The Fort Worden Public Development Authority will be broke by the end of the year unless it can raise $250,000 to $350,000 by the end of December, Acting Associate Executive Director David Timmons told the board of directors at its meeting last week.

The PDA’s financial situation is actually more dire than that, however.

The organization must get Kitsap Bank to agree to refinance a loan and two lines of credit that total $5.1 million.

One line of credit — $1.5 million for the Makers Square project — comes due in December.

A second line of credit — $2 million for Fort Worden’s “glamping” project — is due during the first quarter of 2021.

Adding to the financial crisis: a loan taken out to pay for energy efficiency projects must also be refinanced.

Timmons told the board that work being done to prepare for a financial audit by the state revealed a broad set of financial problems that had not been shared with the board.

FUNDS DIVERTED

Much of the PDA’s problems come from shifting borrowed money from capital improvements, such as Makers Square and the glamping project, to fund the day-to-day operations of the agency.

Approximately $400,000 from the Makers Square line of credit was diverted to pay for operations during the early days of the pandemic. Another $600,000 from the glamping project was also diverted, as was $300,000 from the energy efficiency project loan, to pay for daily operations.

The budget set for the PDA’s reopening also overstated the income that would come in, and underestimated expenses.

Timmons said sales in November and December won’t cover the costs of running the PDA.

He also said the PDA had amassed debt on 19 credit cards.

Timmons said 15 of 18 credit card accounts with Bank of America have since been closed, as well as an American Express credit card that had a balance of $60,000.

The credit cards had been used to pay utilities and vendors, he said.

Timmons said financial reports that had been presented to the board as the organization shifted from cash to GAAP (generally accepted accounting principles) financing in 2016 were not accurate.

“It really didn’t give you a very accurate financial picture, I believe, of what was happening and what was going on as you kind of progressed through those years,” Timmons said.

TSUNAMI OF PROBLEMS

The number of issues arising all at once was overwhelming, Timmons added.

“It seemed like every day we were dealing with yet another issue, and challenge, both internally and externally,” he said.

The Washington State Auditor’s Office is planning to do an “accountability audit” of the organization. The audit, which will cover 2018-19, has already started and will take between three to four months to finish.

“They are going to take a deep dive on the organization’s policies and practices to look at: How do we explain the current situation, and how we got to the situation that we’re in,” Timmons told the board.

The PDA’s problems with its accounting and financial statements are not entirely new; in its audit of 2016-17, released earlier this year, the state auditor said the PDA lacked internal controls that would guarantee complete, reliable and timely financial statements. The state also said PDA staff responsible for preparing the financial statements “lacked the technical expertise needed to perform their duties.”

TOP PRIORITY

Timmons, during last week’s PDA board meeting, said the top priority for the agency was the financing for Makers Square, a $12 million destination attraction centered on the rehabilitation of three of the fort’s historic buildings into a year-round space of roughly 50,000 square feet for artists, educators, and makers.

Last December, the PDA secured a $1.5 million line of credit for Makers Square, and the loan comes due in December.

But Timmons said the PDA never budgeted funds to retire the loan.

“We don’t find anywhere in the financials where there are funds that have been set aside or designated to repay that loan,” he told the board.

A new loan is needed to replace the $400,000 that was diverted from the line of credit for Makers Square to pay for the PDA’s operations, and the loan should be increased by another $500,000 so the Makers Square project can be finished.

The $500,000 is needed to cover retainage costs, which should have been set aside to pay the contractor’s bond when construction is finished.

Retainage funds that were paid by the contractor at the start of the project were never set aside in an account for repayment later.

All told, funding for Makers Square is $2 million short, Timmons said.

A windfall in excess income from the project that had been expected is no longer anticipated, he added, and the PDA will have to apply 100 percent of Historic Tax Credits, which come from a federal program to rehabilitate historic buildings, to complete the financing for Makers Square.

TAX CREDITS NEEDED

In addition to getting a new loan for Makers Square, the PDA also faces an end-of-the-year deadline to obtain federal Historic Tax Credits.

“We are also running short on the ability to make timely payments to the contractor on the project,” Timmons said. “That’s creating its own separate set of issues that we’re struggling with.”

The PDA’s outstanding debt issues could jeopardize the PDA’s ability to secure the tax credits, Timmons told the board.

“If any one of those does not materialize, then I hate to say this: It becomes a house of cards.

“The cascading impact that that will have is going to be extremely damaging to the future of the PDA and the partners and the State Parks,” he said.

Timmons asked for the board’s support as the organization navigates its way forward.

“This is one where everyone’s got to get on the same page to help do whatever we can do in the next few weeks to secure this with Kitsap Bank, and put all of this in place for Makers Square,” he said.

MORE MONEY NEEDED

The “glamping” project, short for “glamorous camping,” includes 19 tents with sustainable hard-wood flooring, queen-sized beds, and decks set near Artillery Hill at the edge of Fort Worden’s 95-acre campus.

Timmons told the board construction of the glamping project was not finished and additional funding was needed to get it done.

“I know this comes as kind of like a surprise,” he said. “It’s something that also came as a surprise to me.”

A new loan will be needed to cover the $600,000 that was taken from the loan obtained for the glamping project.

“When I saw this, this is the one that made me hit the panic button,” Timmons said.

Officials also noted that $20,000 in charges for the glamping project were put on one of the PDA’s credit cards.

Board members sounded shocked at the revelations.

Todd Hutton, co-chair of the board, said board members were never told that funding for capital projects was used to keep the PDA running.

“We need to understand how it happened,” Hutton told Timmons.

“I’m just stunned,” added Board Member Jane Kilburn.

OVERLY OPTIMISTIC PLANS

Timmons said the original reopening plan for Fort Worden actually overstated income and understated expenses to maintain the objectives of the campus’ reopening.

A real-time explanation of what was happening with the fort was not possible because the financial reports were not tied to the organization’s general ledger.

“It appears that the full picture was not being presented,” Timmons said.

Timmons also noted that the fort faces an accounts payable balance of $200,000; most of that is connected to fixed monthly costs, utilities and insurance that are three to four months delinquent.

The PDA is also facing fixed monthly costs of $25,000 to $50,000 to pay for the ongoing costs of utilities and insurance.

‘We’ve got to make some adjustments; we’re looking at those now,” Timmons said.

“We’ve got to adjust our operating conditions for 2020,” he added. “I don’t know how we’re going to end the year without going into the red.”

CREDIT CARD DEBT

Officials noted that the organization’s credit cards had been used “for all manner of things,” including dozens and dozens of purchases from Amazon.com.

Many of the purchases were made for supplies and appear legitimate. Still, officials have started to flag some items that might be questionable.

More examination is also needed for expenditures made on the organization’s credit card with Bank of America.

The Bank of America card charges interest at 29 percent, and the interest cost is currently $1,500 a month.

Jeffery Jackson, a board member who serves as treasurer, praised employees who had brought some of the financial issues to light, some who were no longer working for the PDA.

“As bad as this all is — and it’s horrible — much of all of this, that none of us have ever touched this kind of thing before, seen it before, we have got to kind of find a way to sort of come together ... on this plan of moving forward,” Jackson said.

“And pivot out of this state and into a state where we can begin to fix things and work together toward a better outcome,” he said.

“We’ve got to find that sweet spot between finding all the malfeasance, solving it, and moving forward and being positive about what we have here to manage,” Jackson said.

“We can’t dwell on this for long, it will kill us,” he added. “We have to fix it and we have to find a solution that we can build toward our future.”

Timmons agreed.

“Even as dark as this all looks, we have to look at it in the context of: Failure is not an option,” he said.

The audit by the state will help officials learn how it got into its crisis, he said. There’s no time right now to assess blame.

“I can argue, point fingers and things like that,” Timmons said of the practice of using capital projects funding to pay for the day-to-day operations of the PDA.

What’s needed first, he said, is to find a solution.

“Then we can have a conversation about how it happened, and why it happened and how it will never happen again,” Timmons said.