| First Issue: Will the sale of assets be enough to pay for restoration
(reclamation)?
The July 9, 1992, lease calls for MAA to maintain a Minimum Liquidation Value
(MLV) of leased property that equals the cost of restoring the mountain.
We are using the term reclamation for restoration in that the intent was
to resolve the impact of the ski activities and related structures, not to
put the mountain back to its natural state. This perspective adheres to the
USFS perspective.
The initial estimated amount of such a reclamation was $200,000 in that first
year and non-cash assets were estimated in total at $1.3 million. The lease
provides for a calculation to escalate that amount in an attempt to adjust
for inflation. The current amount per the lease's approved calculation
methodology is approximately $267,000. The MAA June 30, 2003, audited report
includes $1.55 million in capital assets net of depreciation.
MAA has provided the City with a September 8, 2003, listing of marketable
assets with a depreciated value of $548,312 and a fair market value of
$1,251,093.
It appears as though MAA has complied with the lease agreement and the assets
are sufficient to pay for current reclamation of the area.
The question then becomes: Are these assets sufficient to be sold and
generate enough to pay for the current estimated cost for reclamation and
also under an expanded scenario? That requires an estimate from USFS
for the cost and perhaps an appraisal of all assets.
The authority to have an appraisal done and who bears the cost is provided
in the lease agreement. I would not recommend doing an appraisal at this
time for the following reasons:
a) Depreciated assets are double the calculated reclamation amount.
b) Estimated fair market level is over 4 times the reclamation amount.
c) USFS has not provided an updated estimate on reclamation that is significantly
larger.
d) MAA has complied with the MLV contract requirements to date.
Second Issue: Where is the money to pay for restoration
(reclamation)?
There is no cash reserved to pay reclamation costs nor has any been required
by the lease agreement or by direction from the City in accordance with the
agreement. The money to pay for reclamation is within the liquidation value
of the assets. It is not likely that USFS would be quick to require reclamation
if MAA discontinued operation and there is a potential that some other party
may be selected to run a ski operation. With that understanding there would
be adequate time to sell off assets to generate the requisite amount or to
turn over assets to a third party.
This raises a concern regarding any financing that may have to be done as
part of an expansion. Assets held to pay for reclamation are not to be
encumbered or pledged to any other party for any reason.
We understand that MAA intends to do a fund raising to provide capital to
pay for the expansion and that they have a study that identifies the amount
that can be generated in a given timeframe. Since that is the approach that
is being taken this becomes less of an issue and an appraisal of equipment
and leasehold improvements can be deferred.
If financing was required for the project and that financing needed collateral
beyond the pledging of future MAA revenues, the City would have to be petitioned
for approval before any assets were used to guarantee debt payment. A valuation
of assets would be appropriate at that time before a decision should be made.
Please note that if the expansion is begun and additional sellable assets
are generated beyond those currently held for reclamation, then the amount
that could be gained from the sale is increased based upon those items purchased
or constructed with donated capital. In other words, assets generated by
an expansion should be taken into consideration when considering the cost
to restore the mountain due to an expansion.
Review of MAA and Sierra Club financial points
There has been a comparison of information made available to the public by
the Rogue Group Sierra Club (RGSC) that questions MAA financial operations
and condition in the following areas:
1. Funds available for expansion
2. Net operating income
3. Operating income and expense per skier/boarder visit
4. Annual skier/boarder visits
Complete explanations for each point must come from MAA but a review of existing
documentation provides the following:
Funds available for expansion - RGSC points out that funds available
for expansion have steadily declined to where MAA has less than $200,000
available and that a City supported $2.1 million loan for Phase 1 is required.
MAA has declared the intention to do a fund raising campaign for phase one
and no loan is intended thus removing the City's need to support such a
financing. MAA has purchased considerable assets over the recent years that
are part of the 9/8/03 asset listing.
Net operating income - RGSC observed that MAA's "annual net operating
income has steadily declined. The new DEIS says that Mt. Ashland Association
will pay for Phase Two and Three of expansion from operating income…DEIS
does not tell us how…" MAA's latest financial report shows a $140,000
improvement over the prior year in operating income but a $498,104 further
reduction of net assets of which $257,835 was capital acquisitions.
MAA's projections seem conservative about the amount of skier/boarder visit
increases and the revenues it will generate however, it can be noted that
there is no formal market analysis to support MAA's estimates. MAA has relied
on industry standards and researched information from other ski area managers
to generate estimates and projections.
Operating income and expense per skier/boarder visit - RGSC states
that "Operating income per…visit has been essentially constant while
expenses...has doubled over the past ten years. How will (they) pay interest
and principal…plus save money for Phase 2 and 3…" MAA does not
intend to finance so payment of principal and interest does not apply. One
result could be that Phase 2 and 3 are not done if revenues do not increase.
A side point here is that if borrowing becomes necessary it would be appropriate
for it to come to the City for approval if assets owned by the City or held
for reclamation are to be pledged for payment of the loan.
Annual skier/boarder visits - RGSC points out that skier/boarder visits
have been relatively flat at Mt. Ashland and region-wide yet the DEIS "assumes"
that visitation will be on a steady, continuous rise with no fluctuations.
"This makes for a poor economic analysis."
MAA's projections appear conservative, aiming at the customer groups they
are not serving at this time. The proposed changes will have an affect, the
question is how much and to what financial end.
Summary
It appears we have two ends of the spectrum. One side is considering taking
some risk to "grow" a greater customer base and have it be a self sufficient
operation rather than watch costs continue to increase and minimize the service
that can be given. The other side has concerns regarding the impact of the
expansion, the association's financial health, the economics behind the
estimations from MAA and the City's financial exposure.
City staff have not assessed the business activities of MAA or interests
of RGSC on how a designated ski area is to be used or managed beyond the
impact on water quality and coverage for reclamation. It is up to those two
parties to prove their points with USFS. |
