Recently, at my neighborhood caucus, I had the opportunity to answer questions from residents while we waited for the votes to be tallied. I wasn’t surprised when someone asked, “When are we going to get a rec center?” because I get this question frequently.
Cities can certainly offer recreation opportunities in various capacities, though I do have some concern with building a facility that would be in direct competition to private enterprise in some ways. Private enterprise creates resources, jobs, and property taxes. Government consumes those resources. We may argue that a government-run rec center would create jobs too, but the government can only get the money to continue running such a facility by taxing residents or charging usage fees. I have yet to find a rec center that is fully funded and self-sustaining through usage fees alone, though gyms and water parks are able to do so regularly. If anyone knows of a recreation center that fully funds its annual operational expense through usage fees and not taxes, please let me know because I would like to explore the subject more.
In spite of paying no property tax, and thus having a considerable advantage over private enterprise when setting pricing, they still operate at a net expense, where ideally they should be revenue neutral. I make this statement after direct observation and meeting with multiple entities that run recreation centers. Recreation centers almost always operate as “cost centers,” (meaning they don’t break even and they cost money to operate). Where a political body such as a city council is responsible for setting the fees charged for facility use, there is a built-in incentive for council to keep the fees low. While this will benefit those who use the facility regularly, it will impact the taxes of all residents, regardless of use.
Recreation centers and aquatic centers offer great activities and programs for residents to participate in. I believe that most communities with rec centers enjoy them and are glad they are there. For a moment I would like to look past the benefit and consider the associated expense. Many municipalities have built recreation and aquatic centers over the years with costs ranging from $11 million to $39 million. After that, the cost of running the center must be considered. One rec center in a neighboring community has $800,000 in net operating expenses, after usage fees.
Rec centers and aquatic centers are typically financed by issuing a General Obligation bond (GO bond). General Obligation bonds are backed by the taxing ability of the bond issuer (the City). This results in an increase to property taxes for all residents to pay for the construction of the building, regardless of whether or not they use the facility. All other costs of operating the facility such as employee wages, equipment, supplies, and utility costs are paid for with the money the facility charges patrons for its use. If the money collected from usage fees does not cover the full cost of operation, then money from other revenue sources must subsidize the operation. There are very few municipal recreation centers or aquatic centers that break even on their own. In these cases, the government must use cash from its general fund to make up the difference. In essence, property tax and sales taxes are used to satisfy the unmet burden.
I understand that many residents would like to see Eagle Mountain get its own rec center or even aquatic center. I have my own guiding principles and values which make the traditional model of borrow, build, and bill for use a non-starter. Those same principles prevent me from sticking taxpayers with the financial burden of indefinite ongoing operations expense. Lastly, where other entities such as gyms, water parks and other similar private enterprise options are theoretically possible, I am not in favor of introducing market competition when operating expense is subsidized by taxes.
The City has been looking for ways to satisfy our residents’ desire to have a rec center, without using tax dollars to pay for the ongoing expense of running it. We have been looking for such an opportunity over the last two years. If we are to be successful, it will occur through partnerships where needs and benefits are aligned between different stakeholders. Speaking for myself only, I am not opposed to participating in the cost of building a facility with one-time cash funds (not borrowed money) to build a facility which would then be run by a private entity. We have spoken to private recreation businesses, other public entities with specific facility needs, and developers. Through some of those conversations, a deal looked promising but didn’t pan out. While we haven’t yet been successful in finding the right mix of stakeholders and needs, we continue to have those conversations to find a satisfactory solution if one exists.