The feasibility of developing a new recreation center is determined by what a community can afford to build and operate.
Before this process can be undertaken, it is imperative that a needs-assessment study is completed for the community. More precisely, this step requires a market-analysis study, along with a robust public-input process.
Market analysis—The analysis begins by determining the potential service area(s) for the center, its demographic characteristics, and the role of other similar providers in the area. Demographics are then reinforced by possible participation rates in sports and other activities that might occur at the facility. This information will define the realistic strength of the market for a center. Another vital aspect of this analysis is to determine if there are any equity partners for the project. Identifying partners at this point in the process allows for their needs and possible funding mechanisms to be incorporated into the planning efforts.
Public input—Integrating the public early in the needs-assessment process will ultimately have a tremendous impact on the project, especially if a vote for financing is needed. Utilizing at least two to three input mechanisms (surveys, focus groups, web pages, social media, etc.) is essential to gain a representative cross section of a community. Establishing a project steering committee is recommended and should include key stakeholders in the process.
Equipped with this important information, the actual feasibility portion of the study can then be undertaken. There are a number of critical steps in this process.
Funding—Determine the funding of the capital development of the project and any potential operational shortfall. It is imperative that a community ultimately work backward from what it can afford to determine the financial brackets for the project. Many projects often start with definitive funding requirements such as “no tax increase for capital funding” and/or “operational self-sufficiency.”
In most instances, three to four funding sources are often cobbled together to develop a capital funding plan. These may include traditional taxing sources and a variety of alternative sources, such as fundraising, grants, and partnerships. Long-term operations-funding is often a larger issue. While the capital cost often is a large number, it is a relatively finite cost while the operational obligation continues for the life of the building. Again identifying not only the possible sources of operational funding but also a realistic amount from each is an important step. Operations can be funded through taxes, grants, partnerships, or even an endowment. This is evidenced by the Salvation Army, whose Kroc Centers include not only a capital funding gift but also an operational endowment of equal value.
Building program—In addition to meeting the needs of the community, the decision as to what components to include in a recreation center has a direct bearing not only on the capital cost of the project but also on the cost-recovery rate of the facility. Including an indoor aquatic center might be an identified need and attract a great number of users, but it is an expensive amenity to build and operate. In contrast, fitness components have a relatively moderate development cost, but high use and revenue potential. Determining the appropriate size of each space will also impact cost-recovery. Developing a core program for a center is common with the addition of other amenities for later phases. A conceptual understanding of the possible capital and operational costs/revenues for the proposed building program is necessary.
Site—Determining the appropriate site for a new recreation center has become one of the more difficult tasks in a feasibility study. The process usually begins with the development site-selection criteria. From specific criteria, a quantitative analysis is completed for three to five sites. First, any site being considered should be in public ownership to avoid having to utilize capital dollars for this purpose. Second, there should be adequate property for the building, the required parking, and possible outdoor amenities, as well as future expansion potential (usually a minimum of 5 acres to as many as 12). The site will certainly affect not only the capital cost, but also impact use and ultimately revenue.
Concept plan—With the determination of a final program and a preferred site, attention can turn toward the development of an actual concept plan for the center.
Developing a plan that is effective and efficient requires minimal supervision, has visuals to advertise the presence of key amenities, and has an organization and separation of spaces by community use and pay-for-use areas, which is essential to operational success.
Part of this process is also identifying basic materials, finishes, and surfaces in the center. Striking a balance between first-time and life-cycle costs will affect the overall development costs and also impact maintenance and custodial requirements.
Capital cost--With the development of the concept plan for the center, a definitive capital cost estimate can be completed. Developing the cost estimate should include not only the probable construction cost, but also all fees (architect, engineers, consultants, and financial), permits, contingencies, and furniture, fixtures, and equipment costs. This “project cost” is the only cost number (not construction cost) that should be utilized for the project. This number should be projected for the anticipated midpoint of construction. It is not unusual to have a professional cost estimator at this point in the process.
Operations pro-forma—The last and probably the most critical aspect of the feasibility study is the development of a comprehensive operations plan that identifies operational costs, a fee schedule, expected use, and revenue numbers. Some preliminary estimates should have already been completed to be sure that the project meets its operational goals. The pro-forma should be based on the date of the projected actual opening of the center, and it is not unusual to develop a 5-year projection model as well.
Operational expenses include four categories:
- Personnel costs, including full-time and part-time positions and the appropriate benefits
- Operating supplies, which usually include office, maintenance and custodial supplies, and recreation program items
- Contractual services, including utility charges, insurance, and services, such as alarm, computer, and HVAC maintenance
- Capital replacement or an allocation of funding for ongoing replacement of center equipment.
The operational expenses will be based on the philosophy of the center, the size and amenities in the building, and the operating hours. Staffing is the largest single operations cost, followed by utilities. Determining what to staff with in-house personnel vs. contracting for services will often dictate the staffing level. This is particularly true for custodial and program staff. It is also necessary to determine which staff positions will be full-time and which part-time.
Establishing a fee schedule for the center is important to ultimately determine the use and revenues generated by the facility. A proper fee is based on the philosophy of the center and the organization that will operate the facility (cost-recovery goals), the components that will command a fee value (aquatics, fitness, gymnasium, etc.), rates paid for similar facilities in the area, and the ability to pay in the market. Many facilities make the mistake of underestimating the value of their services in the community and price themselves too low. It is always easier to lower the price rather than have a significant fee increase in the first couple of years. The other common error is having a separate fee for everything or a fee schedule that is too complicated for anyone to understand. Note the difference in the rate that residents and non-residents pay.
With the fee schedule in place, the revenue plan can be developed. This includes pass sales and other forms of admission, rental revenues, program fees, concession revenue, and other sources. For most centers, the largest source of revenue (sometimes as much as 70 percent) will come from annual pass sales. Determining the number of admissions or passes to be sold is based on the demographics of the market, the rates to be charged, and the presence of other providers.
The expected revenues divided by the projected cost of operation results in the cost-recovery level for the center. Over the last 5 to 10 years, there has been a greater emphasis on increasing this cost-recovery level. Many centers with active elements and in a more urban market are now recovering from 75 to 100 percent of their direct operating costs. It is rare for public centers to cover any aspect of capital debt.
For many projects, elected officials also want to determine the economic impact that will be generated by the facility.
The feasibility study is a critical step in the planning process for a new recreation center and requires a strong and experienced project team. It takes time and resources to do it well, but the ultimate success of the project, not to mention voter approval, is almost always dependent on it.
Ken Ballard, CPRP, is President of Ballard*King & Associates, a consulting firm with a specialty in sports, recreation, aquatic, and wellness facilities. For more information, visit www.ballardking.com.