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In recession, PEAK funding hinges on pledges
The PEAK project, the new home of the Mercer Island Boys & Girls Club, has been grinding along through the community, city and school district for over five years. As a recession grips the nation and world, the club continues to work toward the final fund goal, knowing that it is essential not only for the continuation of an Island staple, but because of the agreements on which the project hinges.
Some in the community wonder if gifts and pledges are going to be enough to finish the project or if the community will get stuck with a construction project delayed and unfinished at the center of the Island.
The lease agreement between the Mercer Island School District and the Boys & Girls Club of King County outlines fairly stringent guidelines concerning PEAK’s funding. At the top of the list: the “club shall meet all funding requirements set forth in this Agreement and Subsection 3(f) below, including but not limited to the requirement to have raised 100 percent of the center’s projected total project costs prior to the start of construction,” according to section 2(c)(i) of the lease.
The question is what exactly that phrase means. Does it require the club to have the money raised through pledges and commitments, or actual hard cold cash in the bank?
According to the parties, the provision is met when the club has the total amount required for the project, but that doesn’t necessarily mean the money is in the bank.
“We do not break ground on capital projects until the dollars have been raised in gifts and pledges,” said Boys & Girls Club of King County CEO Daniel Johnson. “We won’t start until we have every penny.”
A majority of the money funding the project is through pledges and donations, according to Johnson. He said the most recent fundraising numbers hover around $15 million raised through pledges and gifts, with $1.2 million left to go.
Johnson added that currently the club is meeting with the donors to update them on the project, and so far he has heard of no one who is interested in renegotiating their commitments to the project based on economic concerns.
Money in the bank includes $4.5 million from the sale of the current Mercer Island Boys & Girls Club property to Island resident Michael O’Brien, a $2.2 million gift to the club several years ago and $1 million from the MISD, for a total of approximately $7.7 million toward the start of the project. Johnson said to cover the required cash flow for a project, the board of directors can choose to secure a construction line of credit using the pledges and other collateral, if necessary. This is the route that the PEAK project on will be taking.
Final construction costs won’t be known by either the school district or the Boys & Girls Club of King County until the club gets the construction bids back from contractors, something not expected to be finished until the end of March, according to MISD Associate Superintendent of Business Services Liz Ziara.
“We won’t know what that number is until the bids come in,” Ziara told School Board members during the Feb. 12 School Board meeting.
Mary Lynn Thompson, the development director for the Mercer Island Boys & Girls Club, said estimated construction costs have actually dropped dramatically due to the economy.
The lease with the school district stipulates that if the club does not have the money in hand to begin the project as of Sept. 1, 2009 or if construction has not begun by that date, the district has the option of terminating the lease or granting an extension, depending on the School Board’s wishes. The club must also supply a written notice of intent to begin construction 30 days prior to breaking ground.
Another protection for the district, according to Ziara, is the clause in section 8 of the lease which states that the club must secure a performance bond from the contractor for the amount of the complete construction for the project.
“This bond is a legal guarantee that the contractor will complete the contract as per terms and conditions relating to time and price,” according to Ziara. “Obviously, the club will have entered into a construction contract with the contractor setting the terms of payment for the work.”
The lease also creates provisions where the district is protected should the club run out of money or other construction-crippling events occur. If the project stops in mid-construction or the club does not meet specific deadlines outlined in the lease the district can terminate the lease and the club must return the property to its original state.
“The lease ensures that the district has no liability, and by our lease agreement we have every legal right to have them restore the property,” said Ziara.
Myra Lupton, an Island resident, told School Board members that taxpayers need verification that the club has the money in the bank before the construction starts.
“In this time of national financial crisis, pledges and anticipated loans are not money in the bank,” said Lupton. “Your legacy is not to have an incomplete private club on district land.”
The club has several permits in process with the city of Mercer Island, according to City of Mercer Island Communications Coordinator Joy Johnston. She said for a project this size, the process is moving along as expected, with no obvious problems or concerns.
Whether or not all of the $16 million will be earned in time is not the city’s responsibility, according to City Mayor Jim Pearman.
“PEAK is not a city project. The Boys & Girls Club is just a client of ours,” Pearman told the Reporter, adding that it was a question for the School District.
The issue for City Councilmembers is how to spend the $1 million that they have designated for PEAK.
Although a number of options have been discussed, the majority of the City Council favors what they call the “Rainier Vista” option, referring to the new Boys & Girls Club in Rainier Valley, which is of a similar scale to PEAK.
This option allows the city to put its $1 million toward “serving the community.” Rather than funding specific PEAK programs or purchasing gym time, the investment terms would be more flexible.
“The Rainier Vista model would open up PEAK for any kid to use in one way or another,” City Manager Rich Conrad said.
A portion of the funds will also go toward ensuring that the building meets certain sustainability standards. Since PEAK is being shared with the district, a significant portion of the gym’s weekly schedule will be dedicated to school purposes. Scheduling arrangements will be looked at in detail, once the city finalizes its decision.
Despite the questions surrounding the project, the club’s plans continue to move forward.
“Our plans are to move forward this spring with construction,” said Mercer Island Boys & Girls Club Executive Director Blair Rasmussen.
Johnson said construction is expected to take between 12 and 14 months.
Reporter Elizabeth Celms contributed to this story.