So how bad is the Great Wolf deal?
And what is the level of chaos at Manteca City Hall?
It might just come down to the lawyers or, more precisely, who decided to play lawyer.
Bear with me for a moment. What you are about to read may seem like mumble jumble but it sets up a serious question about the stability at 1001 West Center Street.
The legal firm RWG — that happens to be the current firm serving as the interim contract city attorney that replaced John Brinton — advised city leaders before the Great Wolf deal was inked that it was OK to sell almost 30 acres of the wastewater treatment plant land to the indoor waterpark resort at a price below the appraised value.
This is not a small point. The difference between what Great Wolf bought the 30 acres for and what it was appraised at is right around $6 million. If that money has to be repaid out of the Great Wolf room tax then there is a serious problem.
The reason is simple. If the opinion rendered by RWG is now incorrect, that $6 million will assure it will be a good six years if not longer before the city receives a penny from the 12 percent room tax.
Without the $6 million question, the deal is sound unless Great Wolf for some reason never opens.
The original analysis by a firm that specializes in taking apart such deals to make sure cities are on solid ground such as the Great Wolf deal — vetted by RWG — was based on an average room booking of $350 a night with 70 percent occupancy.
If you look at the COVID-19 world Great Wolf and everyone else is now operating in, the indoor water park resorts’ room prices at existing locations have been adjusted for the current market in a bid to book guests. That is why $250 a night may be a more realistic number in today’s pandemic world.
The $250 per night per room with a 70 percent occupancy would come in at $10,200 annually in Manteca’s share of room taxes for the first few years of operations based on the 9 percent room tax in place when the deal was inked. But at $350 that number would be almost $800,000 the first year. The jump is based on the $250 per night average covering the basic earmarks for paying city fees, buying the land at a lower price and the $2 million incentive payment to Great Wolf before the split starts.
The split of money beyond the base commitments is 75 percent to Great Wolf, and 25 percent to the City of Manteca for the first 10 years. Then for the 11th through 25th years it goes to 50-50. All of the room tax goes to the City of Manteca after 25 years.
The deal was always front-loaded for expenses and back-loaded for city revenue.
Based on $350 average room rate the deal at the 9 percent room tax was solid using the revenue sharing enticement deals for Costco and Bass Pro Shops as the yardstick. Those two deals combined in a typical year haven’t netted Manteca anything close to the $800,000. Using the current $250 average room rate with the old 9 percent tax rate, the Great Wolf deal would bring the city just a tad more than $2 million a year or $80,100 annually.
Judged on today’s pandemic situation based on the original 9 percent room tax and not the 12 percent room tax voters put in place eight months after the deal was signed, the deal would have been viewed as not that great. Yes, Great Wolf is likely to attract other sales tax generators but in terms of simply securing $2 million over 25 years it took a lot of maneuvering over a decade of investing city time and money.
Toss in the $6 million for the sewer plant land that now might need to be paid and then Great Wolf becomes a direct net negative of $4 million based on the 9 percent room tax in place when the deal was cut.
Voters, however, passed Measure J. Even in today’s pandemic depressed economy when Great Wolf does open the 12 percent after settling all obligations for the room tax — except for the questionable $6 million connected with the sewer land — means the city would realize $960,000 the first full year of operation.
Should the $6 million have to be paid to the wastewater enterprise account that would mean the city would not see a penny directly from Great Wolf for at least six years. Yes, the city would be receiving payments toward $10.7 million in growth fees related to the Great Wolf project that Manteca agreed to take from the room taxes generated from the resort instead of upfront from Great Wolf but that is money those restricted funds would have been due at the time of the issuance of building permits.
If by some apocalyptic event Great Wolf never opens, the city isn’t out a dime in growth fees. That’s because the fees are collected based on impacts that an up and running Great Wolf would create.
And, to add to the confusion, if the average room rate was $350 the first year as projected as opposed to the pandemic depressed $250, the annual rate of return to the city of making the deal with the voter approved 12 percent room tax would be in excess of $1.3 million annually for the first 10 years.
In short that means even if you apply pandemic economics Great Wolf is a great deal in almost every feasible scenario except one. That would be the $250 room average dictated by the current pandemic reality with the need the wastewater account to be paid $6 million. And even in the worst case scenario, that would see six or so years with zero direct benefit to the Manteca general fund before jumping to a minimum of $960,000 annually going forward.
This brings us to the $6 million question.
Who determined the legal analysis issued by RWG in 2008 on the Great Wolf deal was wrong — or could be wrong — when it came to not having to pay the wastewater enterprise account the appraised value for the land? It is an interesting question given RWG is essentially the current city attorney.
Or did someone simply flip through the 400-page deal and all relative accompanying documents and decide they needed to get an outside legal firm’s opinion?
The bottom line in a worst case scenario short of Great Wolf never opening is that that the city’s wastewater users —households and businesses — would see the potential for future rate increases postponed to the tune of $6 million. That’s because $6 million from the room tax would have to be paid to the sewer fund. At the same time, $6 million would not flow into the general fund.
Then in year seven or eight the general fund would receive $960,000 annually at the pandemic $250 room night average or $1.3 million annually at the pre-pandemic $350 room night average.
Not to downplay the $6 million question, but it is more like your car hitting a bone jarring pothole as opposed to driving it off a 300-foot cliff.
If the original 5-page RWG opinion from 2008 is correct, then the Great Wolf deal is indeed all it has been promised and then some.
That brings us to the question the current council needs to answer given the only city hall personnel that they hire — and fire — is the city manager and the city attorney.
If the original legal advice regarding the sale of the sewer plant property is wrong — or suspected to be wrong — why is the current city administration/city council comfortable with its current arrangement with RWG?