Any route to continuing work on the Fox Theatre in downtown Centralia without interruption will require the city to borrow money or raise the funds through additional local taxes.
Supporters of providing the necessary funding for the theatre argue the cost up front will be worth the pain once revenue from the venue can help pay back the investment.
Leaders of a temporary committee asked to weigh the possible paths forward for the historic downtown theatre presented difficult options to the Centralia City Council Tuesday evening.
Members of the ad hoc committee, City Councilor Tucker Voetberg and Fox Theatre Board of Directors Vice President Todd Rayan, came to the council with details of four different options for funding restoration work and details of how taking none of the options would impact ongoing plans at the theatre.
The four funding options seek to find between $1.5 and $1.8 million. The options include two that would have the city borrow the necessary money and two that would ask local taxpayers for the money.
The non-funding option comes with less financial risk for the city budget and constituents, but supporters warn that inaction could mean higher costs in the future.
Option one lays out what would happen if the city used bonds to provide the necessary funding. According to the committee's findings, the option has one of the shortest turnarounds and offers reliable funding for the project.
It also avoids asking for additional tax dollars. The committee believes the theatre revenues could begin helping pay back the bond within five years.
Rayan and Voetberg added that it could likely be bundled with other city bonds and refinanced at a lower rate around 2030 when more than $4 million in existing bonds will be paid off.
The tradeoff would be a major increase to the city’s debt service payments to the tune of between $125,000 and $150,000 a year.
According to Voetberg, the city currently pays $296,250 in interest payments and $300,000 in principal payments at 5.5% interest on a list of bonds totaling more than $7 million in value. That includes a previous Fox Theatre bond with $1 million.
According to City of Centralia Finance Director Bret Broderson, the city would have to use lodging tax revenue to cover the additional costs and, if revenues drop, may have to dip into the general fund. It would also mean making cuts to projects awarded lodging tax funds through the Lodging Tax Advisory Committee (LTAC) and not awarding projects in the near future.
“We wouldn't have enough revenue to cover the debt service and of the current debt plus the new debt to award any LTAC contracts for the next two years,” Broderson said. “And we would still probably have to pull money out of the general fund to cover the difference.”
The presenters offered fewer details about the prospect of a private loan or direct line of credit other than pointing out that it had many of the same upsides as bonding, but with lower financing costs and more flexibility. It, however, would have to be paid back quicker and may come with more risk.
“Pretty quick turnaround, pretty flexible,” Rayan said. “You borrow and you pay as you go, but it's a loan. That's what it is.”
The two tax options include what are known as an excessive tax or a levy lid lift. The tax options avoid increasing debt service payments for the city in a difficult budget season, but they would need to be approved by local voters who might not be willing to take on the additional tax burden.
An excess tax would resemble a school district levy but would require the city to earn 60% voter support to raise property tax rates. According to the Washington state Department of Revenue, approval would allow the city to issue bonds for the funding up front and use the additional revenue to pay off those bonds.
A levy lid lift would require a smaller majority — 50% voter approval — to pass. It would simply allow the city to increase revenues from local property taxes by more than the state-mandated 1% maximum. The committee members did not clarify how much they would need to increase local revenues or property tax rates in order to raise the necessary funds.
The ad hoc committee report was just that — a report — and due to procedure, did not require an immediate decision.
Councilors appeared generally apprehensive of all the options available, facing either putting off work on a community landmark, taking on higher debt payments or betting on community support for additional taxes. Nonetheless, the council will likely reach a decision next month.
“It's a pretty difficult decision that we're facing, but out of respect for you all, you need an answer, and you need to know what the city intends to do,” Deputy Mayor Kelly Smith Johnston said. “Kicking the can down the road doesn't serve you. It doesn't serve the project.”
The council asked staff to add the Fox Theatre issue as a business item to its next council meeting on July 14.
