City officials have warned the operator of Hawaiian Falls water park that the company is in default on its agreement and will lose its lease unless it pays the city $102,000 by early April and removes a contractor’s lien from the park property.

City officials say they hope the issue can be resolved before the scheduled Memorial Day weekend opening of the water park at 900 Lake Shore Drive.

But as of this week, Hawaiian Falls’ corporate owners — who have had a track record of missing payments in two other cities — had not replied to the notice that was sent Feb. 9.

“We’re certainly hopeful they’re going to do that,” Assistant City Manager Bradley Ford said. “We’re willing to work with them on a solution. … We’re hopeful that the city is not going to be in the business of operating a water park. We’d rather focus on our core services and allow the operator to continue.”

Officials with the corporate owners, Source Capital LLC of Atlanta and STORE Master Funding LLC of Scottsdale, Arizona, did not return repeated phone calls seeking comments in the last two weeks. Ford said the city is still trying to clarify the ownership structure between the two firms.

The Hawaiian Falls chain took over operations of the city water park in 2012 and added new slides and splash features under a 40-year lease and operation agreement. The agreement requires Hawaiian Falls to pay for ongoing improvements, repairs, maintenance and marketing, and to make an annual payment that would have been $102,000 for 2017.

The agreement also requires Hawaiian Falls, known legally here as Waco Family Entertainment, to indemnify the city against “claims, losses, proceedings and damages.” City officials said a painting contractor, Pinnacle Coatings Group, placed a lien, or claim, of $10,456 the park property last October because of unpaid bills, and the owners failed to remove the lien within 60 days as required by the contract.

Since 2003, the Hawaiian Falls chain has been known for developing and operating water parks under agreements with small and mid-sized Texas cities, mostly in the Dallas-Fort Worth area.

The Waco park had initial success with 145,000 visits in 2012, but attendance has declined over the years with a record low of 91,896 last season. The park was $200,000 in the red last year, reporting $1.5 million in income and $1.7 million in expenses.

That’s better than the previous season, which was hampered by heavy summer rains. In 2016, the park reported $1 million in income and $1.7 million in expenses.

Meanwhile, Hawaiian Falls parks in some other Texas cities have struggled in the last three years. In 2015, founder Dave Busch sold the company to Source Capital LLC, a private equity firm that had been an investor since 2013.

In April 2016, the city of White Settlement near Fort Worth took over operations of its water park from Hawaiian Falls. City officials announced that Source Capital owed more than $900,000 under its 2-year-old agreement with the city. The city-run water park has now been renamed Splash Dayz.

In summer 2016, the U.S. Department of Labor found several Hawaiian Falls parks, including Waco’s, had violated child labor laws regarding hazardous work conditions. The parks paid almost $86,000 in penalties in the case.

In September 2016, the city of Pflugerville near Austin ended its agreement with Hawaiian Falls, saying the company was $400,000 behind on payments to the city and the Pflugerville Community Development Corp., which had borrowed $23.5 million to develop the park.

Pflugerville officials also said the company did not meet expectations for continued development and programming, especially for families with young children.

“They were unable to deliver the kind of customer service we expected,” said Amy Madison, executive director of the development corporation. “They didn’t want to invest more in the park to meet the needs of citizens.”

She said the company ended up making the back payments as part of a settlement agreement, and helped find a new operator.

Pflugerville officials recruited Katy-based Typhoon Texas to take control of the water park. The company has invested $4.5 million in improvements, including rides and a toddler pool.

“They have done a great job,” Madison said. “It’s been a turnaround story, given the prior issues we had. What Typhoon Texas has done is from the ground floor to make it a totally new park. … The food is so far superior to what we had. Customer service is what makes Typhoon Texas so strong.”

Ford, the Waco assistant city manager, said Waco’s experience with Hawaiian Falls has been satisfactory over the years.

“I think people have given it positive reviews,” he said. “They interact well with our programming in parks and recreation. We’ve had a positive relationship. I think the community supports it pretty well.”

But he said new attractions could help reverse the decline in attendance that has contributed to losses in the last couple of years.

“I think that for water parks and family entertainment facilities, people are attracted to new amenities,” Ford said. “You really have to continue to have reinvestment.”

J.B. Smith is the the Tribune-Herald managing editor. A native of Sulphur Springs, he attended Southwestern University and joined the Tribune-Herald in 1997. He and his wife, Bethany, live in Waco and have two children.

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