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On Tuesday the Select Board discussed the Sewataro financials, as they received the contractually-required annual reporting from the camp operator recently. The full report is on page 10 of the Select Board packet.
Per the latest version of the contract, the camp operator pays $200,000 each year in rent, which is up this year from $120,000 in the original contract. Then, the operator is on the hook to pay 25 percent of net income (profit) to the Town up to $1,000,000. If net income exceeds that threshold, the Town’s share increases to 33.33 percent, but the net revenue from operations has not gotten close to that in the past four years without the bump from two forgiven, and sizable, Paycheck Protection Program (PPP) loans included in the financials. But those are off the books now, and the Covid relief gravy train has largely ended.
For 2023, the camp operator is reporting a net income of $310,623. The operator reported $3,985,179 in net tuition revenue, and $10,238 in miscellaneous income. (Page 15)
With adjustments, that means $371,826 is available to revenue sharing according to the operator. The Town’s revenue share for the year is therefore $92,956. The revenue share for the Town in 2022, less a forgiven Paycheck Protection Program (PPP) loan, would have been approximately $91,000. When including the forgiven PPP loan included in net income, Sudbury’s revenue share in 2022 was $225,000.
Here’s the revenue share calculation for 2023, taken from page 21 of this week’s Select Board packet:
When the revenue share is combined with the $200,000 rent, Sudbury is generating about $293,000 from the arrangement with the camp operator this year. However, the $200,000 rent didn’t kick in at the start of the calendar year, that happened mid-year, so the Town is receiving about $160,000 in rent in the current calendar year, which puts total revenue from the property at about $253,000 according to comments during the Select Board meeting. (0:19:05)
The debt payment on the property for fiscal year 2024 was $760,363. That debt payment includes $200,363 in interest. Incidentally, $200,000 is also approximately what the Town collected in annual property taxes from the property when it was privately owned prior to the Town acquisition. The $92,956 in revenue sharing is the main difference to the Town when comparing pre-acquisition and post-acquisition revenue. (Debt schedule on Page 3, tax data on page 11)
Select Board Perspectives
On Tuesday the Select Board reviewed the report and discussed what they were seeing in the financials. Opinions varied, and the discussion isn’t over just yet. They are compiling questions and will invite Scott Brody, the camp operator, to join them at a future meeting.
During the discussion there was some confusion about what was happening in the numbers, as it appeared on the surface that the revenue share was declining significantly. (0:24:28) However, they cleared up the confusion by explaining that the PPP loans were no longer applicable to the net income. If you compare prior year’s financials to this year’s financials while excluding the PPP loans, you can get a more accurate comparison focusing entirely on camp operations. Using that view, the revenue share for the town is nearly identical year-over-year.
The board also discussed some of the changes the operator made this year. In addition to incurring expenses for accessibility improvements for swimming and at Liberty Lodge (something the Select Board negotiated into the extended contract), the operator got approval to add 50 campers, raised tuition, and incurred higher expenses in a variety of areas including advertising as well as salaries and wages. (Page 24 here for 2023 expenses, Page 15 here for 2022 expenses.)
The combination of increasing expenses and efforts to grow revenue has ultimately kept the revenue share flat for the Town year-over-year. Rising costs and a tight labor market were cited by the camp operator in last year’s meeting with the Select Board, and the 2023 financials appear to reflect that.
There was some discussion among Select Board members about requesting an audit next year in advance of longer-term planning conversations for the property. (0:25:00) That would give them a more robust understanding of the financial reality of the camp as they seek to determine how to proceed in the long run. Members did not voice a specific desire or vision for the property, but rather a desire to be more proactive before the current contract with the operator approaches the end of its term. The negotiations for the contract extension in 2022 were crammed in to the waning months of the initial contract term, which put a lot of pressure on the Select Board and Town staff. Town Manager Sheehan talked a bit about planning ahead for future discussions about the property. (0:44:30)
A Penny Saved Is A Penny Earned?
While the financial reporting is focused on the revenue sharing calculation, there are other ways to look at the arrangement, many of which have been voiced by members of the Select Board over the past couple years. Some felt the Town benefited from not having to pay for the regular maintenance at the property while the deal was in place. Basic maintenance was estimated at nearly $150,000 back in 2019. (Page 20) When the Select Board was negotiating the contract extension in the spring of 2022, the camp operator provided a breakdown of costs the operator felt his business was covering for the Town (page 70):
But in that same packet there is a forecast for Sudbury’s revenue share in future years under the terms of the extension, and the 2023 revenue share came in drastically short of that mark. (page 71)
That forecast assumed the Town would get the full $200,000 for rent in 2023, which we learned on Monday was not the case. However, the forecast accurately predicted the 2023 income, which actually came in slightly higher than the forecast at $3,985,179. The biggest difference is that the total expenses ended up nearly $400,000 higher than the projection. The projection categorized expenses differently than the financial reporting the Town receives, so it’s hard to discern what drove the expenses $400K higher than the forecast.
Notably, the Town swimming program did not kick off this year due to delays to accessibility improvements to the property. Administration of that program will likely be another added cost if that program kicks off in the summer of 2024.
While the revenue share for the Town fell short of projections made at the time of the contract extension, instead holding flat year-over-year, the contract with the operator simultaneously calls for capital improvements to the property, expanded public access, and the addition of a public swimming program. All of those terms increase expenses at the expense of the Town revenue share, but they also deliver another type of value to the town. The Select Board appeared quite cognizant of the full scope of the arrangement, and compiled a variety of questions for a more robust conversation with the camp operator at a later date.