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CAA Faces Tough Budget Choices
The arena is expected to have a $1.51 million surplus by the time June 30, 2005, arrives, while the convention center should lose $1.38 million by then.
At the same time, the board also may begin to take a longer look at its fiscal future, one that is likely to present a financial dilemma members will have to overcome in a few years.
But before that decision is tackled, members must choose which budget the CAA will follow for the fiscal year.
The one put together in May projected a deficit for the board. But last week, a revised forecast for DeVos Place cut that building’s deficit from $1.57 million to $1.38 million and that change helps to give the CAA a surplus for the year.
In FY05, which begins July 1, the revised forecasts show that the combined revenue for both buildings will exceed the combined expenses of both by $126,232 — a surplus the CAA will get.
The board also gets revenue from building operations, parking receipts, a land lease, interest payments on investments and other miscellaneous sources. In all, the board expects to receive $3.21 million in total revenue for FY05.
Expenses for the CAA are expected to reach $2.96 million, according to a new estimate released just last week. Removed from the May forecast was funding for the Downtown Improvement District and several capital improvement projects, expenditures worth about $266,000.
So, overall, income is above forecasted expenditures in the revised budget, leaving the CAA with a net surplus of $250,000 for the fiscal year.
The financials submitted in May, prior to last week’s budget adjustments, gave the board a net deficit of $203,144. But with the additional DeVos Place revenue, which wasn’t part of the May budget, that deficit drops to $16,048.
The difference between the two budgets is the expenditures removed from the newest version. And now members have to select which budget they will follow at Wednesday’s meeting, the last gathering for the current fiscal year.
A longer-term task for board members is to find a way to stop the drain of its fund balance so they can start a reserve account to cover future capital replacement costs at DeVos Place.
When the Downtown Development Authority opened the arena in 1996, that board agreed to set aside 1 percent of the $55 million bond package it provided for the building’s construction to meet replacement or improvement costs. That reserve, roughly $500,000, came from the arena surplus and was deposited into the capital replacement account each year — until recently.
Money from an expected $1.44 million arena surplus for FY04 hasn’t been assigned to that account. Instead, much of the surplus has been targeted to help cover the convention center deficit, expected to be about $1.4 million this year.
The CAA would like to do what the DDA did, set money aside for capital replacements at DeVos Place, and board members hope to begin depositing $1.7 million annually in such an account in a few years.
For that to happen, though, income has to climb so the fund balance doesn’t drop.
Revenue from conventions and trade shows are projected to go up in FY06. Kent County Fiscal Services Director Robert White told board members that they could also count on operations being covered at both buildings in the near future, and that they should expect at least $1 million to come from the arena surplus that could go into the replacement fund.
But he added that the CAA would still have to find another revenue source to make up the difference between the arena surplus and the amount to be set aside for replacements at the convention center.
“It will be a difficult goal for you to achieve,” White told board members in late May.
The board is projected to spend $144,000 on capital replacement costs for FY05 under the revised budget, or $372,000 under the one released in May.