City to Borrow & Spend $15-million on Lodging for Tourist

On Tuesday (10/11) the City of Lake Elsinore’s City Council is prepared to approve the borrowing of $9.6-million as part of a larger spending spree to invest about $15-million to improve the La Laguna Resort’s accommodations to attract tourists to the lakeside RV/Campground. As much as I would enjoy seeing the improvements to this deteriorated facility, I’m opposed to the borrowing & spending plan for the following reasons.

Terrible Timing – Receding Lake-level & Poor Water Quality

Ask yourself as a taxpayer, would you take the risk of investing $15-million to improve a lakeside RV/Campground for tourists when the Lake-level is so low and water quality has been so bad that the City had to close the Lake due to public health and safety concerns? In fact, this is the current condition of the Lake (see City website below).

http://www.lake-elsinore.org/Home/Components/News/News/1247/26

Lake Elsinore is characterized by floods & droughts, often associated with the El Nino Weather pattern. Lake Elsinore loses an average of 9,000 gallons of water to evaporation every minute of the year. When the City’s first payment on the loan is due, there is a high probability that the Lake-level will be 10-feet below the minimum goal level (1,240-ft aMSL) established by the City and Elsinore Valley Municipal Water District. The City and EVMWD pay $1.4-million per year to add reclaimed water to the Lake, but have been unable to maintain the water level. Based on 100-years of hydrologic data, the overflow of water from Canyon Lake Dam only exceeds the annual evaporative loss of water from Lake Elsinore in less than 1-year out of every 10-years. So, there’s less than a 10% chance in any given year that the Lake will naturally refill by rainfall. Lake Elsinore went completely dry in 1951 and remained a parched lakebed for almost 15 years. Given this past winter’s El Nino weather pattern failed to deliver much rain to SoCal, it’s a high probability that the Lake-level will drop 2 to 2.5 feet per year for the next 7 years.

Water quantity and quality are closely linked on Lake Elsinore whenever the Lake-level is low. So, there’s a high probability that water quality will continue to degrade well into the future. This means frequent & severe Harmful Algal Blooms, massive fish kills and swamp type odors from decaying algae (sewer smell from methane and rotten-egg smell from hydrogen sulfide production). Following the massive fish kills will come a plaque of midge flies, as there are few predators to eat the larval offspring.

Imagine opening day for this $15-million facility, in which all the boat launches are closed due the low Lake-level, the Lake is closed to power boating and the water quality is so bad the City has issued a Health Advisory against bodily water contact. This hard truth is not pretty, but it is the most likely scenario. A lakeside business that depends on the Lake is likely to have substantial annual operating losses under this scenario.

High Risk Business Venture using Local Taxpayer’s Leverage to benefit Tourist.

It’s not the role of City government to operate a profit/loss business. The lodging business should be run by private enterprise that is motivated by profit and accepts all the risk of potential losses. I support a public-private partnership, in which the City would team with an experienced company to develop and operate the Resort, as well as share in any profits. I personally wrote the Request for Proposals at the weblink below. Admittedly, the RFP was poorly marketed and needed a professional Real Estate Agent to perform the work.

http://www.lake-elsinore.org/home/showdocument?id=12972

Payments on the $9.6-million debt will be paid by the City’s General Fund (GF). The City’s General Fund is the primary pocket of money the City uses to pay its daily operating costs. Public Safety costs (Police & Fire services) represent 55% of the GF expenditures. It’s fiscally irresponsible for the City to obligate and place the General Fund at risk to pay the $550,000 per year payment on this debt, with the hope that revenues generated from the Resort will cover the expense. It may appear to be affordable during good times, but during an economic downturn the City may be forced to cut Public Safety.

Is it possible City Staff has under-estimated construction cost and over-estimated revenues for these improvements to the Resort? To answer this question we only have to acknowledge the $3-million over-budget of the improvements to Rosetta Canyon Community Park, which is currently under construction (see article at weblink below).

http://patch.com/california/lakeelsinore-wildomar/rosetta-canyon-park-over-budget-3-million

The road to financial ruin is paved with good intentions. Look no further than the financial struggles the City has had with the Diamond Stadium. We were told in the early 1990s that the Diamond Stadium was going to spur economic development too, but it didn’t pan out. Locally generated taxpayer dollars are still supporting the Diamond Stadium to the tune of $650,000/year plus repairs to this aging facility. Local taxpayers are now being told how this $15-million investment in the La Laguna Resort is the engine for economic growth, same old story just different decade.

Most citizens that live in the City of Lake Elsinore don’t need to camp here. So, this $15-million investment in an RV/Campground is primarily to benefit tourists, not citizens. The local taxpayers are expected to accept the risk, with little reward from this venture.

Collateral for the Loan Guarantees Pound of Flesh

The collateral for the loan will be secured by City owned property, which may consist of a combination of City Hall, Fire Station No. 10, and Rosetta Canyon Park. Of course this type of critical infrastructure can never be surrendered by the City for non-payment on the loan for the RV/Campground. So, de facto, the loan payment will have to be paid at all cost, even if it requires the City to cut Public Safety or Recreation services during an economic downturn.

Precarious World Economy & End of Business Cycle

The world economy has never really recovered from the Great Recession, caused by the debacle in the U.S. housing market. However, thanks to the miracle of borrowing and spending, especially in communist China, the world economy has kept its head above water. The world is now awash in more debt than before the crisis. In an unprecedented coordinated effort, Central Banks around the world have favored debtors over savers by forcing interest rates below the natural borrowing rate. Just like when you over eat an expensive meal at a fine restaurant, a little indigestion sets in when the bill is due. Well, on the world stage the bill is coming due and indigestion is evident by the 50% drop in commodity prices, such as oil, copper, steel and aluminum. The International Monetary Fund has recently cut its forecast for world trade in half. The business cycle that started up in 2008 is now long in the tooth, so an economic slow-down is inevitable. I personally don’t think that western democracies should depend on communist China to save capitalism, nor put our faith in the hands of well-intentioned Central Bank bureaucrats.

What would happen to the City of Lake Elsinore during a substantial economic downturn? From past experience, I would say the City would struggle to pay the back the $9.6-million loan.

I like elected officials to be fiscally conservative and focus on providing essential government services. Any Councilmember that votes to approve this type of borrowing & spending against the good name of taxpayers must be under the spell of irrational exuberance. I can’t vote for any Councilmember that approves such extravagant spending and that denies the most probable condition of the Lake in coming years.

Recommend New City Mantra

The Lake first, shoreline development to follow.

Pat Kilroy (23-year resident)

Retired City Director of Lake, Parks & Recreation