STORM LAKE, Iowa -- The city of Storm Lake is borrowing $3 million in the form of bonds and an extended line of credit to cover past and potential future operating deficits faced by the city's hotel and water park.
A late start and overly optimistic projections coupled with the current recession have resulted in a poor performance by King's Pointe Waterpark Resort, the $39 million complex on Storm Lake's eastern shore.
Some $2.25 million in bonds will be issued to cover shortfalls the project has seen since opening in August 2007. An additional $750,000 line of credit will be extended to help King's Pointe pay upcoming bills.
"There will likely be shortfalls this winter," said Mike Wilson, project manager/community development director for the city. "With any luck, we'll look at being close to break-even in fiscal 2010."
The water park, made possible in part through an $8 million Vision Iowa grant, opened Aug. 27, 2007, three months later than expected. A wind storm in September 2006 damaged construction and set the project back 10 weeks, Wilson said. The delay also made it tough to forward market the tourist attraction.
"We missed the whole first summer and have played catch-up ever since," he said.
The delay and turnover in management positions, according to Wilson, contributed to a cash deficit of $1.2 million the first year. That loss was cut to $575,000 the second year.
King's Pointe is showing a profit of $45,000 thus far in its third year.
"We're at a point where the financial performance has improved enough that we're reasonably optimistic the hotel can make these payments going forward," Wilson said.
To date, bills have been paid from accounts such as the city's water and sewer reserve. Those accounts will be replenished after bonds are sold in January. The city council approved the issuance of the bonds at a meeting last week.
The notes, Wilson stressed, will not be paid by Storm Lake's tax revenue. Rather, they will be financed through hotel revenue.
"We're committed to paying this debt with hotel revenue. That's been our pledge from the beginning," he said.
Tim Schneider, director of operations for Kinseth Hospitality Companies, the management firm hired five months ago to run King's Pointe, said the current recession, unlike past dips, has affected hotel complexes like the one in Storm Lake.
"This recession is trickling down and part of that is that travelers coming from bigger towns and businesses are cutting down on travel expenses," Schneider said. "They don't have the disposable budget."
Schneider reported total revenue in this third year is down 10 percent from a year ago. However, many of Kinseth's 45 hotels and 20 restaurants in the U.S. are suffering revenue declines of 15 percent or more this year.
King's Pointe features an indoor and outdoor water park, a conference center, the Regatta Grille, a 100-room hotel, a beach, a family playground and 1 1/2 acres of green space.