As of today the reserves total $1,010,900, brought in by various taxes and funds designed to support programs that agencies in the Community Service Center offer.

Additionally, although the building was renovated two years ago, immediate work totaling $435,000 is needed to the building’s heating and cooling system, according to Crowder. Another $65,000 is planned for parking lot resurfacing and additional lighting.

But when Central Washington Comprehensive Mental Health takes over county mental-health and transition housing services in July under a new contract with the county, the building will no longer house a county entity.

That means continued low-rents, loan payments and building repair and maintenance costs will deplete DHS reserves by January 2016, Crowder said. That scenario could result in defaulting on payments to the Walla Walla County investment fund unless other money is found, he explained.

Lengthening the loan life is one option in easing the situation, Crowder said in his memo. Other ideas include renegotiating or canceling leases, refinancing the building with a commercial lender, selling the building with or without repairing the heating and cooling system.

Finding a buyer willing to honor the 10-year leases may be difficult, as will finding one who can overlook the repair issues, Crowder said. Additionally, the county may be unable to recoup costs associated with doing needed repairs before selling.

Tompkins and fellow commissioners Perry Dozier and Jim Johnson on Monday decided to table any action, saying they would wait until the county’s auditor and treasurer could be present at another meeting.

Sheila Hagar can be reached at sheilahagar@wwub.com or 526-8322.

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Comments

PearlY says...

So let me get this straight: The county bought and remodeled a building for $5 million dollars three years ago, and it needs nearly $500,000 in HVAC repairs now? And even though the borrowed money for this was only 40% of the total and at a favorable interest rate, the income is not enough to make the loan payments?

How could these issues not have been known at the time of the acquisition? Surely there must have been cash flow projections made.

Posted 18 March 2014, 3:10 p.m. Suggest removal

wallyworldguy says...

Also, I would like to know who they bought the building from. good friend of Daryl Daugs maybe? or someone else involved in this venture. Was the building appraised?? why was the rent set so low??
The UB doesn't bother to dig for facts that most people would automatically ask.

Posted 19 March 2014, 8:34 a.m. Suggest removal

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