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HomeMy WebLinkAboutAgenda Statement 1982/07/27 Item 14COUNCIL AGENDA STATEMENT Item • 14 Meeting Date 7-27-82 ITEM YITLE: Resolution /d ~6 ~ - Approving Agreement for the Management, Supervision and Operation of the Chula Vista Municipal Golf Course i __ SUBMI TED BY: Assistant City Manager -~..~^~ (4/5ths Vote: Yes_ Director of Parks & Recreation~.J t On Feb uary 2, 1982 the City Council directed staff to negotiate a new multi-year agreem nt with our current golf professional, Joe Warburton. Following extensive negoti tions, a new five-year agreement has been reached, concurred in and executed by the professional. It is therefore our RECOMMENDATION: That the City Council: 1~. Adopt the Resolution. BOARD/COMMISSION RECOMMENDATION: Not Applicable. DISCUSISION The me Decemt agreer 1, 2. The pi on Auc are a~ 1, ~t recent five-year agreement between the City and Mr. Warburton expired 'r 31, 1981. On December 22, 1981, the City Council approved a month-to-month ant with Mr. Warburton pending resolution of two questions: Should the City seek proposals from private operators to perform not only the duties provided under the Golf Pro's contract, but also incorporate under one operator the full maintenance responsi- bilities performed by City forces. In January, 1982, a decisio-t was made by the Council not to proceed at this time with this course`of action. Should the City seek proposals from interested parties in providing services performed by the Golf Pro. On February 2, 1982, the City Council decided to proceed with negotiation of a new multi-year agreement with Mr. Warburton. posed agreement with Mr. Warburton is fora term of five years, beginning ist 1, 1982 and ending July 31, 1987. Other key provisions of the agreement follows: Revenue to City - The City will receive 100% of all greens fees collected by the professional with no provision for the professional to receive any portion of such fees. Additionally, during the first year of the agreement, the professional will pay a minimum rent of $600 per month or 54% of his gross profits, whichever is greater, that he receives in revenue from those sources listed in Section 7 of said agreement. The minimum base rent of $600 per month will be adjusted annually as reflected in the All Urban Consumers Index for the San Diego Metropolitan Area. Nom) Form ~-113 (Rev. 11/79) + Page TWQ, Item 14 Meeting Date 7-27_ 2. 3. 4. Replacement of Powered Golf Carts - The Professional is required to replace at least one-half of all powered carts over five (5) years of age no later than ninety days after the effective date of the agreement. He is also required to replace no less than nine (9) additional carts over five (5) years of age no later than the first anniversary of the agreement and must replace all remaining carts over five (5) years in age no later than the second anniversary of this agreement. Additionally, subject to this replacement schedule, all carts utilized at the Golf Course shall not exceed five (5) years in age during the remaining term of the agreement. Pro Shop Cart Storage Area and Driving Range - The agreement provides that the Golf Professional shall be responsible for full interior maintenance of the Pro Shop and golf cart storage area. The agreement further provides that the City will provide an area for a driving range and within sixty (60) days of the effective date of the agreement, will repair and/or replace the existing driving range fencing with the Professional responsible for any subsequent repairs or replacement during the term of the agreement. Termination Provisions - The agreement may be terminated upon thirty (30) days written notice if the Professional fails to perform in accordance with the terms and conditions of the agreement. It may also be terminated upon one hundred twenty (120) days notice by the City under two other circumstances. First, if the City should decide to take total responsibility for the maintenance and operation of the Golf Course with City forces, the agreement may be terminated, and secondly, if the City should decide to contract out total responsibiliey for maintenance and operation of the Course to a private concern, the agreement may be terminated. If the City should exercise either of these two options to terminate the agreement,- the City is obligated, subject to an option of the Professional to purchase all non-returnable inventory of the Professional at original wholesale value and also purchase the golf carts at depreciated value. Exhibit "A" provides a three (3) year projection of gross profit, expenses and net income that is potentially possible under the terms of the new Agree- ment. Exhibit B indicates what effect the proposed contract would have had over the past five years had the contract been in place during that period. Cart replacement during the previous five years was not considered, but if the proposed contract had been in place at that time, and new golf carts acquired the net income shown would be reduced substantially. In exhibit A, income and expenditures for the first year of the contract are based on the Professionals most recent Profit and Loss Statement for the period ending December 31, 1981. During each of the three years, it is as- sumed that only the minimum rent to the City would be paid but allowance has been made for interest and depreciation on the new golf carts. During the second and third year of the three year projection, a decrease in net income is reflected although an increase in gross profit is assumed. This occurs //~%'(~D Item 14 Meeting Date ~7-27-82 Page three because under the proposed agreement additional cart replacement is required resulting in increased interest and depreciation allowance. In order for the Golf Professional to show a growth in gross profit, it will require him to not only develop new and increased pro-shop sales but also agressively promote the golf course in everyway possible. Without this extra effort, these projections may not be attained. The primary difference in the old agreement from the proposed agreement is that the Professional: a) Did not have a minimum monthly rent. b) Retained all earnings from those activities shown under Section 7 of the proposed contract and was only required to pay the City some part of his gross profit, based on a sliding percentage scale, when his gross income exceeded $135,000 on an annual basis. (one-half percent of his gross earnings if gross was more than $135,000 but less than $140,001; one percent if more than $140,000 but less than $150,001 and graduated thereafter by an additional one-half percent for each $5,000 more in gross profit) During the preceeding five years, ending December 31, 1981, the Professionalts gross profit never exceeded the $135,000 and therefore, under the terms of the old agreement, the City paid the Professional varying percentages of the annual green fees collected at the course. Those amounts during the past five years were: 1. Calendar year 1981 - $ 6,309.66 2. Calendar year 1980 - 6,244.11 3. Calendar year 1979 - 4,063.88 4. Calendar year 1978 - 3,487.77 5. Calendar year 1977 - 9,094.40 We bel some r offers promot will b The above payments were based on the reverse sliding scale referred to above if the Professional's gross profit was less than $135,000. ($130,000 but less than $135,001, the city paid Professional one-half percent of all green fees collected etc.) ieve the proposed agreement is fair to both parties in that it assures the City ~asonable monetary return from the use of City facilities and at the same time, the Professional the incentive to increase his net income by aggressively ing the Course Under the terms of the agreement, both the City and the Professional ~nefit monetarily from increased business activity. FISCALIIMPACT The ag Bement will generate a minimum of $7,200 per year in revenue for the City during the fi st year of the agreement. This amount could be exceeded if the percentage factor is app ied to the monthly gross and the product of that calculation exceeds the minimum monthl rent of $600. The minimum annual rent during the second, third, fourth and fifth ear of the agreement should exceed $7,200 for the minimum first year's rent becaus of the Consumer Price Index provision.