The board of the Fort Worden Public Development Authority has agreed to a comprehensive overhaul of the agency as it tries to reinvent itself due to its continuing economic collapse.

Acting Associate Executive Director David Timmons has proposed a new operating model for the PDA that turns it into a “holding company” that would spin off pieces of its operation — including hospitality services and property management of the assets on the 95-acre Fort Worden campus — that would run as not-for-profit corporation.

Timmons said the reorganization is needed because the PDA will run out of cash by the end of the year and, as a public entity, it must adopt a balanced budget by Dec. 31.

“Time is of the essence now and we are running out of time,” Timmons told the PDA board at its meeting last week.

The new business plan is a revised version of a model Timmons proposed late last month. 

The board unanimously agreed at its Dec. 9 meeting to take the initial steps toward the PDA’s reorganization, which includes filing for the creation of a nonprofit corporation and getting the city of Port Townsend’s agreement to amend the PDA’s charter.

The change follows the recent announcement by the agency’s administration that the PDA is heavily in debt and must raise $250,000 to $350,000 by the end of the year.

The PDA, Timmons earlier told the board, also needed Kitsap Bank to agree to refinance a loan and two lines of credit that total $5.1 million.   

The agency’s financial problems, in part, stem from the diversion of loans obtained to use on Makers Square and the “glamping” camping project. That funding, as well as substantial credit card debt, was used to pay for operations during the early days of the pandemic. 

Timmons told the board at its meeting last week that a new business model was needed for the PDA; one that investors would support.

The PDA, he added, was not able to raise capital or take out a new line of credit.

“This is very difficult for me — and I know it’s very difficult for many of the board members, too — to accept that we have to look at a different way forward,” Timmons said.

“Status quo is just not going to carry the day. We’ve got to come forward with a new concept and a new approach,” he said.

Timmons also noted the PDA is expected to be operating in a negative cash position during the first two quarters of 2021.

Some progress has been made, Timmons added, including a $200,000 private donation that will help pay for short-term operations.

“That came in in a very critical period and has been helping us get through the remainder of the year,” Timmons said.

“We’re going to run out of cash at year’s end. It’s just hard facts,” he added. “We don’t have enough income coming in to meet current expenses.”

“The $200,000 donation is buying us time — but that time is limited and we’re going to run out.”

Timmons also noted that Kitsap Bank had agreed to defer payments on the lines of credit for Makers Square and the glamping project, which has reduced the loan guarantee the PDA needs from $2 million to roughly $900,000.

The bank has agreed to a six-month extension, with additional six-month extensions to follow for up to two years.

“That was a big step forward,” Timmons said.

The Makers Square project will be mostly done by the end of the year, he added.

Current maintenance staff for the PDA is also putting up tents at the glamping site.

Timmons said additional staff have been furloughed, and some of the buildings on the Fort Worden campus has been closed for the winter period.

The PDA has also asked Washington State Parks to take over some of the maintenance at the fort for the next six months.

Reorganization and a new business plan is needed because the current one in unworkable, Timmons said.

Hospitality services provide the primary income for the PDA, but revenue from accommodations, venues and restaurants has been hard hit by the COVID-19 pandemic.

That’s expected to continue through the early part of next year.

“The first and second quarters, we’re going to be operating in a negative cash position,” he said.

The PDA doesn’t have the ability to take out a line of credit for cash-flow purposes, however.

“We’re not in a position to raise that kind of capital or to take out a line of credit,” Timmons told the board. “We’re just not credit worthy at this point.”

Instead, the PDA has to create something similar to a start-up plan, which can be used to attract investors or support from a financial institution. 

A bridge loan from investors would then be used to secure cash flow for the reorganized PDA.

“We’ve got to really pivot and change,” Timmons said. “We have to do something different.”

Under the new model, the PDA will act as a trust or holding company that will hold the state lease for the property for the benefit of the agency’s community partners and the state.

A small staff of four employees will run the PDA after its changeover.

The nonprofit created to provide hospitality services would get a 25-year franchise, Timmons said, to operate on the campus and the corporation would take over the services previously provided by the PDA.

As a trust, the PDA would serve as a pass-through entity for state and federal resources.

The PDA’s current liabilities, including some of its unpaid bills, would be transferred to the hospitality nonprofit, Timmons said.

He stressed the reorganization was needed to get financial support for the agency’s survival.

“I think it’s truly the only path forward that I can see. It’s a stretch, but it’s a stretch I think that we need to take,” Timmons said. “Absent that, the outcome is obvious.”

“We really don’t have a future that I can forecast if we try to remain status quo,” he said. “The status quo is not going to attract the investors that we need.”

“They want to see change. And if we make these kind of changes, then they are more willing to step up and provide the support and assistance that we need,” Timmons said.

Board members agreed, and signed off on the plan to reorganize.

“Sounds to me like it’s a survival plan, and that’s what we need right now,” said PDA Board Member Jane Kilburn.

“I think it creates a framework for which we still have a number of economic problems to solve,” added Board Member Jeff Jackson.