Loading...
The URL can be used to link to this page
Your browser does not support the video tag.
Home
My WebLink
About
2016-05-23 Finance Committee Agenda Packet
Finance Committee 1 MATERIALS RELATED TO AN ITEM ON THIS AGENDA SUBMITTED TO THE CITY COUNCIL AFTER DISTRIBUTION OF THE AGENDA PACKET ARE AVAILABLE FOR PUBLIC INSPECTION IN THE CITY CLERK’S OFFICE AT PALO ALTO CITY HALL, 250 HAMILTON AVE. DURING NORMAL BUSINESS HOURS. May 23, 2016 Special Meeting Council Chambers 11:00 AM Agenda posted according to PAMC Section 2.04.070. Supporting materials are available in the Council Chambers on the Thursday 10 days preceding the meeting. PUBLIC COMMENT Members of the public may speak to agendized items. If you wish to address the Committee on any issue that is on this agenda, please complete a speaker request card located on the table at the entrance to the Council Chambers/Council Conference Room, and deliver it to the Clerk prior to discussion of the item. You are not required to give your name on the speaker card in order to speak to the Committee, but it is very helpful. Call to Order Oral Communications Members of the public may speak to any item NOT on the agenda. Action Items 11:00–3:00 P.M. 1. Fiscal Year 2017 Finance Committee Budget Wrap-Up 3:00-4:00 P.M. 2. Golf Course Reconfiguration Financial Report and Status Update on Contract and Permits Future Meetings and Agendas Adjournment AMERICANS WITH DISABILITY ACT (ADA): Persons with disabilities who require auxiliary aids or services in using City facilities, services or programs or who would like information on the City’s compliance with the Americans with Disabilities Act (ADA) of 1990, may contact (650) 329-2550 (Voice) 24 hours in advance. 2 May 23, 2016 MATERIALS RELATED TO AN ITEM ON THIS AGENDA SUBMITTED TO THE CITY COUNCIL AFTER DISTRIBUTION OF THE AGENDA PACKET ARE AVAILABLE FOR PUBLIC INSPECTION IN THE CITY CLERK’S OFFICE AT PALO ALTO CITY HALL, 250 HAMILTON AVE. DURING NORMAL BUSINESS HOURS. Finance Committee Items Tentatively Scheduled Meeting Date Line No. Item Title Referral Date Please see Budget Hearing Calendar for May 6/7/2016 1 Commercial and Residential Impact Fee Nexus Studies and Review Ordinance to Adopt Housing Impact Fees (Planning) 2 Ordinance Updating the Purchasing Section of the Municipal Code (PAMC Chapter 2.30) to Streamline the Purchasing Process and Update Language (ASD) 6/21/2016 3 3rd Quarter FY2016 Financial Report (ASD) Finance Committee Items to be Scheduled Referral Date Line No. Item Title Status 2013 4 Police Services Utilization and Resources Study (Police) To be scheduled in 2016 5 Consideration of Stronger Encroachment Fees for Construction that Impact Portions or all of a City Street or Sidewalk (Public Works) 6 Cubberley Center Master Plan: Additional Information and a Timeline for the Site (requested by the FC) (City Manager) City of Palo Alto (ID # 7018) Finance Committee Staff Report Report Type: Action Items Meeting Date: 5/23/2016 City of Palo Alto Page 1 Summary Title: FY 2017 Finance Committee Budget WrapUp Title: Fiscal Year 2017 Finance Committee Budget Wrap-Up From: City Manager Lead Department: Administrative Services Executive Summary This staff report includes additional information pertaining to the Fiscal Year 2017 Proposed Budget, summarizes changes to the City Manager’s Fiscal Year 2017 Proposed Budget, brings forth recommended actions to revise the Fiscal Year 2017 Proposed Budget, and responds to questions raised by the Finance Committee during previous budget hearings. Please refer to the table of contents below for specific items. Table of Contents 1) ADDITIONAL INFORMATION PERTAINING TO THE FISCAL YEAR 2017 PROPOSED BUDGET... 2 Fire Inspections Staffing: Sworn vs. Non-Sworn ........................................................................ 2 Citywide Sworn vs. Non-Sworn Staffing ..................................................................................... 2 2) WRAP-UP DISCUSSION OF OUTSTANDING ISSUES FROM PRIOR BUDGET HEARING MEETINGS ....................................................................................................................................... 3 Current Status of Proposed Budget ........................................................................................... 3 Budget Process Parking Lot Summary ........................................................................................ 4 Additional Information Pertaining to Parking Lot Issues ........................................................... 7 General Fund ........................................................................................................................... 7 Capital Improvement Fund ...................................................................................................... 8 Fiscal Year 2017 Projected General Fund Budget Stabilization Reserve (BSR) EndingBalance 10 Recommended Changes to the Capital Budget ....................................................................... 10 Capital Reappropriations ....................................................................................................... 10 Changes to the FY 2017 Capital Budget Publication ............................................................. 11 Additional Information for Follow-up Provided by Staff ......................................................... 11 FY 2017 Municipal Fee Schedule ........................................................................................... 11 City of Palo Alto Page 2 Pension Trust Fund 115 ......................................................................................................... 12 3)SUMMARY OF MAY 2016 FY 2017 BUDGET HEARING PROCEEDINGS .................................. 12 Finance Committee Tentative Motions ................................................................................... 12 General Fund ......................................................................................................................... 12 Enterprise Funds .................................................................................................................... 15 Internal Service Funds ........................................................................................................... 16 Capital Improvement Fund .................................................................................................... 16 Related Memos Distributed At Places ..................................................................................... 17 Referral Items for Staff to Return to Finance Committee at a Later Date ............................... 18 4)LIST OF ATTACHMENTS.......................................................................................................... 18 1)ADDITIONAL INFORMATION PERTAINING TO THE FISCAL YEAR 2017 PROPOSED BUDGET This section provides additional information requested by the Finance Committee and/or provided at staff’s behest in regards to the Fiscal Year 2017 Proposed Budget. Fire Inspections Staffing: Sworn vs. Non-Sworn At the May 10, 2016 Finance Committee Meeting, Councilmember Schmid requested further information about the sworn staffing used to complete various Development Services activities for the Fire Division. It was requested that the staff evaluate and follow-up with the Committee on this staffing strategy. Staff has taken this question under advisement and plan to evaluate Fire and Development Services potential cost savings opportunities by using civilian staff for some of the Fire Prevention Bureau functions. These include plan checking, inspections of fire and life safety systems (fire sprinklers, smoke alarms) and annual risk reduction inspections. It should be noted that any recommendations from this evaluation would require management to meet with the labor unions before any changes are made. Citywide Sworn vs. Non-Sworn Staffing At the May 10, 2016 Finance Committee meeting, Councilmember Filseth asked if there are any sworn employees performing non-sworn activities citywide. Staff have taken this question under advisement and plan to evaluate both the Police and Fire Departments over the course of Fiscal Year 2017 to determine if there are sworn employees performing non-sworn activities. If so, are there areas where these activities could be shifted to non-sworn employees to increase capacity for sworn employees or are there areas where civilianizing positions is possible and would generate cost savings. It should be noted that any recommendations from this evaluation would require management to meet with the labor unions before any changes are made. City of Palo Alto Page 3 2) WRAP-UP DISCUSSION OF OUTSTANDING ISSUES FROM PRIOR BUDGET HEARING MEETINGS This section describes Finance Committee recommended changes made to the budget along with follow-up items as discussed at the Finance Committee budget hearings held on May 3, 5, 10, 12, and 17. During these hearings, only two formal motions (staff recommended) were made to amend the FY 2017 Proposed Capital Budget on May 17th to 1) include a new project in the Electric Fund and 2) amend the Art in Public Places project. Details on these motions can be found later in this report. Therefore, the FY 2017 Proposed Operating and Capital Budgets remain in balance as transmitted to the full City Council April 25th. This section also outlines those items recommended by the Finance Committee to be placed in the “Parking Lot” for further discussion and staff-recommended changes to the proposed budget document. The items in this memorandum and any additional changes made during the May 23rd budget hearing will be incorporated into the budget adoption staff report scheduled to be presented to the City Council on June 13, 2016. Current Status of Proposed Budget As discussed above, only two formal changes to the FY 2017 Proposed Budget have been recommended by the Finance Committee as of May 17, 2016. The Finance Committee tentatively approved staff recommended changes to the Electric Fund and the Capital Improvement Fund. In the Electric Fund, a new Facility Relocation for CalTrain Modernization (EL-17007) capital project with $150,000 in Fiscal Year 2017 was added to study the cost of relocating overhead electric and fiber optic lines to allow for the conversion of CalTrain from diesel to electric power. In the Capital Improvement Fund, the funding in Fiscal Year 2017 for the Art in Public Spaces (AC-86017) capital project was reduced by $156,327 due to a calculation error with an offsetting adjustment to the Infrastructure Reserve Balance. The two adjustments are outlined below with additional details that can be found in the May 17, 2016 At Places memorandum. Proposed Revision Description FY 2017 Current Proposed Budget Tentative Approved Change FY 2017 Revised Proposed Budget Electric Fund Facility Relocation for Caltrain Modernization Project (EL-17007) $0 $150,000 $150,000 Supply Operations Reserve (FY 2017 Proposed Operating Budget pp.102) $24,507,000 ($150,000) $24,357,000 General Capital Fund Art in Public Spaces (AC-86017) $579,840 ($156,327) $423,513 General Capital Fund Infrastructure Reserve (FY 2017 Proposed Capital Budget pp.91) $11,594,442 $156,327 $11,750,769 City of Palo Alto Page 4 Budget Process Parking Lot Summary During the budget hearings, the Finance Committee moved to make various changes to the proposed budget primarily by moving items to the “Parking Lot” for further discussion at a future meeting. This section outlines those items in two formats. 1) by emeeting date and 2)by type of item. Below is a list of actions taken organized by meeting date. May 3, 2016 Non-Departmental: Establish Sustainability Contingency ($250,000; pg. 468) Non-Departmental: 2016 Elections Funding ($150,000; pg. 468) Non-Departmental: Establish Budget Uncertainty Reserve ($2.0 million; pg. 468) Non-Departmental: Transfer from the General Fund: Traffic Signal and Streetlight Electric Costs ($2.2 million; pg. 468) Non-Departmental: Reduce Transfer to General Capital Improvement Fund (-$1.4 million; pg. 468) May 5, 2016 Fire Department: Realignment of Fire Prevention Staff from Development Services Department ($412,867; pg. 249) Fire Department: Fire Station Furniture, Fixtures, and Equipment – Phase 2 ($125,000; pg. 249) Police Department: Project Safety Net – Track Watch Program ($824,000; pg. 341) Community Services Department: HSRAP Funding ($1.4 million; pg. 221) May 10, 2016 Development Services Department: Realignment of Fire Prevention, Planning, and Public Works’ Staff (-$607,922; pg. 236) Planning & Community Environment Department: Planning and Transportation Contingency Funding (new item) Planning & Community Environment Department: Ongoing Operations and maintenance for two new Residential Preferential Parking program ($232,000; new item) Planning & Community Environment Department: Planning/Development Services Staffing alignment ($95,060; pg. 325) May 12, 2016 Public Works Department General Fund: Public Works Division Reallocations from Development Services ($100,173; pg. 358) Public Works Department General Fund: Tree Trimming Services 15 year cycle vs 10 year cycle ($170,000; pg. 359) Potentially offset by a 1.0 position reduction in the General Fund as recommended by the City Manager City of Palo Alto Page 5 May 17, 2016 General Capital Fund Public Works: Municipal Services Center Lighting, Mechanical, & Electrical Improvements potential 1 year project delay ($1.4 million; pg. 148) General Capital Fund Public Works: Municipal Services Center A, B, & C Roof Replacement potential 1 year project delay ($1.9 million; pg. 150) General Capital Fund Community Services: Ramos Park Improvements potential 1 year project delay ($199,019; pg. 226) General Capital Fund Planning & Community Environment: Downtown Parking Wayfinding University Avenue Parking District Fund ($632,076; pg. 278) This table is organized to include the date the action was taken, a short description of the action that was tentatively approved, and the dollar value. Following the table is additional information for a few select items from the list as denoted by a “*” in the chart. These items provide additional information requested by the Finance Committee and/or provided at staff’s behest in regards to the items in the parking lot. Staff hopes that this additional information will facilitate the committee’s review, discussion, and approval of these items. City of Palo Alto Page 6 Date Dept Description GF Rev. All Funds Rev.GF Exp. All Fund Exp GF Net All Funds Net Requirements/Legal Compliance: 5/3 Non-Dept Transfer from the General Fund: Traffic Signal and Streetlight Electric Costs* $0 $0 $2,226 $2,226 ($2,226)($2,226) 5/3 Non-Dept Reduce Transfer to General Capital Improvement Fund 0 0 (1,400)(1,400)1,400 1,400 5/3 Non-Dept 2016 Elections Funding 0 0 150 150 (150)(150) 5/10 DSD DSD Realignment: of Fire Prevention, Planning, and Public Works' Staff 0 0 (608)(608)608 608 5/5 Fire DSD Realignment: of Fire Prevention Staff from Development Services Department 0 0 413 413 (413)(413) 5/10 PCE DSD Realignment: Planning/Development Services Staffing Alignment 0 0 95 95 (95)(95) 5/12 PW DSD Realignment: Public Works Division Reallocations from Development Services 0 0 100 100 (100)(100) Funding Source: 5/5 Police Project Safety Net - Track Watch Program 0 0 824 824 (824)(824) 5/17 GF Cap Downtown Parking Wayfinding (University Ave. Parking District Fund) 0 600 0 632 0 (32) Potential One Year Deferral: 5/17 GF Cap Municipal Service Center Lighting, Mechanical, and Electric Improvements* 0 491 0 1,433 0 (942) 5/17 GF Cap Municipal Service Center A, B, & C Roof Replacement* 0 1,083 0 1,942 0 (859) 5/17 GF Cap Ramos Park Improvements*0 0 0 199 0 (199) Policy/Service Levels/Project Priorities: 5/3 Non-Dept Establish Sustainability Contingency*0 0 250 250 (250)(250) 5/3 Non-Dept Establish Budget Uncertainty Reserve 0 0 2,000 2,000 (2,000)(2,000) 5/5 Fire Fire Station Furniture, Fixtures, and Equipment - Phase 2 0 0 125 125 (125)(125) 5/5 CSD Human Services Resource Allocation Process (HSRAP) - Operating Budget pg 221 5/10 PCE Planning and Transportation Contingency Funding* (staff rec. funding level) 0 0 500 500 (500)(500) 5/10 PCE Ongoing Operations & Maintenance of 2 new RPPs (Council 5/9/16)* 0 0 230 230 (230)(230) 5/12 PW Tree Trimming Services - 15 year cycle versus 10 year cycle 0 0 170 170 (170)(170) 5/12 All 1.0 position reduction in the General Fund as advised by the City Manager $0 $2,174 $5,075 $9,281 ($5,075)($7,107) * These items have additional information provided following the chart. Summary of "Parking Lot" Items TBD TBD Total Parking Lot Items City of Palo Alto Page 7 Additional Information Pertaining to Parking Lot Issues General Fund Transfer from the General Fund: Traffic Signal and Streetlight Electric: $2.2 million/Reduce Transfer to General Capital Improvement Fund: -$1.4 million As part of the Electric Fund Cost of Services Analysis (COSA), electricity costs associated with City streetlight and traffic signal costs were identified as more appropriately aligned with the General Fund. The proposed change in Electric Utility rates this year necessitates this transfer in order to ensure the new rate structure fully complies with state law requirements. Therefore, in order to partially offset this increased cost in the General Fund, staff recommended that the transfer from the General Fund to the Capital Improvement Fund be reduced resulting in a $21 million transfer from the General Fund in FY2017. Planning and Community Environment Contingency: $500,000 The Finance Committee discussed the Planning & Community Environment Department’s need for additional resources given the community focus on planning issues and the Council’s “Built Environment” priority. Members suggested the need for additional architectural/urban design expertise and the possibility of additional spending related to transportation demand management. As a result, the Committee placed the idea of a planning and transportation contingency in the “Parking Lot”. Staff recommends a $500,000 contingency similar to the Fiscal Year 2016 Transportation Contingency. In FY 2016, a $500,000 contingency was set aside for transportation initiatives. By the end of this fiscal year, it is estimated that $430,000 of the contingency funds will have been spent or obligated for various projects including support of the downtown Residential Preferential Parking program (RPP), a coordinated traffic signal program for San Antonio Road, and a speed survey contract. In FY 2017, a $500,000 contingency for planning and transportation initiatives is recommended and may support similar transportation initiatives as well as planning initiatives such as the Council’s request for Eichler-specific design guidelines. Use of funds from the planning and transportation contingency for specific items during the year would be subject to City Council approval. Staff recommends funding for this be reduced from the Budget Stabilization Reserve. Residential Preferential Parking Funding: $280,000 On May 9, 2016, the City Council asked the Finance Committee to include funding in the FY 2017 Operating Budget for new Residential Preferential Parking (RPP) districts in Southgate and Evergreen Park (Capital costs are already addressed in the CIP). A preliminary estimate suggests these programs will require an additional $280,000 on an ongoing annual basis. Of this funding, $50,000 was already included in the development of the FY 2017 Proposed Operating Budget. In order to provide sufficient funding in FY 2017, staff recommends the following adjustments to the FY 2017 Proposed Operating Budget resulting in a net reduction to the Budget Stabilization Reserve of $85,000: City of Palo Alto Page 8 Action Source Use FY 2017 Budget Stabilization Reserve (source of funding is the estimated FY 2016 Transportation Contingency Reserve remaining balance) $70,000 ($155,000) FY 2017 budget proposal for California Avenue Retail Feasibility Study (FY 2017 Proposed Operating Budget page 327) ($75,000) Residential Preferential Parking Operations $230,000 The ongoing costs of this program will be included as part of the development of the FY 2018 Long Range Financial Forecast. Sustainability Contingency Reserve: $250,000 On May 3, 2016, the Finance Committee approved a tentative motion to place the recommended $250,000 Office of Sustainability Contingency funding in the parking lot for further consideration. Historically, the Office of Sustainability has operated with limited resources including a staff of approximately 1.6 full time equivalent positions, staff matrixed from other departments, and a reliance on contractors to fulfill its mandate. The proposed contingency reserve is recommended to be used for the following activities necessary to execute the recently City Council approved Sustainability and Climate Action Plan (S/CAP): S/CAP research and analysis: The Office of Sustainability proposed staffing resources in conjunction with other departmental staff will spend Fiscal Year 2017 working to develop S/CAP work plans, in response to Council’s April 18, 2016 direction. It is anticipated that funding will be partially used to engage contract services to refine S/CAP implementation scenarios, adoption rates, estimated costs and projected greenhouse gas (GHG) and financial impacts, in response to community and Council input. (Estimated cost: $100,000) Management of Existing and Pending Pilot projects and grants: Contractual services are anticipated to be necessary to manage the following active and anticipated initiatives to be pursued: EV charging infrastructure; Electric Vehicle outreach and education (e.g., "ride and drive” events); Sustainability financing strategies; MaaS (mobility as a service) pilots; Other short term consulting projects. (Estimated cost: $100,000) Community Engagement: Various methods and programs are necessary to ensure proper community engagement for sustainability initiatives including: Web site development ($10,000); Development of educational materials ($15,000); Digital Commenter management ($10,000); Interactive modeling tools to support dynamic community exploration of S/CAP options ($15,000). (Estimated cost: $50,000) This funding will increase the Office of Sustainability effectiveness and responsiveness to emerging opportunities in the implementation of Sustainability programs, including the Sustainability and Climate Action Plan (S/CAP). Capital Improvement Fund City of Palo Alto Page 9 At the May 17, 2016 meeting, the Committee discussed the potential of moving the construction phases of various Capital projects from Fiscal Year 2017 to Fiscal Year 2018 as well as the proposed and potential uses of revenues from the University Avenue Parking District Fund. To assist the Committee in the further evaluation of these projects, below is additional information to articulate the funding mechanisms. Municipal Service Center Lighting, Mechanical, and Electrical Improvements (PF-16006): $1.4 million Of the $1.4 million project, the proposed construction budget in FY 2017 is $1.1 million, partially offset by the following transfers totaling $491,307 outlined below. The balance of the construction cost, $576,021, was to be paid for by the Capital Improvement Fund Infrastructure Reserve. Source FY 2017 Construction Budget ($s) Transfer from the Utilities Administration Fund 305,239 Transfer from the Vehicle Replacement and Maintenance Fund 195,991 Transfer from the Refuse Fund (9,923) Sub-total Transfers to Capital: $491,307 Capital Improvement Fund – Infrastructure Reserve 576,021 Total: 1,067,328 Municipal Service Center A, B, & C Roof Replacement (PF-17000): $1.9 million Of the $1.9 million project, all funding was designated for construction costs partially offset by the following transfers totaling $1.0 million outlined below. The balance of the construction cost, $859,328, was to be paid for the Capital Improvement Fund Infrastructure Reserve. Source FY 2017 Construction Budget ($s)) Transfer from the Utilities Administration Fund 684,000 Transfer from the Vehicle Replacement and Maintenance Fund 380,000 Transfer from the Refuse Fund 19,000 Sub-total Transfers to Capital: 1,083,000 Capital Improvement Fund – Infrastructure Reserve 859,328 Total: 1,067,328 Ramos Park Improvements (PG-14000): $190,257 City of Palo Alto Page 10 The entirety of the $190,257 construction budget included in the FY 2017 Proposed Capital Budget was anticipated to come from the Capital Improvement Fund Infrastructure Reserve. Downtown Parking Wayfinding (PL-15004): $632,076 The FY 2017 Proposed Capital Budget recommends a project construction budget of $632,076 primarily funded by a recommended $600,000 transfer from the University Avenue Parking District Fund. The balance of the construction cost, $32,076, was anticipated to come from the Capital Improvement Fund Infrastructure Reserve. Fiscal Year 2017 Projected General Fund Budget Stabilization Reserve (BSR) Ending Balance To date, the Finance Committee has not made any tentative changes to the Proposed Budget that resulted in any change to the proposed $4.9 million use of the Budget Stabilization Reserve, leaving the recommended FY 2017 Reserve balance of $35.6 million or nearly 18% intact. However, included in this report is a recommended further use of this reserve by an additional $585,000 in net adjustments, decreasing the projected BSR balance from $35.6 million to $35.0 million, or 17.6% of the Proposed Budget. The General Fund BSR policy maintains a reserve level of 15-20 percent of the General Fund operating budget, with a targeted goal of 18.5 percent. This amount is $1.8 million below the 18.5 percent target. Recommended Changes to the Capital Budget Capital Reappropriations As described in the Proposed Capital Budget document and discussed during the Finance Committee Budget Hearings, the City Council-approved a change in the method for accounting for capital budget reappropriations are included in the 2017-2021 Proposed Capital Budget Improvement Program (CIP). Previously, any unspent capital funds carried forward from one fiscal year to the next automatically, as long as the project was active. As a result of this October 2014 change to the Municipal Code, City Council authorization is now required for reappropriations. The FY 2017 budget process continues this process with the current FY 2017 Proposed Capital Budget including approximately $58.0 million in reappropriated funds, across all funds. In the time since the Proposed Budget figures were developed (late winter and early spring of 2016), departments have re-reviewed current year estimates and the reappropriation amounts built into the proposed CIP. Additional reappropriation adjustments are recommended as part of this wrap-up memorandum in order to update the FY 2017 Capital Budget with current, more refined estimated activity levels in Fiscal Year 2016. Cumulatively, this re-review of projects has resulted in staff’s recommendation to increase the Fiscal Year 2017 Proposed Budget by a net total of $21.7 million, from $170.5 million to $192.2 million, and are recommended in the following funds: City of Palo Alto Page 11 Fund Recommended Fiscal Year 2017 Funding Adjustment Airport Fund $17,415 Capital Improvement Fund $1,838,846 Electric Fund $4,347,956 Fiber Optic Fund $158,000 Gas Fund $4,805,264 Refuse Fund $(92,176) Storm Drainage Fund $531,162 Technology Fund $1,504,355 Vehicle Replacement and Maintenance Fund $55,253 Wastewater Collection Fund $1,841,549 Wastewater Treatment Fund ($3,768,814) Water Fund $10,447,742 Total All Funds $21,722,552 These adjustments, as outlined in detail in Attachment - A, will ensure that funds are available at the onset of Fiscal Year 2017 for projects that have experienced delays in the current year and will reduce the Fiscal Year 2017 Proposed budget for projects that experienced higher than anticipated expenditure levels within Fiscal Year 2016. These projects are at various stages of their pan and the funding is required to fulfill the commitment and/or contractual obligations. Changes to the FY 2017 Capital Budget Publication At the Finance Committee hearing regarding the General Capital Improvement Fund on May 17, 2016, the Committee members discussed the presentation of a few projects and the descriptions of others. This can also be seen in a few of the tentative motions to add clarifying language to projects such as the Street Lights Improvement project to include “to preserve and repair at sensitive locations and settings” language. Staff has taken these questions and comments under advisement and will reassess the categorization of funding between project phases such as design and construction and make corrections to the categorization as appropriate as part of the production of the Final FY 2017 Adopted Capital Budget. In addition, the descriptions and “Potential Board/Commission Review section will be updated to include additional commission such as the Parks Commission as requested by the committee as appropriate. Additional Information for Follow-up Provided by Staff FY 2017 Municipal Fee Schedule When the amendments to the Municipal Fee Schedule for Fiscal Year 2017 were discussed by the Finance Committee, the motion that tentatively approved the Schedule also included direction to recommend to City Council that a referral be made to the Policy and Services City of Palo Alto Page 12 Committee to explore a low income fee program, specifically with regards to Community Services. Pension Trust Fund 115 As part of the Long Range Financial Forecast review with the City Council on April 4, 2016 and the transmittal of the FY 2017 Proposed Operating and Capital Budget to the City Council on April 25, 2016 conversations over establishing a 115 Pension Trust Fund continued. Strong support was voiced for this concept and it was requested to be considered as part of the FY 2017 Budget Hearings. Thus far, no actions have been taken as part of the budget hearings. Below is a summary of staff and Council actions to date: FY 2015 General Fund Budget Stabilization Reserve: $1.3 million in one-time funding was set aside from the General Fund BSR from excess revenues and expenditure savings from FY 2015. This funding remains unspent and unallocated. Staff returned to the Finance Committee on April 5, 2016 to review various options to address the unfunded pension liability and provide direction on a funding plan (CMR #6792). The Finance Committee approved the following motion: Chair Filseth moved, seconded by Council Member Wolbach that the Finance Committee direct Staff to begin the process of identifying a partner to establish a Section 115 Trust with the $1.3 million from the Fiscal Year 2016 General Fund Budget as the initial payment and direct Staff to explore additional contributions to the Section 115 Trust with contributions from other Funds. Recommend Staff and Council consider any possible Fiscal Year 2017 contributions during the 2017 budget process. Also, direct Staff to return to Council with the recommendation agendized as an Action Item on the City Council Agenda. 3) SUMMARY OF MAY 2016 FY 2017 BUDGET HEARING PROCEEDINGS The items listed below summarize motions made and/or action items made by the Finance Committee as of May 17 that result in a fiscal change or other recommended change to the Fiscal Year 2017 Proposed Budget. Finance Committee Tentative Motions General Fund City Attorney Motion: On May 3, 2016, the Finance Committee recommended tentative approval of the Fiscal Year 2017 City Attorney budget (4-0) City Auditor Motion: On May 3, 2016, the Finance Committee recommended tentative approval of the Fiscal Year 2017 City Auditor budget. (4-0) City of Palo Alto Page 13 City Clerk Motion: On May 3, 2016, the Finance Committee recommended tentative approval of the Fiscal Year 2017 City Clerk budget. (4-0) City Council Motion: On May 3, 2016, the Finance Committee recommended tentative approval of the Fiscal Year 2017 City Council budget. (4-0) City Manager Motion: On May 3, 2016, the Finance Committee recommended tentative approval of the Fiscal Year 2017 City Manager budget. (4-0) Office of Sustainability Motion: On May 3, 2016, the Finance Committee recommended tentative approval of the Fiscal Year 2017 Office of Sustainability budget. (3-1, Wolbach no) Human Resources Department Motion: On May 3, 2016, the Finance Committee recommended tentative approval of the Fiscal Year 2017 Human Resources Operating Budget. (4-0) Administrative Services Department Motion: On May 3, 2016, the Finance Committee recommended tentative approval of the Fiscal Year 2017 Administrative Services Department budget. (4-0) Non-Departmental Motion: On May 3, 2016, the Finance Committee recommended tentative approval of the Fiscal Year 2017 Non-Departmental Operating Budget with the exception of the following Budget Adjustments which will be moved to the parking lot for future discussion: Establish Sustainability Contingency, 2016 Elections Funding, Establish Budget Uncertainty Reserve, Transfer from General Fund for Traffic Signal and Streetlight Electric Costs and Reduce Transfer to General Capital Improvement Fund. (3-1, Wolbach no) Fire Department Motion: On May 5, 2016, the Finance Committee recommended tentative approval of the Fiscal Year 2017 Fire Department Operating Budget with the exception of the following budget adjustments which will be moved to the parking lot for future discussion: Realignment of Fire Prevention Staff from Development Services Department, and Fire Station Furniture, Fixtures, and Equipment - Phase 2. (2-2, Wolbach, Holman no) Office of Emergency Services Department City of Palo Alto Page 14 Motion: On May 5, 2016, the Finance Committee recommended tentative approval of the Fiscal Year 2017 Office of Emergency Services, Operating Budget. (4-0) Police Department Motion: On May 5, 2016, the Finance Committee recommended tentative approval of the Fiscal Year 2017 Police Department Budget with the exception of the following budget adjustments which will be moved to the parking lot for future discussion: Track Watch, $824,000. (3-1, Schmid no) Community Services Department Motion: On May 5 2016, the Finance Committee recommended tentative approval of the Fiscal Year 2017 Community Services Department Budget with the exception of the Human Services Resource Allocation Process Funding (HSRAP). (4-0) Library Department Motion: On May 5, 2016, the Finance Committee recommended tentative approval of the Fiscal Year 2017 Library Department, Operating Budget. (4-0) Development Services Department Motion: On May 10, 2016, the Finance Committee recommended tentative approval of the Fiscal Year 2017 Development Services Department budget with the exception of the following budget adjustments which will be moved to the parking lot for future discussion: Realignment of the Fire Prevention, Planning, and Public Works’ Staff in the amount of $607,922. (4-0) Planning and Community Environment Department Motion: On May 10, 2016, the Finance Committee recommended tentative approval the Planning and Community Environment Fiscal Year 2017 Operating Budget, and to place in the parking lot, funding for a “contingency fund.” (4-0) Motion: On May 10, 2016, the Finance Committee recommended tentative addition of the funding to address costs for the two new Residential Preferential Parking (RPP) districts to the parking lot. (4-0) Public Works Department Motion: On May 12, 2016, the Finance Committee recommended tentative approval of the Fiscal Year 2016 Public Works General Fund Department budget . (3-0, 1 absent) Motion: On May 12, 2016, the Finance Committee recommended placing $135,000 in incremental costs to increase the tree trimming cycle from 15 years to 10 years as well as a potential direction to the City Manager to identify a position in the General Fund that could offset the potential increase in costs in the parking lot City of Palo Alto Page 15 for future discussion. (3-0, 1 absent) Enterprise Funds Utilities Department Motion: On May 17, 2016, the Finance Committee recommended tentative approval of the Fiscal Year 2017 Utilities Department Electric Fund operating and capital budgets. (3-0, 1 absent) Motion: On May 17, 2016, the Finance Committee recommended tentative approval of the inclusion of $150,000 for the Facility Relocation for Caltrain Modernization Project in the final recommended FY 2017-2021 Capital Improvement Plan with a corresponding decrease in the Distribution Reserve in the Electric Fund. (3-0, 1 absent) Motion: On May 17, 2016, the Finance Committee recommended tentative approval of the Fiscal Year 2017 Utilities Department Fiber Fund operating and capital budgets. (3-0, 1 absent) Motion: On May 17, 2016, the Finance Committee recommended tentative approval of the Fiscal Year 2017 Utilities Department Gas Fund operating and capital budgets. (3-0, 1 abstain) Motion: On May 17, 2016, the Finance Committee recommended tentative approval of the Fiscal Year 2017 Utilities Department Wastewater Collection Fund operating and capital budgets. (3-0, 1 absent) Motion: On May 17, 2016, the Finance Committee recommended tentative approval of the Fiscal Year 2017 Utilities Department Water Fund operating and capital budgets. (4-0) Storm Drain Fund Motion: On May 12, 2016, the Finance Committee recommended tentative approval of the Fiscal Year 2017 Storm Drain Fund operating and capital budgets. (3-0, 1 absent) Refuse Fund Motion: On May 12, 2016, the Finance Committee recommended tentative approval of the Fiscal Year 2017 Refuse Fund operating and capital budget. (3-0, 1 absent) Wastewater Treatment Fund Motion: On May 12, 2016, the Finance Committee recommended tentative approval of the Fiscal Year 2017 Wastewater Treatment Fund operating and capital budgets. City of Palo Alto Page 16 (3-0, 1 absent) Airport Fund Motion: On May 12, 2016, the Finance Committee recommended tentative approval of the Fiscal Year 2017 Airport Fund operating and capital budget. (3-0, 1 absent) Internal Service Funds Information Technology Department Motion: On May 3, 2016, the Finance Committee recommended tentative approval of the Fiscal Year 2017 Information Technology Department budget. (4-0) Vehicle Replacement Fund Motion: On May 12, 2016, the Finance Committee recommended tentative approval of the Fiscal Year 2017 Vehicle Replacement Fund operating and capital budgets. (3-0, 1 absent) Employee Benefits Funds Motion: On May 3, 2016, the Finance Committee recommended tentative approval of the Fiscal Year 2017 General Benefits and Workers’ Compensation Funds budget. (4- 0) Motion: On May 10, 2016, the Finance Committee recommended tentative approval of the Fiscal Year 2017 Retiree Health Benefit Fund budget. (4-0) General Liability Fund Motion: On May 3, 2016, the Finance Committee recommended tentative approval of the Fiscal Year 2017 General Liability Fund budget. (4-0) Printing and Mailing Fund Motion: On May 3, 2016, the Finance Committee recommended tentative approval of the Fiscal Year 2017 Printing and Mailing Fund budget. (4-0) Capital Improvement Fund Motion: On May 17, 2016, the Finance Committee recommended tentative approval of the Buildings and Facilities Capital Budget and to place the construction costs for the Municipal Service Center Lighting, Mechanical and Electrical Improvements and the Minicipal Service Center A, B, & C Roof Replacmeents projects in the parking lot. (3-1) Motion: On May 17, 2016, the Finance Committee recommended tentative approval of City of Palo Alto Page 17 the Parks and Open Space Capital Budget including the addition of the corrected funding levels for the Art in Public Spaces capital project as outlined by Staff with the exception of placing the Ramos Park Improvements project in the parking lot. (4-0) Motion: On May 17, 2016, the Finance Committee recommended tentative approval of the Streets and Sidewalks Capital Budget and include language in the description of the Street Lights Improvement project to include “to preserve and repair at sensitive locations and settings.” (4-0) Motion: On May 17, 2016, the Finance Committee recommended tentative approval of the Traffic and Transportation Capital Budget with the exception of the Downtown Parking Wayfinding Project in the parking lot. (2-1, 1 absent) Motion: On May 17, 2016, the Finance Committee recommended tentative approval of the Cubberley Infrastructure Capital Budget and for the Cubberley Infrastructure Master Plan go to the Parks and Recreation Commission. (3-0, 1 absent) Special Revenue Funds Motion: On May 10, 2016, the Finance Committee recommended tentative approval of the Fiscal Year 2017 Special Revenue Funds, Parking Permit District Fund, the Stanford Development Agreement Fund, and the Other Special Revenue Fund Budgets. (4-0) Municipal Fee Schedule Motion: On May 12, 2016, the Finance Committee recommended tentative approval of the Fiscal Year 2017 Municipal Fee Schedule and to ask Council to refer to the Policy and Services Committee a review of Low-income rates for municipal fee rates. (3-0, Wolbach absent) Related Memos Distributed At Places Throughout the Finance Committee Budget Hearings, various memorandums were distributed “at places” in order to respond to inqueries made by the committee or provide additional pertinant information at staffs behest. Below is a sumary of the topics included in those memorandums. May 3, 2016 FY 2017 Proposed Operating Budget Replacement Pages May 10, 2016 Community Services HSRAP Allocations Community Services Staffing by Division City of Palo Alto Page 18 Healthcare Actuarial Analysis Storm Drain Oversight Committee Findings May 12, 2016 Community Services HSRAP Allocations – Historical Funding Levels Development Services Development Fee Cost Recovery Housing In-Lieu Fund Balance Development Services Performance Measure Goals May 17, 2016 Street Trees Contract Increase vs. Cycle Time Electric Fund Capital Improvement Project: Facility Relocation for CalTrain Modernization Project Art in Public Places Planning Transportation Commission Findings Zero Waste Coordinator to Environmental Specialist Reclassification Unfunded Liability & Salary Growth Assumptions In addition, summary presentations were given at each hearing providing high level overiews of each item. Those presentations as well as the memos listed above can be referenced on the City of Palo Alto’s Budget Office website under “Budget Hearing 2017” at: http://www.cityofpaloalto.org/gov/depts/asd/budget.asp Referral Items for Staff to Return to Finance Committee at a Later Date Below is a list of referral items for staff to return to the Finance Committee at a later date that emerged through the course of the FY 2017 Budget Hearings: Review of Information Technology performance measures Development Services Fire Sworn vs. Non-Sworn Staffing Citywide Sworn vs. non-sworn staffing Staff will return to the Committee regarding these items throughout FY 2017. 4) LIST OF ATTACHMENTS Attachments: FY 2017 CIP Reappropriation (PDF) Project ID Project Title FY 2017 Funding: Proposed Capital Budget Document FY 2017 Funding Adjustment FY 2017 Revised Funding: Proposed Capital Budget Document Airport Fund AP-16002 Wildlife Hazard Plan $ 6,000 $ 17,415 $ 23,415 Total Airport Fund $ 6,000 $ 17,415 $ 23,415 Capital Improvement Fund AC-86017 Art In Public Spaces $ 425,513 $ 110,910 $ 536,423 OS-00001 Open Space Trails and Amenities $ 308,618 $ (72,759) $ 235,859 OS-00002 Open Space Lakes And Pond Maintenance $ 45,000 $ 20,409 $ 65,409 OS-09001 Off-Road Pathway Resurfacing And Repair $ 178,621 $ 20,459 $ 199,080 PE-09003 City Facility Parking Lot Maintenance $ 651,788 $ (44,194) $ 607,594 PE-09006 Mitchell Park Library and Community Center $ 2,861,558 $ 22,369 $ 2,883,927 PE-09010 Library & Community Center - Temporary Facilities $ - $ 117,155 $ 117,155 PE-11000 Rinconada Library New Construction and Improvements $ 1,037,274 $ (11,996) $ 1,025,278 PE-12017 City Hall First Floor Renovations $ - $ 161,995 $ 161,995 PE-13020 Byxbee Park Trails $ 15,000 $ 4,183 $ 19,183 PE-14015 Lucie Stern Buildings Mechanical and Electrical Upgrades $ 1,763,247 $ 1,054,723 $ 2,817,970 PE-14018 Baylands Boardwalk Improvements $ 400,000 $ 22,191 $ 422,191 PE-15001 New Public Safety Building $ 3,583,423 $ (369,711) $ 3,213,712 PE-15003 Fire Station 3 Replacement $ 6,293,471 $ 59,232 $ 6,352,703 PE-15007 New Downtown Parking Garage $ 1,320,977 $ 100,000 $ 1,420,977 PE-15011 Ventura Buildings Improvements $ 689,330 $ 89,998 $ 779,328 PE-15020 Civic Center Waterproofing Study and Repairs $ 89,065 $ 154,048 $ 243,113 PE-15029 Baylands Nature Interpretive Center Facility Improvements $ 631,542 $ 45,004 $ 676,546 PE-86070 Street Maintenance $ 6,800,843 $ (166,228) $ 6,634,615 PF-00006 Roofing Replacement $ 384,913 $ (28,178) $ 356,735 PF-02022 Facility Interior Finishes Replacement $ 501,915 $ (2,120) $ 499,795 PF-07011 Roth Building Maintenance $ 48,201 $ (2,313) $ 45,888 PF-14002 Fire Station 1 Improvements $ 390,890 $ (11,870) $ 379,020 PF-14004 California Avenue Parking District Parking Improvements $ 32,400 $ (2,800) $ 29,600 PF-93009 Americans With Disabilities Act Compliance $ 343,379 $ 23,884 $ 367,263 PG-06001 Tennis and Basketball Court Resurfacing $ 508,560 $ (11,100) $ 497,460 PG-09002 Park and Open Space Emergency Repairs $ 139,623 $ (28,466) $ 111,157 PG-09003 Park Maintenance Shop Remodel $ - $ 6,000 $ 6,000 PG-12004 Sarah Wallis Park Improvements $ - $ 48,002 $ 48,002 PG-15000 Buckeye Creek Hydrology Study $ 41,202 $ 149,180 $ 190,382 PL-00026 Safe Routes To School $ 212,737 $ 250,639 $ 463,376 PL-04010 Bicycle and Pedestrian Plan-Implementation Project $ 3,360,021 $ (1,117,226) $ 2,242,795 PL-05030 Traffic Signal and Intelligent Transportation System Upgrades $ 417,529 $ 567,968 $ 985,497 PL-11001 Dinah Summerhill Pedestrian/Bicycle Path $ - $ 113,641 $ 113,641 PL-11002 California Avenue- Transit Hub Corridor Project $ - $ 199,705 $ 199,705 PL-12000 Transportation and Parking Improvements $ 442,949 $ 131,523 $ 574,472 PL-14000 El Camino Real & Churchill Intersection Improvements-Design $ 84,974 $ 21,555 $ 106,529 CAPITAL BUDGET REAPPROPRIATIONS ATTACHMENT A A - 1 Project ID Project Title FY 2017 Funding: Proposed Capital Budget Document FY 2017 Funding Adjustment FY 2017 Revised Funding: Proposed Capital Budget Document CAPITAL BUDGET REAPPROPRIATIONS PL-14001 Midtown Connector $ 118,984 $ 91,234 $ 210,218 PL-15001 Embarcadero Road Corridor Improvements $ 541,983 $ 28,129 $ 570,112 PL-15002 Parking Guidance Systems, Access Controls, and Revenue Collection Equipmen $ - $ 129,724 $ 129,724 PL-15004 Parking Wayfinding $ 632,076 $ 25,524 $ 657,600 PO-05054 Street Lights Improvements $ 423,029 $ 44,953 $ 467,982 PO-11000 Sign Reflectivity Upgrade $ 191,936 $ (97,525) $ 94,411 PO-11001 Thermoplastic Lane Marking and Striping $ 99,276 $ 29,376 $ 128,652 PO-12001 Curb and Gutter Repairs $ 485,444 $ (38,381) $ 447,063 Total Capital Improvement Fund $ 36,497,291 $ 1,838,846 $ 38,336,137 Electric Fund EL-02010 SCADA System Upgrades $ 270,000 $ 30,000 $ 300,000 EL-02011 Electric Utility Geographic Information System $ 165,000 $ 200,000 $ 365,000 EL-10006 Rebuild Underground District 24 $ - $ 1,075,560 $ 1,075,560 EL-10009 Street Light System Conversion Project $ - $ 30,000 $ 30,000 EL-11003 Rebuild Underground District 15 $ 307,434 $ 144,181 $ 451,615 EL-11008 Rebuild Underground District 19 $ - $ 12,262 $ 12,262 EL-11010 Underground District 47-Middlefield, Homer, Webster, Addison $ - $ 744,038 $ 744,038 EL-11014 Smart Grid Technology Installation $ 672,670 $ 109,096 $ 781,766 EL-12001 Underground District 46 - Charleston/El Camino Real $ 622,315 $ 28,651 $ 650,966 EL-13006 Sand Hill / Quarry 12kV Tie $ - $ 157,259 $ 157,259 EL-13007 Underground Distribution System Security $ 240,534 $ 50,000 $ 290,534 EL-13008 Upgrade Electric Estimating System $ 103,650 $ 25,000 $ 128,650 EL-14004 Maybell 1&2 4/12kV Conversion $ - $ 185,372 $ 185,372 EL-14005 Reconfigure Quarry Feeders $ 774,758 $ 11,606 $ 786,364 EL-15000 Colorado/Hopkins System Improvement $ 775,000 $ 50,000 $ 825,000 EL-15001 Electric Substation Battery Replacement $ - $ 142,117 $ 142,117 EL-16000 Rebuild Underground District 26 $ 50,000 $ (50,000) $ - EL-16001 Underground System Rebuild $ 580,000 $ (180,000) $ 400,000 EL-16002 Capacitor Bank Installation $ 275,000 $ 75,000 $ 350,000 EL-89028 Electric Customer Connection $ 3,108,000 $ 534,000 $ 3,642,000 EL-89031 Communications System Improvements $ 100,000 $ 187,759 $ 287,759 EL-89038 Substation Protection Improvements $ 450,000 $ 281,812 $ 731,812 EL-89044 Substation Facility Improvements $ 195,000 $ 204,243 $ 399,243 EL-98003 Electric System Improvements $ 2,000,000 $ 300,000 $ 2,300,000 Total Electric Fund $ 10,689,361 $ 4,347,956 $ 15,037,317 Fiber Optic Fund FO-10001 Fiber Optics Network System Improvements $ 200,000 $ 158,000 $ 358,000 Total Fiber Optic Fund $ 200,000 $ 158,000 $ 358,000 ATTACHMENT A A - 2 Project ID Project Title FY 2017 Funding: Proposed Capital Budget Document FY 2017 Funding Adjustment FY 2017 Revised Funding: Proposed Capital Budget Document CAPITAL BUDGET REAPPROPRIATIONS Gas Fund GS-03009 System Extensions - Unreimbursed $ 198,500 $ 128,690 $ 327,190 GS-11000 Gas Main Replacement - Project 21 $ - $ 100,000 $ 100,000 GS-11002 Gas Distribution System Improvements $ 231,913 $ 143,714 $ 375,627 GS-12001 Gas Main Replacement - Project 22 $ - $ 3,568,560 $ 3,568,560 GS-13001 Gas Main Replacement - Project 23 $ 3,550,650 $ 37,500 $ 3,588,150 GS-13002 Gas Equipment and Tools $ 100,000 $ 70,106 $ 170,106 GS-14004 Gas Distribution System Model $ - $ 106,791 $ 106,791 GS-15001 Security at City Gas Receiving Stations $ - $ 150,000 $ 150,000 GS-80017 Gas System, Customer Connections $ 1,228,500 $ 194,976 $ 1,423,476 GS-80019 Gas Meters and Regulators $ 355,030 $ 304,927 $ 659,957 Total Gas Fund $ 5,664,593 $ 4,805,264 $ 10,469,857 Refuse Fund RF-16001 Household Hazardous Waste Station Improvements $ 240,522 $ (92,176) $ 148,346 Total Refuse Fund $ 240,522 $ (92,176) $ 148,346 Storm Drainage Fund SD-11101 Channing Avenue/Lincoln Avenue Storm Drain Improvements $ 107,687 $ 25,000 $ 132,687 SD-13003 Matadero Creek Storm Water Pump Station and Trunk Line Improvements $ 5,820,910 $ 21,462 $ 5,842,372 SD-06101 Storm Drain System Replacement And Rehabilitation $ 1,776,811 $ 484,700 $ 2,261,511 Total Storm Drainage Fund $ 7,705,408 $ 531,162 $ 8,236,570 Technology Fund TE-00010 Telephone System Replacement $ - $ 143,194 $ 143,194 TE-05000 Radio Infrastructure Replacement $ 1,626,163 $ 576,841 $ 2,203,004 TE-06001 Library RFID Implementation $ - $ 314,589 $ 314,589 TE-09000 Public Safety Computer-Aided Dispatch Replacement $ 495,548 $ (75,380) $ 420,168 TE-10001 Utilities Customer Bill System Improvements $ 250,000 $ 175,656 $ 425,656 TE-11001 Library Computer System Software $ - $ 200,868 $ 200,868 TE-11002 Mobile In-Car Video System Replacement $ - $ 30,902 $ 30,902 TE-12001 Development Center Blueprint Technology Enhancements $ 729,652 $ (102,921) $ 626,731 TE-13001 Interactive Voice Response $ - $ 106,181 $ 106,181 TE-14002 Virtual Library Branch $ - $ 170,425 $ 170,425 Total Technology Fund $ 3,101,363 $ 1,540,355 $ 4,641,718 Vehicle Replacement Fund VR-15000 Scheduled Vehicle and Equipment Replacement - Fiscal Year 2015 $ 2,444,674 $ (72,606) $ 2,372,068 VR-16000 Scheduled Vehicle and Equipment Replacement - Fiscal Year 2016 $ 2,293,348 $ 127,859 $ 2,421,207 Total Vehicle Replacement Fund $ 4,738,022 $ 55,253 $ 4,793,275 ATTACHMENT A A - 3 Project ID Project Title FY 2017 Funding: Proposed Capital Budget Document FY 2017 Funding Adjustment FY 2017 Revised Funding: Proposed Capital Budget Document CAPITAL BUDGET REAPPROPRIATIONS Wastewater Collection Fund WC-10002 Wastewater Collection System Rehabilitation/Augmentation Project 23 $ - $ 100,000 $ 100,000 WC-11000 Wastewater Collection System Rehabilitation/Augmentation Project 24 $ - $ 7,066 $ 7,066 WC-12001 Wastewater Collection System Rehabilitation/Augmentation Project 25 $ - $ 369,419 $ 369,419 WC-13001 Wastewater Collection System Rehabilitation/Augmentation Project 26 $ - $ 130,700 $ 130,700 WC-14001 Wastewater Collection System Rehabilitation/Augmentation Project 27 $ - $ 498,169 $ 498,169 WC-15001 Wastewater Collection System Rehabilitation/Augmentation Project 28 $ 3,183,000 $ 330,000 $ 3,513,000 WC-15002 Wastewater System Improvements $ 239,000 $ 53,567 $ 292,567 WC-80020 Sewer System, Customer Connections $ 394,000 $ 207,439 $ 601,439 WC-99013 Sewer Lateral/Manhole Rehab/Replacement $ 618,000 $ 145,189 $ 763,189 Total Wastewater Collection Fund $ 4,434,000 $ 1,841,549 $ 6,275,549 Wastewater Treatment Fund WQ-04011 Facility Condition Assessment and Retrofit $ 2,811,765 $ (303,544) $ 2,508,221 WQ-10001 Plant Master Plan $ 3,183,417 $ (333,933) $ 2,849,484 WQ-14001 New Dewatering and Loadout Facility $ 11,672,744 $ (1,867,627) $ 9,805,117 WQ-80021 Plant Equipment Replacement $ 4,835,365 $ (1,263,710) $ 3,571,655 Total Wastewater Treatment Fund $ 22,503,291 $ (3,768,814) $ 18,734,477 Water Fund WS-07000 Water Regulation Station Improvements $ - $ 135,541 $ 135,541 WS-07001 Water Recycling Facilities $ 200,000 $ 193,358 $ 393,358 WS-08001 Water Reservoir Coating Improvements $ - $ 320,682 $ 320,682 WS-08002 Emergency Water Supply Project $ - $ 271,208 $ 271,208 WS-09000 Seismic Water System Upgrades $ - $ 1,881,097 $ 1,881,097 WS-11000 Water Main Replacement - Project 25 $ - $ 725,386 $ 725,386 WS-11003 Water Distribution System Improvements $ 739,000 $ 126,582 $ 865,582 WS-11004 Water System Supply Improvements $ 239,000 $ 17,700 $ 256,700 WS-12001 Water Main Replacement - Project 26 $ - $ 5,904,489 $ 5,904,489 WS-13001 Water Main Replacement - Project 27 $ 5,680,651 $ 525,565 $ 6,206,216 WS-13002 Water General Equipment/Tools $ 50,000 $ 20,685 $ 70,685 WS-13004 Asset Management Mobile Deployment $ 82,163 $ (82,163) $ - WS-15004 Water System Master Plan $ - $ 155,520 $ 155,520 WS-80015 Water Meters $ 565,000 $ 252,092 $ 817,092 Total Water Fund $ 7,555,814 $ 10,447,742 $ 18,003,556 GRAND TOTAL $ 103,335,665 $ 21,722,552 $ 125,058,217 ATTACHMENT A A - 4 City of Palo Alto (ID # 6975) Finance Committee Staff Report Report Type: Action Items Meeting Date: 5/23/2016 City of Palo Alto Page 1 Summary Title: Golf Course Reconfiguration Financial Discussion and Status Update on Contract and Permits Title: Golf Course Reconfiguration Financial Report and Status Update on Contract and Permits From: City Manager Lead Department: Community Services Recommendation This is an informational report for the Finance Committee. Executive Summary On July 23, 2012, City Council formally adopted the Finance Committee’s recommendation for Golf Course Renovation “Option G” (Attachment A), which includes a full renovation of the Golf Course as well as setting aside 10.5 acres to be carved from the Golf Course footprint for future recreation uses. On June 23, 2014, City Council conditionally authorized staff to execute a contract with Duininck, Inc. to begin the Palo Alto Municipal Golf Course Reconfiguration Project (Project) if approval of the required regulatory permits for the Project was imminent. On September 22, 2014, due to challenges and delays in acquiring the permits from the regulatory agencies, City Council rejected the golf course construction bids. Since September 2014, staff has continued to work with state and federal resource agencies in an effort to obtain the permits required for construction of the Project. Concurrently the San Francisquito Creek Joint Powers Authority (JPA) received the necessary construction permits for their Bay-to- Highway 101 flood protection project in March 2016 and plans to begin construction in June 2016 adjacent to the golf course. Due to the delay in commencing on our Project, staff requested the National Golf Foundation (NGF) update their analysis of “Option G” course reconfiguration to reassess assumptions, the golf market, and financial pro formas. Initial review of financial pro formas projects the golf course to recover from the decline of the past several years and begin to operate with positive cash flow within one to two years of re-opening with rebranding as a new golf course. In order to ensure the golf course reconfiguration will fit within the upcoming construction window, the Project was advertised for construction bids on April 22, 2016. Staff is scheduled City of Palo Alto Page 2 to submit a construction contract to Council for approval of the Project on June 13, 2016. Anticipating that the necessary permits will be obtained by mid-June, the Golf Course will be closed on July 1, 2016 to prepare for the start of construction. If the City does not proceed with the Project at this time, the future costs of the same reconfiguration will likely continue to rise. Background On July 23, 2012, City Council formally adopted the Finance Committee’s recommendation for Golf Course Renovation “Option G” (Attachment A), which includes a full renovation of the Golf Course as well as setting aside 10.5 acres to be carved from the Golf Course footprint for future recreation uses. The golf course design, Environmental Impact Report (EIR), and construction bid documents for the Project were completed in early 2014. The longstanding obstacle to proceeding with project construction has been the delays in securing the necessary regulatory permits. Implementation of the Project requires the acquisition of regulatory permits from state and federal resource agencies. Specifically, the Project requires a Section 404 Permit from the U.S. Army Corps of Engineers (Corps) which also involves consultation with the U.S. Fish and Wildlife Service with respect to potential impacts to federally-listed endangered species, and a Section 401 Water Quality Certification from the California Regional Water Quality Control Board (Water Board). Permit applications for the Project were submitted to the agencies on December 23, 2013. Staff has made concerted efforts to work cooperatively with resource agency staff over the past two and one-half years, responding promptly to their comments, requests for information, and making frequent overtures offering assistance to expedite the permitting process. Staff, including the City Manager and City Attorney, has also worked directly with resource agency executive managers, local state legislators, JPA staff, and outside counsel in an effort to speed up the issuance of permits. Staff optimistically advertised the project for construction bids in Spring 2014 based on an expectation that the permits were going to be issued imminently. On June 23, 2014, City Council conditionally authorized staff to execute a contract with Duininck, Inc. to begin construction of the Project, pending receipt of the required regulatory permits. The permits were not in fact issued and on September 22, 2014 City Council rejected all of the golf course construction bids. Since then, staff has continued to work with the state and federal resource agencies in an effort to obtain the permits required for construction of the Project. Discussion While the necessary permits have not been issued yet, substantial progress in the permit review process has been achieved and staff expects to receive the permits by mid-June 2016. In order to enable the City to start construction within the ideal scheduling window, staff advertised the Project for construction bids for a second time on April 22, 2016 with a bid opening date of May 24. The four pre-qualified golf course builder firms attended a mandatory pre-bid meeting on April 29 and are each expected to submit a construction bid. Staff is scheduled to submit a construction contract to the City Council for approval on June 13, 2016. Anticipating that the necessary permits will be obtained by mid-June, the Golf Course will be City of Palo Alto Page 3 closed on July 1 to prepare for the start of construction. The following report sections summarize the current status of the permits and other relevant factors affecting the Project. Regulatory Permits The regulatory permit process remains the critical path and milestone controlling our ability to commence construction of the Project. The City must secure two regulatory permits (Section 401 Water Quality Certification from the Water Board and a Section 404 Permit from the Corps). Below is a summary and status of the remaining steps in the permitting process: 1. Section 401 Water Quality Certification from the Water Board: Consultation with the Water Board on Water Quality Certification progressed through and was substantially completed in 2015, with final confirmation pending consultation with the federal agencies on the Section 404 permit. City staff is reengaging Water Board staff to finalize the state permitting process, which Water Board staff previously assured would occur in advance of federal certification. 2. Section 404 permit from the Corps: The Corps has indicated in written correspondence that they are very close to issuing the Section 404 permit. The Corps has completed its consultation with the US Fish and Wildlife Service regarding potential impacts to listed endangered animal and plant species and consultation with the State Office of Historic Preservation regarding potential impacts to cultural resources. The final step in the permitting process is written documentation that the proposed Project represents the Least Environmentally Damaging Practicable Alternative (LEDPA). Corps staff has informed the City verbally that they consider the Project to be the LEDPA, but they are still in the process of writing up their findings. Staff expects to receive the Section 404 permit from the Corps by mid-June 2016. San Francisquito Creek Joint Powers Authority’s (JPA) Flood Protection Project The JPA received the necessary permits for their Bay-to-Highway 101 flood protection project in March 2016 and plans to begin construction in June 2016. The Santa Clara Valley Water District (Water District) acting as the JPA’s contracting agent advertised the Flood Protection Project for bids on February 26, 2016 and received the bids on April 28. The Water District plans to award a construction contract before the bids expire on June 11, 2016 so that work can begin this construction season. Award of the contract is relevant to the Golf Course Project because the JPA’s $3 million payment to the City for mitigation of the Flood Protection Project’s impacts to the Golf Course is dependent upon grant funds from the State of California that will only be issued after construction of the flood protection improvements have begun. The following excerpt from the executed City-JPA Memorandum of Understanding (MOU) (Attachment B) describes the timing of the JPA’s mitigation payment of $3 million to the City. The timing of the payment is directly tied to the schedule of the JPA’s Flood Protection Project. City of Palo Alto Page 4 Assuming the Water District awards a construction contract by June 11, we expect that the expenditure and State grant reimbursement of $3 million for the Flood Control Project would not occur until early-2017 at the earliest. 2.1.1 The Authority will pay the Mitigation Fee to the City from grant proceeds received by the Authority from the State of California as reimbursement for eligible Project construction expenses. Following reimbursement by the State of California of at least $3.0 million in the Project construction expenses incurred by the Santa Clara Valley Water District, the Authority shall pay to the City the Mitigation Fee in the amount of $3.0 million. Current Golf Course Operations The Golf Course was modified and shortened in August 2013 to accommodate the stockpiling of imported soil for the Project and the JPA’s Flood Protection Project. To accommodate the soil stockpile area, several holes on the Golf Course were shortened, reducing the par score of the course from 72 to 67. The course remains open for public play. While the pre-construction Golf Course is a shorter course, it remains playable and allows golfers to complete a round of golf in less time than in the past. The golf course is still an 18-hole golf course with two par 5, nine par 4, and seven par 3 holes. All 365,000 cubic yards of imported soil needed for the Project have been delivered to the Golf Course, generating revenue of $1.1 million to be applied towards the cost of the Project. In spite of efforts to encourage and promote golf play at the modified Golf Course, the temporary conditions have resulted in the Golf Course being less competitive in the market. There are several golfing options on the Peninsula to choose from and the shorter temporary conditions of the Palo Alto Municipal Golf Course make it difficult to attract customers while trying to price golf rounds in a way that will generate full cost recovery of the Golf Course’s operational expenses. Rounds of play have decreased from 58,000 rounds in FY 2013 to a projection of 35,000 rounds in FY 2016. An impact of low rounds of play will result in the Golf Course being subsidized through the General Fund by an estimate of $959,381 for FY 2016. Golf Course Construction Contract The Project has been advertised for construction bids, with a scheduled bid opening date of May 24, 2016. The four pre-qualified golf course builder firms attended a mandatory pre-bid meeting on April 29 and are each expected to submit a construction bid. Staff is scheduled to submit a construction contract to City Council for approval of the Project on June 13. Anticipating that the necessary permits will be obtained by mid-June, the Golf Course will be closed on July 1 to prepare for the start of construction. The estimated construction costs for the Project have increased since the Project was first bid back in 2014. The total construction stage costs, including the construction contract, golf course architect construction stage services, and project mitigation costs are now estimated at $12.5 million, an increase of 32% from the 2014 anticipated construction stage cost of $9.5 City of Palo Alto Page 5 million. Staff intends to recommend the City issue certificates of participation (COP) in the amount of $8.4 million to provide the balance of the funding required for the Project. Annual debt service for the COPs is estimated to be approximately $570,000. However, the reconfigured golf course is anticipated to achieve 70,000 rounds of play annually with a revenue stream that would cover both operating costs and debt service. The FY 2016 Capital Budget did not include the increased construction cost and the June 13, 2016 City Council approval will therefore include a budget amendment to provide the additional funding that is required. The final amount of the budget amendment will be dependent on the construction bids received. Key project upcoming milestone dates: May 24, 2016 Construction bids due June 13, 2016 City Council award of contract July 1, 2016 Golf Course Closure and approximate date of Notice to Proceed issued to contractor September, 2017 Complete construction October, 2017 Reopen Golf Course to the public National Golf Foundation Analysis In 2012, the City secured consulting services of the National Golf Foundation (NGF) to assess course reconfiguration options and perform financial pro formas on design Options A, D, F, and G. As their initial report is now four years old, the City worked with NGF to update their analysis with a focus on Option G (current design out to bid) to reassess assumptions, the golf market, and financial pro formas. Staff has received a draft report of their updated analysis and is currently reviewing the draft results. The final report will be included with staff’s request for construction approval from City Council on June 13, 2016. NGF’s updated analysis does show net attrition in golf participation nationwide, but that our regional area remains a strong golfing market with demographic profiles to support golf including population growth, higher median income, and higher average age. Despite the closure of some area golf courses due to supply and demand equilibrium, operation and management struggles, or overwhelming debt service, NGF reports Palo Alto’s Option G reconfiguration should result in a desirable course with regional draw. NGF estimates the new Golf Course will generate revenues that will cover both operating costs and debt service once the new course has reestablished itself in the region within one to two years after re-opening. Although staff concurs with the overall NGF analysis, there are risks and assumptions which do have the potential to negatively impact the course financially. The re-opening of the reconfigured golf course and rebranding as Baylands Golf Links relies heavily on the course being of the highest quality public golf course experience in the region and a local economy to support high incomes, corporate presence, and visitation to the area. To supplement the golf City of Palo Alto Page 6 course in providing a superior golf experience resulting in a resurgence of rounds played and revenue, NGF emphasizes pairing with quality control, effective branding, customer service, and cosmetic improvements to the course entryway, buildings, and grounds. Because pro formas are based on assumptions, some of which we can control such as pricing and golf course maintenance and others which we cannot such as weather and the economy, staff asked NGF to run three scenarios representing deviations from the “base” model. The three additional pro forma scenarios reflect 1) Rounds reduced to moderately lower than projected performance, continuing a downward trend; 2) Average green fee increasing over current fee by less than half the 15% projected increase in the base model; and 3) Rounds and average green fees both lower, in combination. Because of the virtually limitless number of combinations, other variables such as fixed operating expenses remain the same as in the base scenario. The bottom line results of the four pro forma scenarios are in the table below, in $000s: FY 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Base $(842) $(733) $20 $328 $314 $296 $288 $290 $298 $299 Lower Rounds $(842) $(1,011) $(335) $(78) $(99) $(123) $(139) $(147) $(150) $(159) Lower Fees $(842) $(837) $(118) $169 $153 $132 $121 $110 $113 $110 Lower Rounds and Fees $(842) $(1,100) $(454) $(214) $(237) $(263) $(282) $(293) $(300) $(313) Fiscal Years 2017 and 2018 reflect operational losses between $842,000 and $1,100,000 due primarily to course closure and debt service incurred for prior debt issuance from 1998 and new debt issuance for the Project. The debt service from 1998 will be retired in Fiscal Year 2018. Also, contained within the pro formas is an annual Operating and Capital Reserve, set at 10% of green fee revenue. As staff continues to review the draft of NGF’s updated analysis, full details of the pro formas and a final report will be included in the report to City Council on June 13, 2016. Risks There remain a number of significant risk factors at this time, such as 1) not receiving or experiencing further delays in obtaining regulatory construction permits; 2) increased construction costs beyond estimates; and 3) understanding that the NGF financial analysis, while thorough and credible, is based on a set of assumptions that may or may not occur. These risk factors can influence the financial feasibility of the Golf Course Reconfiguration Project. City of Palo Alto Page 7 If the City is not able to proceed with the Project at this time, the future costs of the same golf course reconfiguration will likely continue to rise and create a heavier financing and debt service burden. This is due to the likelihood of rising construction costs, prevailing wage increases, and general inflation. Resource Impact The estimated construction cost for this Project is estimated at $12.5 million and the City would finance $8.4 million through the issuance of certificates of participation. The estimated finance amount represents the net need after the $3 million mitigation payment from the JPA and the $1.1 million payment for importing soil. Annual debt service is estimated to be approximately $570,000. Based on the NGF base model the operating costs and debt service would be paid with operating revenues and is estimated to generate approximately $300,000 per year in surplus funds from 2020-2026. NGF was asked to perform a sensitivity analysis where the number of golf rounds decrease, fees are reduced, and a combination of both. The results vary from a $169,000 surplus to a loss of $313,000. If the golf course operation experiences a loss, the General Fund would have to absorb any loss since the likelihood of expense reductions is very minimal. As the financial pro formas include setting aside an operating and capital reserve annually, the City may also opt not to fund the capital reserve in years where the course operates as at loss. Environmental Review An Environmental Impact Report (EIR) was prepared to evaluate the potential impacts of the Palo Alto Municipal Golf Course Reconfiguration Project and to identify the appropriate mitigation measures in accordance with the provisions of the California Environmental Quality Act (CEQA). City Council, acting on behalf of the City of Palo Alto in its role as lead agency for purposes of CEQA, adopted a resolution on February 3, 2014, certifying the final EIR for the project. Attachments: Attachment A: Option G Approval - 7-23-2012 CMR ID 2966 (PDF) Attachment B: JPA and City Mitigation Fee Payment (PDF) City of Palo Alto (ID # 2966) City Council Staff Report Report Type: Action ItemsMeeting Date: 7/23/2012 July 23, 2012 Page 1 of 16 (ID # 2966) Summary Title: Palo Alto Golf Course Reconfiguration Project Title: Transmittal of Finance Committee recommendation to reconfigure the Palo Alto Golf Course, and staff recommendation to negotiate an amendment to existing contract with Golf Course Architect Forest Richardson & Associates to complete Finance Committee's recommended design and environmental impact analysis for up to $336,835 From: City Manager Lead Department: Community Services Recommendation The Finance Committee recommends to Council that staff be directed to pursue Golf Course redesign Option G, which adds space for up to three full-size athletic fields and re-configures the entire Golf Course (Attachment A) for the Palo Alto Municipal Golf Course (Golf Course) to mitigate impacts from the San Francisquito Creek realignment project, and; Staff recommends the City Manager be authorized to negotiate an amended contract with Golf Course Architect Forrest Richardson & Associates (Richardson) to complete said design and environmental impact analysis for up to $336,835.00 (Attachment J – draft scope of services) in order to pursue the final designs for the Golf Course. Executive Summary The San Francisquito Creek Joint Powers Authority (SFCJPA), an agency serving residents in a 45-square-mile watershed that includes the City of Palo Alto, has entered into a contract with Forrest Richardson to perform preliminary Golf Course design services for the reconfiguration of several holes of the Palo Alto Municipal Golf Course (Golf Course) in order to accommodate a new creek levee that will be built as part of the San Francisquito Creek Flood Protection and Ecosystem Restoration Capital Project (“Project”). The purpose of the Project is to provide the flood protection elements needed to protect homes, businesses, and other facilities in the cities of Palo Alto and East Palo Alto downstream of Highway 101, and to provide sufficient conveyance of rainwater to accommodate future flood protection projects upstream of the Project reach. July 23, 2012 Page 2 of 16 (ID # 2966) The SFCJPA is required to mitigate impacts of the project to the Golf Course, but only to the extent that the Golf Course be restored to a condition post project equal to current conditions. Staff has worked over the past year with the SFCJPA and Richardson to create Golf Course reconfiguration alternatives to support the flood control project while also taking advantage of the opportunity to design a more interesting, inviting and playable Golf Course that has the potential to make the Golf Course more financially viable in the future. Using information from staff, City Council, Parks and Recreation Commission and broad community input, Mr. Richardson has narrowed the Golf Course reconfiguration options from seven options to four. These four options (Attachment A) were presented to the Finance Committee on March 6, 2012. The four Golf Course re-configuration options included: Option A - the simplest, least expensive option with minimal Golf Course improvements beyond what is required for the SFCJPA mitigation; Option D – enhances the Golf Course considerably with relatively low costs beyond SFCJPA mitigation; Option F - adds space for one athletic field and re-configures the majority of the Golf Course; and Option G - adds space for up to three full-size athletic fields and re-configures the entire Golf Course. The staff report from the March 6, 2012 Finance Committee meeting (Attachment B) addressed many of the Council’s questions raised at the December 5, 2011, Council study session and provided details on costs and Return On Investment, along with the opportunities and challenges that each design option presents. The Finance Committee reviewed and discussed the options and unanimously preferred Option G for a variety of reasons. The opportunity to devote 10.5 acres of existing Golf Course land for possible playing fields was particularly appealing. The Committee reasoned that the cost of land acquisition in Palo Alto is extremely expensive; the possibility the City would be able to purchase 10.5 acres for other park and recreation needs in the future is highly unlikely, making this a unique opportunity. Furthermore, the financial analysis by the National Golf Foundation (Attachment C) was particularly compelling for Option G, which influenced the Finance Committee’s unanimous decision to recommend this alternative. Of the four alternatives, Option G has the highest return on investment over-time compared to the other plans, according to the National Golf Foundation analysis. Additionally, the concept of a more Baylands oriented golfing experience with significantly more naturalized areas, a smaller turf footprint (less fertilization, pesticide application and water use), and an integrated marketing theme promoting an environmentally-friendly “Baylands” golf theme was very compelling to the Finance Committee. July 23, 2012 Page 3 of 16 (ID # 2966) To test Option G results, staff requested that NGF perform a financial sensitivity analysis. The potential lower fee scenario had the least impact on Golf Course finances. The reduced rounds pro-forma showed a more significant impact on operating results while a reduced fee and rounds scenario had a considerable negative impact on operating results. Due to the time sensitivity of the Project, the City needs to determine what it intends to do with the Golf Course prior to the levee reconstruction work beginning. The levee Project could begin as early as summer 2013. In order to complete the Golf Course reconfiguration designs and environmental analysis, return to Council for approval, and be ready to bid the work for a potential start in summer 2013, staff needs direction from Council on which design option to pursue at this time. Background The Golf Course was constructed in the mid-1950s, on approximately 170-acres of flat former salt marsh and bay fill. The course was designed by noted golf course architects, William P. and William F. Bell, of Pasadena, California. The Golf Course, designed as an 18-hole facility with a par of 72, is a classic championship course that measures over 6,800 yards from the back tees. The original facility included a large practice putting green, a three-building Eichler-designed clubhouse/golf shop complex and parking lot. In the mid 1970’s, improvements were made to replace the clubhouse buildings. At that time, holes 3, 10, 11 and 18 were also renovated under the direction of golf architect, Robert Trent Jones, Jr. Further improvements were made to the Golf Course in 1998. The improvements included the rebuilding of Greens on holes # 4, 5, 7, 8, 11, 13, 15, 16; the rebuilding of new Tees on holes # 4, 7, 13, 15; the rebuilding of Fairways on holes #4, 7, 13, 15, 16; a new storm drain station along with drainage and 35 catch basins throughout the course; new irrigation system; and a new irrigation pump station. (See Attachment E – Current Golf Course configuration) The Golf Course is located on a relatively flat site, which ranges in elevation from 4.4 feet below mean sea level to 7.5 feet above mean sea level. The capital improvements in 1998 were funded through public debt issuance of $7 million, and will expire in 2018. According to the National Golf Foundation’s analysis and pro-formas (See Attachment C for net income/loss for Options A, D, F and G), Golf Course revenue is expected to pay for all operating costs including debt service annually except for a two year period when the course is under construction and re-establishing golf play after the renovation. In 2008, the City of Palo Alto (City) conducted a Golf Course operational study that describes in detail the conditions of the Golf Course, future needs, and opportunities (Attachment F - Golf Course Operational Study, staff report CMR 446-08). The proposed SFCJPA flood control levee alignment will encroach onto the Golf Course. Conceptual alternatives for reconfiguration of the Golf Course necessitated by the levee realignment have been contemplated by the City, SFCJPA, and the SFCJPA’s design consultant on the Project and will likely involve significant changes to holes 12, 13, 14, 15, 16, 17, at a July 23, 2012 Page 4 of 16 (ID # 2966) minimum and possibly hole 4 as well. Modifications to holes not directly impacted by levee realignment will be required in order to maintain minimum separation distances between fairways as required for golfer safety. Given the anticipated scale of the changes that will be needed within the Golf Course, in January 2011, SFCJPA and City staff agreed that a golf course architect should be secured under a separate design contract in order to maintain fairness and transparency in the consultant selection process for this significant element of the Project. On June 9, 2011, SFCJPA staff, City staff, and members of the Golf Advisory Committee interviewed six golf course architects. After careful consideration, a unanimous decision was made to select Golf Course Architect Forrest Richardson & Associates. Richardson’s experience working with high saline turf conditions, renovations on other Bell designed courses, the hand- picked team he selected to ensure all work tasks can be accomplished for this project, and his experience working with a variety of agencies were key factors in his selection. In addition, his experience in conducting public outreach forums and making presentations, his demonstrated knowledge in successful golf course operations, and his understanding that this project should integrate cohesively with the rest of the Baylands were additional factors in his selection. Richardson has developed an updated Golf Course long-range plan with the help of Palo Alto community stakeholders as part of his contract’s scope of work. He believes strongly that the City should not re-design a portion of the golf course without a comprehensive view to ensure the entire 18-holes playing experience is sustained or enhanced. This approach was very well received by City staff and we are genuinely excited by the concepts that have emerged. Richardson has given particular thought to how the golf course can be designed in such a way to effectively utilize space and enhance the golfer experience in order to result in an increase in the patronage of the course, rounds of play and to generate revenue. His designs also provide for additional uses on the site, such as playing fields for other sports and recreational activities. It is helpful to think about this Golf Course planning project in two parts: Part A being the reconfiguring of the Golf Course which is unavoidable due to the flood control work. Part A would be funded mostly by the SFCJPA if the Golf Course re-design is limited to the flood control impacts. That is, if the City chooses to enhance the Golf Course beyond what is required to mitigate the flood control work (options D, F or G) the City will need to find additional funding sources to pay for the incremental difference in cost. The SFCJPA is not able to provide improvements to the Golf Course that go beyond direct mitigation of the flood control project. The incremental difference in cost ranges from $344 thousand to $4.4 million, depending on the Golf Course redesign chosen (Attachment A). It is important to note that the NGF report identifies in each option “Additional Work” for improvement of the Golf Course such as sand capping of new turf areas and reconstruction of greens. Except for Option G, the costs for this work are not included in the option pro-formas provided by NGF and would need additional financing if pursued. Moreover, any expenses associated with improvements to the pro-shop, restaurant, and practice facility are not included in NGF’s analysis. July 23, 2012 Page 5 of 16 (ID # 2966) Part B of the Golf Course planning project is the long-range master planning. This includes a vision for the club-house, practice facility, parking area and entrance. This more comprehensive long-range planning is important to do concurrently so that the design to reconfigure the Golf Course (Part A) is unified with the long-term vision of the Golf Course asset. The full implementation of the comprehensive long-range plan may not occur for some time, pending further financial analysis. An interesting idea related to the long-range master plan is exploring the feasibility of relocating the Julia Morgan (MacArthur Park Restaurant and former community center) building to the Golf Course as part of a replacement club house facility. Staff has shared the existing 1994 Golf Course Master Plan with Mr. Richardson, along with the 2006 staff report that explored the potential for adding sports playing fields to the Golf Course (Attachment G – CMR 168-06), and the 2008 Golf Course Operational Analysis by Economics Research Association (Attachment H - Golf Course Operational Study - Executive Summary). Public outreach meetings with Richardson were built into the scope of work and contract with the SFCJPA. The public meetings ensured that Golf Course stakeholders and the public had multiple opportunities to ask questions, make suggestions, and receive updates on the project. Tentative Time-line and Public Meetings 1 Golf Advisory and General Public 8/18/2011 2 Parks and Recreation Commission 10/28/2011 3 Golf Advisory and General Public 10/24/2011 4 City Council 12/5/2011 5 Community Input Meeting 1/26/12 6 Parks and Recreation Commission 2/28/12 7 Finance Committee 3/6/12 8 Parks and Recreation Commission 4/23/12 9 Golf Advisory and General Public 5/16/12 10 City Council 7/23/12 11 Golf Advisory and General Public 8/22/12 12 Architectural Review Board September 2012 13 Planning Transportation Commission Sept/Oct 2012 14 Parks and Recreation Commission Sept/Oct 2012 15 Architectural Review Board Sept/Oct 2012 16 Planning Transportation Commission Nov /Dec 2012 17 Golf Advisory and General Public Nov /Dec 2012 18 SFCJPA Board Nov /Dec 2012 19 City Council Nov /Dec 2012 On December 5, 2011, the City Council had a study session on the Golf Course project where staff and Richardson presented the three most promising design concepts. Council asked many July 23, 2012 Page 6 of 16 (ID # 2966) questions ranging from acreage of the Palo Alto Golf Course compared to neighboring golf courses, demographic data and can more athletic fields be added along with cost and return on investment for the various options. A summary of the questions and staff responses can be seen in Attachment I. Discussion Chief among the feedback from Council in December was the need for broader public input on the future of the Golf Course. On January 26, 2012 staff held a public meeting and reached out far and wide for additional public perspective. Among the outreach efforts were: Advertisement in Daily Post Advertisement in PA Daily News Advertisement in PA Weekly Airport Athletic Field Users Authors of the Got Space Study City Website Environmental Volunteers Flyers - Libraries, Community Centers, Parks, Golf Course Friends of the Baylands Golf Advisory Committee Neighborhood Associations PA Golf Clubs Parks and Recreation Commission PTA Council Save the Bay (environmental concerns) The context of the meeting was defined as follows: “The Palo Alto Golf Course is being impacted by the realignment of the San Francisquito Creek Levee Project. Given this unique situation, the City is considering reconfiguration and other alternatives for the Golf Course in the context of the community’s overall parks, open space and recreational needs.” There were 85 participants at the January 26 community meeting and the feedback received was very informative. The participants generally fell in three categories of interest, Golf, Athletic Fields and the Natural Environment. There was more conceptual synergy between Golf Course advocates and the environmental interests. Both groups are interested in more natural areas and habitat for local species. A Golf Course that reflects the Bay in look, feel and experience was an exciting proposition to many participants. Athletic field users were smaller in July 23, 2012 Page 7 of 16 (ID # 2966) number at the public meeting than golfers but they were also heard. With more children in our schools today - and that trend likely to continue - and the growing interests in year-round soccer and increasing interests in other sports such as lacrosse and rugby, the desire for more athletic fields or better utilization of existing athletic fields (or both) is important to field user groups. However, field user representatives were not necessarily convinced the Golf Course was the right place for additional athletic fields; rather they wanted to express the desire for more athletic fields in Palo Alto generally. Understanding and defining the athletic field demand and supply issue would benefit from more analysis, perhaps as part of the recommended Park and Recreation Master Plan that was approved in the 2013 CIP budget. Other highlights from the community meeting were concerns about cost and how options F or G would be funded. Also, the compatibility of noise from athletic fields with the golfing experience was a concern to some participants. Overall there was unanimous support for having a public golf course; all participants whether they came to the meeting to express other recreation, park or open space interests believed the Golf Course is an important community asset that should be maintained and enhanced, if possible. Another key direction Council gave staff at the December 5th study session was to explore a fourth design option that would include space for multiple athletic fields. Council also wanted to see additional cost analysis and Return On Investment (ROI) for the design options being considered. The four design options, including one that provides a new multiple athletic field option (Option G), are described in Attachment C. This attachment includes estimated costs of Golf Course reconfiguration and related Return On Investment. As mentioned in the Executive Summary of this report, the Finance Committee preferred Option G because of the unique opportunity to create 10.5 acres for possible playing fields or other recreational facilities. Furthermore, the financial analysis provided by the National Golf Foundation suggests Option G shows the highest return on investment over-time compared to the other alternatives. Lastly, the concept of a more Baylands-oriented golfing experience with significantly more naturalized areas, a smaller turf footprint (less fertilization, pesticide application and water use), and an integrated marketing theme promoting an environmentally- friendly “Baylands” golf theme that are provided for in Option G was very attractive to the Finance Committee. Another consideration of the Finance Committee’s recommendation was the cost of required replacements to infrastructure on the existing golf course. Root zone (soils), bunkers, drainage and irrigation are all in various stages of needing replacement and will require future expenditure if not addressed now or over the next few years. The existing irrigation system, as an example, is now approaching its fifteenth year of service and is experiencing frequent breaks where metal joints are deteriorating in the high salt environment. Only Option G would fully replace the irrigation system and address the other infrastructure needs with a combination of full replacement and/or renovation. Option G also facilitates replacement and renovation July 23, 2012 Page 8 of 16 (ID # 2966) during one consolidated construction cycle versus multiple interruptions to the course over several years. The Golf Course reconfiguration options were also presented to the Parks and Recreation Commission and the Golf Advisory Board. The Parks and Recreation Commission also favored Option G for many of the same reasons as determined by the Finance Committee. The Commission only had some reservations about this option which included the significantly higher cost compared to the other options. The Parks and Recreation Commission also felt the pro-shop, restaurant and practice facility would need to be improved to realize revenue projections (costs for these facilities are not included in NGF’s pro-formas). The Parks and Recreation Commission has provided their perspective and recommendation in a memo to Council which has been included as Attachment D. The Golf Advisory Committee is not fully supportive of Option G and prefers Option D. Their concerns are predominantly cost and the burden placed on golfer fees to pay for the additional debt needed to complete the more expensive Option G. The members of the Advisory group felt Option D invests relatively little over and above the SFCJPA mitigation money while providing significant enhancements to the Golf Course. The cost of Option G is $3,454,514 higher than Option D, largely because Option G involves reconfiguration to accommodate 10.5 acres for non-golfing purposes. The Advisory Committee expressed their opinion that the golfers should not be expected to pay for the entire course renovation if Option G moves forward. The Golf Advisory Committee also questioned the National Golf Foundations estimates that Option G will perform financially as forecast. Option D, by contrast, allows the Golf Course to remain open as a 9-hole course during construction, which is appealing to the golfing community in lieu of closure and having to play nearby courses. The Golf Advisory Committee has provided their perspective in a memo to Council seen in Attachment L. Below is a table of the construction costs of the 4 design options: Design Options Option A Option D Option F Option G Estimated Total Construction Costs $ 3,537,622 $ 4,118,748 $ 5,855,454 $ 7,573,262 Estimated Mitigation from SFCJPA $ 3,193,131 $ 3,193,131 $ 3,193,131 $ 3,193,131 Estimated net cost to the City $ 344,491 $ 925,617 $ 2,662,323 $ 4,380,131 A detailed probable cost of the design options can be seen in Attachment A, and analysis of how each design option is likely to perform in the golf market can be seen in Attachment C. Should the Council direct staff to pursue a design beyond the SFCJPA required mitigation the SFCJPA can satisfy its obligation by providing a cash contribution equal to mitigation activities to July 23, 2012 Page 9 of 16 (ID # 2966) the City for implementation of a larger project that meets the mitigation needs of the SFCJPA as well as additional objectives of the City. Since the March 6, 2012 Finance Committee hearing, Administrative Services and Community Services staff have asked the National Golf Foundation to refine their initial analysis to include a more conservative set of assumptions. As seen in the revised report (Attachment C), Option G continues to perform well compared to the other re-configuration options with a more conservative set of assumptions. Staff also asked the National Golf Foundation to provide financial sensitivity analysis on the expected number of golf rounds and potential for market driven fees for Option G, which has also been added to the National Golf Foundation report. All changes to the National Golf Foundation report from the original report presented to Finance Committee on March 6 are summarized in Attachment K. In order to complete the designs of Option G, staff recommends transferring Richardson’s current Golf Course design contract from the SFCJPA to the City. Because the design of Option G involves the complete reconfiguration of the existing golf course and not just the holes required for the mitigation, the scope of work of the Richardson/SFCJPA contract would not only be transferred, but also expanded. A revised scope of services and contract between the City and Richardson has been drafted and can be seen in Attachment J. The additional cost for design and environmental work is $336,835. Approximately $252,515 of the $336,835 expense would be incurred by the City in the 2013 budget year. Since the $252,515 in funding that is needed for design and environmental work is typically included in capital projects, staff recommends to Council that the funding come from the Infrastructure Reserve. Golf Course rehabilitation was part of the Infrastructure Blue Ribbon Commission’s (IBRC) purview and as such should be prioritized among other needs identified by the IBRC. It is expected that the final design work on Option G would refine the preliminary cost estimates provided by Richardson so that Council can make a later, more informed decision in pursuing Option G and ranking rehabilitation of the Golf Course among other General Fund infrastructure priorities. It is important to note that this one-time design cost has not been included in NGF pro-formas. Tentative Timeline The timeline below is driven by the SFCJPA who hopes to begin levee realignment work in 2013. Ideally the reconfiguration of the Golf Course would occur in advance or concurrently with the levee realignment work. The tentative timeline moving forward is summarized below: Summary: Golf Advisory and General Public Aug/Sept 2012 Architectural Review Board September 2012 Planning Transportation Commission Sept/Oct 2012 Parks and Recreation Commission Sept/Oct 2012 Architectural Review Board Sept/Oct 2012 July 23, 2012 Page 10 of 16 (ID # 2966) Planning Transportation Commission Nov /Dec 2012 Golf Advisory and General Public Nov /Dec 2012 SFCJPA Board Nov /Dec 2012 City Council Nov /Dec 2012 Construction start July/Aug 2013 Resource Impacts Expenses to Date The City contributes $98,000 to the SFCJPA budget annually. A budget of $137,000 for design and an estimated $3,193,131 for construction for mitigation to reconfigure the Golf Course as a result of flood control work has been established by Golf Course Architect Richardson. This represents design Option A and would be funded by the SFCJPA with an additional $538,000 invested by the City for capital improvements. Any Golf Course improvements that go beyond the essential flood control mitigation would be incurred at the City’s full expense i.e. design options F, D or G. In August 2011, the City entered into a contract with Forrest Richardson, separately from the SFCJPA, to develop Golf Course design options and long-range planning beyond SFCJPA mitigation. To date the contract with Forrest Richardson has cost the City $22,000. The City also entered into a contract with the National Golf Foundation to provide financial analysis on the design options and the long range Golf Course planning work. The contract with the National Golf Foundation cost the City $24,000. Finance Committee Considerations and Option G Investing City funds in the Golf Course, beyond SFCJPA mitigation, will require an understanding of Return On Investment (ROI). If for example the City pursues design Option G the City will need to provide $4,380,131 to make up the incremental difference between the SFCJPA mitigation funding (estimated to be $3,193,131) and the total construction costs for this enhanced design, estimated to be $7,573,262. Pursuit of Option G will require debt financing. The final design will bring several benefits such as reduced water use with increased natural areas and fewer acres requiring maintenance, along with a more interesting and appealing golf experience. These changes are predicted to provide an opportunity to increase rounds of play and revenue generated from fees. The probable cost for Option G (Attachment A) is inclusive of recommendations by the Finance Committee, to extend to full replacement of all of the turf areas of the golf course, replace the existing on-course restroom, and fully replace the existing practice putting green area. Again, these additional replacement measures are not a part of the probable cost estimates for Options A, D or F. Another critical factor bearing on the four design options is the existing Golf Course irrigation system which is nearing the end of its useful life and is experiencing frequent breaks and failures. The high salt intrusion has compromised the system and has resulted in regular main- July 23, 2012 Page 11 of 16 (ID # 2966) line breaks and failures. The capital improvement to the irrigation system in 1998 is not lasting as long as initially anticipated by the designers of the 1998 improvements. Consequently, staff believes replacing the irrigation system as part of the reconfiguration project is a very prudent strategy. Advancements in plumbing materials will now allow the replaced system to be installed with fused joints instead of metal fittings that have been the primary cause of system failure with the 15-year old system. Option G provides for a complete replacement of the golf course irrigation system. SFCJPA Mitigation Staff recognizes that there will be a short-term loss of revenue due to decreased rounds played during the Golf Course reconfiguration construction period. The length of the construction period is unknown at this time but could begin as early as Summer 2013. The construction will impact the number of rounds played and affect the City’s tenants (Brad Lozares from the Golf Course Pro Shop and Tom Talai at the Bay Cafe Restaurant). Staff has worked with SFCJPA to explore appropriate mitigation as the timeline and levee design work progresses. The available mitigation dollar amount the SFCJPA feels able to pay is approximately $3,193,131, which is the estimated cost to reconfigure the Golf Course limited to the flood control impacts. The net loss to the City for design option A is estimated to be $1.08M. The mitigation amount of $3,193,131 does not address lost revenues; value of land to support the new levee or lost parking at the Baylands Athletic Center. The table below summarizes the estimated costs along with benefits resulting from the flood control work. Staff recognizes that the flood control project is incredibly important to the City of Palo Alto and partner organizations on the SFCJPA Board and understands the notion of mitigation money from the SFCJPA to offset all costs inclusive of land contribution and lost revenue may not be feasible. Staff does, however, believe it is important to document the City of Palo Alto’s contribution to the overall flood control project for possible future credit toward flood control projects yet to occur upstream: Costs vs. Value Added Dollars Comments Costs City revenue loss during construction of new levee $ 1,080,000 Based on National Golf Foundation Pro Formas - Plan A (pg. 47) Golf Course design and construction costs for Plan A $3,193,131 Based on Forrest Richardson's revised Plan A cost estimates 7.5 acres of Palo Alto park land for new levee $12,900,000 Estimated value of land provided by ASD/Real Estate Loss of overflow parking at the Baylands Athletic Center $282,000 Estimated value of lost parking spaces provided by Planning staff Value Added July 23, 2012 Page 12 of 16 (ID # 2966) Flood protection ? Estimated value of flood protection provided by SFCJPA Improved Golf Course $(800,000) Based on Mr. Richardson's memo titled "Palo Alto Golf Course - Increased Value with Plan "A" Investment Construction Costs Construction costs for option G are estimated to total $7,573,262. Of this total staff estimate $3,193,131 could be paid for by the SFCJPA. The remaining $4,380,131 would be financed over 20 years with the debt payments to come from Golf Course revenues. The financial analysis provided by the National Golf Foundation indicates the redesigned and improved Golf Course will be able to fully meet this obligation. Golf Course design option G includes 10.5 acres for possible playing fields or other recreation need. The construction costs above ($7,573,262) allows for grading the area for drainage and basic seed cover. Design and construction of the playing fields or other recreation amenities is not included in the cost estimates for the golf course reconfiguration. Should the City pursue developing the 10.5 acres, the design and construction costs will be in addition to the above Golf Course design and construction. Financial Risks and Issues To help assess the potential financial performance of the Golf Course design options, staff entered into a contract with the National Golf Foundation to provide independent Return On Investment analysis on the design options and long-range Golf Course plan. Golf Course Pro- Formas for each of Richardson’s design options can be seen in Attachment C. There is risk associated with the each of the golf course reconfiguration options. However, Option G being the most ambitious design carries with it the highest risk. In an effort to better understand the risk, staff asked the National Golf Foundation to provide sensitivity analysis on the expected number of golf rounds and potential for market driven fees for Option G, which has also been added to the National Golf Foundation report. All changes to the National Golf Foundation report from the original report presented to Finance Committee on March 6 are summarized in Attachment K. The sensitivity analysis is discussed below. There is also risk associated with not making a significant investment in the Golf Course. The Golf Course has experienced a consistent decline in annual rounds played over the past seven years, from 78,000 annual rounds in 2005, to 68,000 in 2012. The decline in annual rounds is indicative of golf play across the county, and the Bay Area has not been immune to this trend with most Bay Area golf courses experiencing declines in play. It should be noted that the Palo Alto Golf Course is doing better than most public golf courses experiencing less of a decline than key competitors. However, the decline in play is nevertheless troubling. The Palo Alto Golf July 23, 2012 Page 13 of 16 (ID # 2966) Course is in a prime location on the peninsula and has tremendous market share potential, but staff often hears comments from users that the course it is too flat, too long and too uninteresting. A redesigned, Baylands-themed Golf Course, which is unique and provides a more compelling golf experience, is what the City needs to do in order to reverse the trend of declining rounds. The National Golf Foundation feels confident that this is indeed the case, and the investment will generate renewed interest in the Palo Alto Golf Course. As with all financial analyses and projections, results depend on the assumptions used. The further a projection goes out in time, the less likely results will materialize as anticipated. As NGF discloses, varying the assumptions, along with such factors as weather and economic conditions, can change pro-forma projections. Overall, and with a few qualifications, ASD staff view NGF assumptions on revenues and expenses as reasonable. By building on historical revenues and expenditure data, NGF develops a sound base upon which to evaluate Golf Course options. Modifications to revenues and expenses based on construction and reopening of the course are reasonable, but could vary. One of the most sensitive and key variables in the pro-formas that affects the bottom-line, and especially in Option G given the need to issue and cover approximately $4.6 million in debt, is the projected number of rounds played. Indeed, rounds at the Golf Course, which at one time surpassed 90,000 rounds annually, have as noted above, dropped from 78,000 in FY 2008 to 67,400 in FY 2011. To address this concern, the NGF was asked by staff to conduct a sensitivity analysis around Option G. The “base” projection for Option G is presented on pages 39-44 of Attachment C and the sensitivity analysis can be found on pages 49-55. The Option G pro-forma shows favorable financial results for the Golf Course. Except for the under-construction years of FY 2013 and 2014 where Golf Course operations will need a cumulative $583,000 subsidization to cover expenses, positive net income ranges from $34,000 in FY 2015 to $737,000 in FY 2021. Debt service on old and new debt is included in the pro- forma and the old debt from 1998 will be retired in FY 2019. The assumption for new debt was based on a 4.5% interest rate on a $4.6 million financing repaid over 20 years. In the current market, a 4.5% rate appears acceptable. Issuance costs do not appear to be incorporated in the analysis and these would add approximately $11,000 to annual debt service expense. The rounds assumed in Option G would rise from 65,000 in FY 2012 to 76,000 in FY 2021, a level the Golf Course has attained in the past and one the consultant believes achievable based on the market and course improvements cited in Option G. It is important to note that Option G includes steadily rising user fees over time that NGF also believes is achievable and sustainable. Sensitivity analysis modifying Option G assumptions and results was performed under 3 scenarios: 1) reduced rounds; 2) lower average green fees; and 3) both lower rounds and average green fees (see page 49 for details on changes in rounds and fees). The bottom lines or net income for Option G and the 3 scenarios are shown in the following table and are expressed in thousands (dollars). Bottom Line Results from NGF Analysis for Option G and Sensitivity Scenarios in -$000s- July 23, 2012 Page 14 of 16 (ID # 2966) 2013 2014 2015 2016 2017 2018 2019 2020 2021 Option G (124) (459) 34 198 363 349 345 743 737 Lower Rounds (124) (459) (544) (343) (138) 39 33 428 418 Lower Fees (124) (499) (115) 38 191 176 170 567 559 Lower Fees/Rounds (124) (499) (658) (471) (279) (115) (123) 270 259 As stated above, Option G will need a projected subsidy or loan of $583,000 to keep whole. This amount has not been included in the pro-forma, but could be repaid within a reasonable number of years by future cash flows from Option G. The sensitivity scenario of least impact is that of lower fees since it would add $155,000 to the subsidy. Again, in this scenario there is adequate capacity to repay the subsidy from future cash flows. The next highest, negative impact comes from lower rounds which add a considerable $1.0 million in subsidy. The third, lower fees and round worst case scenario pushes negative net income out from FY 2014 to FY 2019 and adds $1.7 million to the original option G. Obviously, should rounds fall below those projected in Option G or if rounds and fees fall below expectations, considerable pressure will be brought to bear on Golf Course operations. In such situations, operating costs for the Golf Course would need to be curtailed and other Community Services or City operating and/or capital funds would need to be reallocated to maintain a balanced budget. In addition, the NGF has built into all pro-formas at least a $200,000 annual contribution to an operating and capital reserve. Not funding this otherwise prudent reserve could offset some of the results from lower fees and/or rounds. If the City moves forward with Option G, it is likely that the City would use Certificates of Participation as the financing vehicle, if approved by the Council. COPs were used in 1998 to finance Golf Course capital improvements where the revenue streams of the Course were pledged as the credit. Using GO bond rates as a proxy, the NGF estimated debt service at around $351,000 at a 4.5% rate over 20 years. This figure is reasonable at this time, but could rise when the City issues debt. In conclusion, and given the Finance Committee’s recommendation, staff believes that funding the final design and EIR for the Golf Course will provide the Council with more enhanced information on capital costs and whether to move forward with the Option G project. Staff believes it optimal to analyze Option G in the context of the General Fund’s overall infrastructure needs and resources. Policy Implications The Project is consistent with Policy C-24 and Policy C-26 of the Comprehensive Plan, which encourages reinvesting in aging facilities to improve their usefulness and appearance and July 23, 2012 Page 15 of 16 (ID # 2966) avoiding deferred maintenance of City infrastructure; and maintaining and enhancing existing park facilities. This Project also supports Policy N-10, which calls for the City to work with the Santa Clara Valley Water District and other relevant regional agencies to enhance riparian corridors and provide adequate flood control by use of low impact restoration strategies. The Baylands Master Plan provides policy direction on the Golf Course. In 2008 the Baylands Master Plan was reformatted representing the 4th addition of the plan. The policy direction adopted in 2008 as seen in Chapter 8 of the plan is to continue the Golf Course in its present use and to continue with the implementation of the Palo Alto Municipal Golf Course Master Improvement Plan. The Baylands Master Plan also provides policy direction on the Baylands Athletic Center – Chapter 7. As with the Golf Course the policy direction is to continue to maintain the athletic center for its current use and to maintain and continue to improve standards of low external glare night lighting. Environmental Review This Project will be subject to environmental review under provisions of the California Environmental Quality Act (CEQA). The SFCJPA will follow the CEQA Guidelines and prepare an Environmental Impact Report (EIR) for the San Francisquito Creek Flood Protection and Ecosystem Restoration capital project and the City of Palo Alto will also follow CEQA Guidelines for the Golf Course reconfiguration capital project. A wetlands delineation study was performed for the Project. The delineation was conducted to assist the SFCJPA in determining the type and extent of wetlands in the delineation study area that may be subject to regulation by the U.S. Army Corps of Engineers under Section 404 of the Clean Water Act and Section 10 of the Rivers and Harbors Act. A separate environmental document may be needed if and when recommended elements of Richardson’s Golf Course Long Range Plan are implemented. A tree survey and arborist’s report for the project area will commence once staff has direction on the preferred reconfiguration option. A meeting with the City Arborist has taken place in the fall of 2011 in anticipation of the impacts to existing trees. It has been clearly communicated to the Golf Corse Architect Richardson that the project must comply with the City’s Tree Ordinance. Attachments: Attachment A -Forrest Richardson Designs and Cost 7-11-12 (PDF) Attachment B - 3-6-12 Staff Report 2588 (PDF) Attachment C - NGF Report 7-11-12 (PDF) Attachment D - Parks and Recreation Commission - Golf Course (PDF) Attachment E - Curent Configuration Golf Course w-unofficial_wetland_delineation (PDF) Attachment F - CMR 446-08 (PDF) Attachment G - CMR 168-06 (PDF) Attachment H - ERA Exec Summary (PDF) July 23, 2012 Page 16 of 16 (ID # 2966) Attachment I- Response Council Questions (DOC) Attachment J - Richardson Plan G Scope-7-6-12 REV (DOCX) Attachment K - Summary of Changes - National Golf Foundation Report (DOCX) Attachment L - Golf Advisory Committee (PDF) Prepared By: Robert De Geus, Manager Department Head: Greg Betts, Director, Community Services City Manager Approval: ____________________________________ James Keene, City Manager ATTACHMENT APALO ALTO GOLF COURSE RECONFIGURATION OPTIONS FORREST RICHARDSON GOLF COURSE ARCHITECT www.golfgroupltd.com Drawn January 2012 (Rev. 2-2012) North 0 100 200 300 400 feet EXIST. PRACTICERANGE 11 PLAYGROUND TRAILCONNECTION GOLFCLUBHOUSE& BANQUETCENTER BAYLANDSATLHLETICCENTER 1 TRAILCONNECTION SAN FRANCISQUITOCREEK NATURALIZEDAREA PICNICRAMADAS SHORTGAMEAREA 9 18 10 EXIST. PRACTICERANGE 11 PLAYGROUND TRAILCONNECTION GOLFCLUBHOUSE& BANQUETCENTER BAYLANDSATLHLETICCENTER 1 TRAILCONNECTION SAN FRANCISQUITOCREEK NATURALIZEDAREA PICNICRAMADAS SHORTGAMEAREA 9 18 10 PALO ALTO GOLF COURSE Schematic Site Plan for Plan “G” Athletic Fields SPORTSSHOPSPORTSSHOP WETLANDSCENTERWETLANDSCENTER PRELIMINARY PROBABLE COST ESTIMATE PALO ALTO GOLF COURSE RECONFIGURATION - OPTIONS A, D, F, & G Note Quantity Units Unit Cost Total Quantity Units Unit Cost Total Quantity Units Unit Cost Total Quantity Units Unit Cost Total NotesMobilization/Bond 1 LS 50000 50,000 1 LS 60000 60,000 1 LS 72000 72,000 1 LS 88000 88,000Staking/Layout 6.5 Holes 2500 16,250 8.5 Holes 2500 21,250 12.5 Holes 2500 31,250 15 Holes 2500 37,500Demo Cart Paths 13960 LF 2 27,920 17760 LF 2 35,520 21000 LF 2 42,000 24000 LF 2 48,000 Bury exist paths rubble onsiteDemo Existing Features 1 LS 15000 15,000 1 LS 18000 18,000 1 LS 26000 26,000 1 LS 30000 30,000 Includes all course bunkersTree Removal 450 Ea 200 90,000 400 Ea 200 80,000 525 Ea 200 105,000 525 Ea 200 105,000Strip Fairway Sod & Bury or Till 33 AC 1500 49,500 37 AC 1500 55,500 45 AC 1500 67,500 50 AC 1500 75,000Baylands Areas/Pond Earthwork 1 60984 CY 1.8 109,771 53240 CY 1.8 95,832 55000 CY 1.8 99,000 65000 CY 1.8 117,000 Baylands cut of 3' avg, short push, haulFairway Topsoil Management 35458 CY 3 106,374 39756 CY 3 119,267 48352 CY 3 145,055 53724 CY 3 161,172 8" strip and replaceRough Shaping 6.5 Holes 6500 42,250 8.5 Holes 6500 55,250 12.5 Holes 6000 75,000 15 Holes 6000 90,000Bunker Shaping - New 22 Each 1200 26,400 21 Each 1200 25,200 30 Each 1200 36,000 40 Each 1200 48,000Bunker Shaping - Existing renovated 1 38 Each 1400 53,200 28 Each 1400 39,200 23 Each 1400 32,200 12 Each 1400 16,800New Subsurface Drainage Piping 7500 LF 6 45,000 9000 LF 6 54,000 13000 LF 6 78,000 16000 LF 6 96,000 Includes tie-ins to existing DI'sModify Existing Storm Drain Inlets 15 Ea 2500 37,500 8 Ea 2500 20,000 15 Ea 2500 37,500 15 Ea 2500 37,500Greens Construction USGA Method 35000 SF 5.75 201,250 5 Each 56000 SF 5.75 322,000 8 Each 84000 SF 5.75 483,000 12 Each 105000 SF 5.75 603,750 15 EachTee Construction 41500 SF 2.25 93,375 60000 SF 2.25 135,000 90000 SF 2.25 202,500 120000 SF 2.25 270,000 4" sand atop subgradeBunker Construction New 14800 SF 4 59,200 14800 SF 4 59,200 42000 SF 4 168,000 56000 SF 4 224,000 w/bunker liner, sand cost at $70/tnBunker Construction Renovated 1 26750 SF 4 107,000 18300 SF 4 73,200 16100 SF 4 64,400 8400 SF 4 33,600 w/bunker liner, sand cost at $70/tnIrrigation - In play areas 35 AC 17500 612,500 40 AC 17500 700,000 58 AC 17500 1,015,000 82.9 AC 17500 1,449,999 Impact areas onlyIrrigation - Native areas 1 26 AC 5000 130,000 32 AC 5000 160,000 32 AC 5000 160,000 30 AC 5000 150,000Cart Paths 95820 SF 2.8 268,296 129840 SF 2.8 363,552 133800 SF 2.8 374,640 157200 SF 2.8 440,160Cart Path Curbing (est.)2500 LF 6 15,000 3400 LF 6 20,400 3500 LF 6 21,000 4100 LF 6 24,600Finish Shaping 6.5 Holes 4500 29,250 8.5 Holes 4500 38,250 12.5 Holes 4500 56,250 15 Holes 4500 67,500Fine Grade/Soil Prep in play areas 33 AC 2000 66,000 37 AC 2000 74,000 45 AC 2000 90,000 50 AC 2000 100,000Fine Grade/Soil Prep Native areas 26 AC 500 13,000 32 AC 500 16,000 32 AC 500 16,000 30 AC 500 15,000Native Area Hydro Seeding 1 26 AC 2613.6 67,954 32 AC 2613.6 83,635 32 AC 2613.6 83,635 30 AC 2613.6 78,408Baylands Area Hydro Seeding 1 12.6 AC 2178 27,443 11.0 AC 2178 23,958 11.4 AC 2178 24,750 13.0 AC 2178 28,314Hybrid Bermuda or Paspalum Sod 31.0 AC 21780 676,115 35.0 AC 21780 761,730 49.0 AC 21780 1,067,220 53.0 AC 21780 1,154,340 Fairways, Roughs & TeesBentgrass Sod (greens)35000 SF 1.5 52,500 56000 SF 1.5 84,000 84000 SF 1.5 126,000 105000 SF 1.5 157,500Bridge1 Ls 30000 30,000 1 Ls 30000 30,000 2 ea 30000 60,000 2 ea 30000 60,000New Trees 250 Ea 250 62,500 200 Ea 250 50,000 300 Ea 250 75,000 300 Ea 250 75,000Misc Items 1 LS 30000 30,000 1 LS 32000 32,000 1 LS 35000 35,000 1 LS 38000 38,000Driving Range Netting Alterations 0 0 0 240 LF 150 36,000Athletic Field Area Rough Grade 0 0 26000 CY 3 78,000 35000 CY 3 105,000Athletic Field Area Shape, Temp Planting 0 0 4.1 AC 4400 18,182 10.5 AC 4400 46,200Short Game Learning Area 2 0 0 1 LS 165000 165,000 1 LS 165000 165,000Additional GC Arch Fees 4 0 1.5 Holes 8000 12000 5.5 Holes 8000 44000 9 Holes 8000 72000Additional Environmental Consulting 3 0 1 LS 20000 20000 1 LS 40000 40000 1 LS 40000 40000Subtotal3,210,547 3,737,944 5,314,082 6,384,343Project Management Costs 2.5%80,264 2.5%93,449 2.5%132,852 2.5%159,609Contingency 7.5%7.50%246,811 7.50%287,354 7.50%408,520 7.50%490,796TOTAL3,537,622 4,118,748 5,855,454 7,034,748 Alternate ItemsSand Plate Modified Fairways 6"16.5 Acres 35000 577,500 18.5 Acres 35000 647,500 30 Acres 35000 1,050,000 40 Acres 35000 1,400,000Place Stanford stockpiled earth 100000 CY 3.25 325,000 100000 CY 3.25 325,000 100000 CY 3.25 325,000 100000 CY 3.25 325,000Rebuild Additional Greens (on course)91000 SF 6.25 568,750 70000 sf 6.25 437,500 42000 sf 6.25 262,500 21000 sf 6.25 131,250Future Short Game Area NA 1 ls 80000 80,000 NA NADemo/Replace Restroom 1 LS 95000 95,000 1 LS 95000 95,000 1 LS 95000 95,000 1 LS 95000 95,000Add cost to Re-Sod all Fairways with Paspalum 23.5 AC 27500 646,250 21.5 AC 27500 591,250 7 AC 27500 192,500 3 AC 27500 82,500Add cost to replace, update balance of Irrig. system 1 LS 857,500 857,500 1 LS 740,000 740,000 1 LS 425,000 425,000 1 LS NARebuild Exist Putting Green Area per Long Range Plan 1 LS 180,000 180,000 1 LS 180,000 180,000 1 LS 180,000 180,000 1 LS 180,000 180,000Total for all Alternate Items 3,250,000 3,096,250 2,530,000 2,213,750Notes: 1 Work Extends throughout golf site. 2 New area applies to Options D, F and G only; Option D shown as "Alternate Item" for future development. 3 Additional estimate to golf course area(s) covered by SFCJPA reconfiguration scope. 4 Short game area included for Option GThis estimate of probable construction costs is based on the current schematic designs developed which are not engineered or designed construction drawings. Costs to relocate or replace any existing public utilities or accommodate unknown permitting issues are not included. Golf course designfees over and above those to be covered by SFCJPA are shown for Options D, F and G. Alternate Items are estimated based on concurrent construction with base work scope. Other professional fees to be separately covered by SFCJPA and are not included in the cost estimate. OPTION GOPTION FOPTION A OPTION D Revised 2/14/2012 2:16 PM dls OPTION G ESTIMATEWITH OPTIONAL WORKPER FINANCE COMMITTEEBase Improvements 6,384,343Rebuild All Greens (+3)131,250Replace Restroom 95,000Replace All Fairway Turf 82,500Rebuild Putt. Grn. Area 180,000Sub-Total (Improvements)6,873,093Project Mgmnt. (2.5%)171,802Project Sub-Total 7,044,895Contingency (7.5%)528,367Project Total 7,573,262 Above Section Added: Rev. 3-19-12 Financial Pro Formas and Supporting Analysis for Reconfiguration Options A, D, F, G For Palo Alto Municipal Golf Course Prepared For: City of Palo Alto Rob de Geus, Division Manager Recreation & Golf Services 1305 Middlefield Road Palo Alto, CA 94301 Prepared By: 1150 South U.S. Highway One, Suite 401 Jupiter, FL 33477 (561) 744-6006 April, 2012 Financial Pro Formas and Supporting Analysis for Reconfiguration Options A, D, F, G Palo Alto Municipal Golf Course Table of Contents INTRODUCTION ....................................................................................................................... 1 PALO ALTO MUNICIPAL GOLF COURSE RECONFIGURATION OPTIONS.......................... 2 Goals and Objectives.......................................................................................................... 2 Option A.............................................................................................................................. 3 Additional Work .............................................................................................................................4 Option D.............................................................................................................................. 4 Additional Work .............................................................................................................................5 Option F.............................................................................................................................. 5 Additional Work .............................................................................................................................6 Option G ............................................................................................................................. 7 Additional Work .............................................................................................................................8 Deferment of Certain Improvements ................................................................................... 9 MARKET OVERVIEW ..............................................................................................................10 Demographics Summary....................................................................................................10 Golf Market Overview.........................................................................................................11 National Trends in Golf Demand and Supply..............................................................................11 Local and Regional Golf Supply and Demand Indicators............................................................13 Competitive Golf Market.....................................................................................................15 Summary Information – Primary Competitors.............................................................................16 Summary of Findings – Primary Competitors .............................................................................18 Palo Alto Golf Course Market Positioning Assessment ......................................................19 FINANCIAL PERFORMANCE MODELS FOR PALO ALTO GOLF COURSE.........................20 Recent Historical Palo Alto GC Performance .....................................................................20 Projections Based on “Option A”........................................................................................22 Key Assumptions.........................................................................................................................22 Pro Forma Estimate for ‘Option A’ Scenario – FY2012 – FY2021..............................................26 Projections Based on “Option D”........................................................................................29 Key Assumptions.........................................................................................................................29 Pro Forma Estimate for ‘Option D’ Scenario – FY2012 – FY2021..............................................32 Projections Based on “Option F” ........................................................................................35 Key Assumptions.........................................................................................................................35 Pro Forma Estimate for ‘Option F’ Scenario – FY2012 – FY2021..............................................36 Projections Based on “Option G”........................................................................................39 Key Assumptions.........................................................................................................................39 Pro Forma Estimate for ‘Option G’ Scenario – FY2012 – FY2021 .............................................42 Financial Projections Summary..........................................................................................45 Summary of Options....................................................................................................................45 Summary Results........................................................................................................................46 Justifications for Revenue Projections ........................................................................................47 Other Considerations Regarding Improvement Options.............................................................48 Option “G” Sensitivity Analysis...........................................................................................49 Option “G” Sensitivity Analysis - Summary for 2017...................................................................49 Option G Sensitivity Spreadsheets..............................................................................................50 OTHER ISSUES AND CONSIDERATIONS..............................................................................56 Market Position / Re-Branding Opportunity........................................................................56 Economics of Potential Long-Term / Additional Improvements...........................................58 Cart Storage Building ..................................................................................................................58 Expanded Meeting Space ...........................................................................................................59 Range Performance Center ........................................................................................................59 Management Structure.......................................................................................................60 Long Range Concerns.......................................................................................................61 Potential Economic Development Of The Airport & Golf “Baylands Gateway” Area............64 Private Funding Possibilities ..............................................................................................65 APPENDICES...........................................................................................................................66 Appendix A – Comparative Supply Ratios – Palo Alto GC & Key Municipal Competitors...67 Appendix B – Comparative Scoring of Reconfiguration Options.........................................68 Appendix C – Water & Power Use Discussion & Assumptions...........................................71 Appendix D – Review Of Probable Cost Estimates ............................................................73 Appendix E – Potential Long-Term Master Plan Improvements..........................................75 National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 1 Introduction National Golf Foundation Consulting, Inc. was retained by the City of Palo Alto in furtherance of the City’s due diligence relative to the San Francisquito Creek Flood Control Project, which will involve the reconfiguration of six or more holes at the Palo Alto Golf Course. NGF’s objective was to help the City identify the expected financial impact from the improvements related to the reconfiguration work under Plan Options A, D, F, and G. Specifically, NGF has crafted 10-year cash flow pro formas that project the estimated net financial impact of the proposed improvements, allowing the City to evaluate each of the four reconfiguration options under consideration from an objective standpoint. Our analysis includes expected impact on rounds played, fee structure, revenue generation, operating expenses, and capital spending/debt. The pro formas also provide an estimate for lost revenues during the time that the course is impacted and/or closed. Other aspects of the NGF review include: A market overview of the Palo Alto area, with an emphasis on area demographics and key golf demand and supply indicators. A competitive review, including a qualitative assessment of the impact that the potential reconfigurations would have on Palo Alto Golf Course’s market/competitive position. A review of Forrest Richardson’s work regarding the potential implications from the renovation options on facility branding and marketing. NGF will also offer its opinion about the long-term implications and potential financial impact of improvements associated with the longer range master plan, including clubhouse expansion, cart storage, event areas, range performance center, range enlargement, entry/parking, and the youth training area. NGF will evaluate relevant options available to the City of Palo Alto for the continued operation of Palo Alto Golf Course, including (but not limited to) continuing on an as- is basis or outsourcing all management and maintenance to a full-service management company. Viable options will be identified, and a discussion of the costs, benefits, and financial implications of each operating scenario presented. The study effort was managed by NGF Director of Consulting Services Richard B. Singer and Senior Project Director Ed Getherall. Activities conducted in completion of this report included: field research; statistical and financial analysis; meetings with key City staff from the Recreation & Golf Services, Administration, Community Services, and Finance Departments; meetings with the Head Golf Professional, Golf Course Superintendent, and ValleyCrest Area Director; a tour of the golf course; and, interviews with area golfers. Following is the consultants’ report summarizing key findings and recommendations. Throughout this report, we may refer to shortened names for: the City of Palo Alto (“City”), the Palo Alto Municipal Golf Course (“Palo Alto Golf Course”, “Palo Alto GC” or “PAGC”), and National Golf Foundation Consulting, Inc. (“NGF Consulting” or “NGF”). National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 2 Palo Alto Municipal Golf Course Reconfiguration Options NGF Consulting was provided four course reconfiguration options prepared by Forrest Richardson, ASGCA. These options were identified by the titles “Option A,” Option D,” “Option F” and “Option G,” and each have unique characteristics. The options represent four possible scenarios for adjusting the course to accommodate the SFCJPA flood mitigation project. Options A, D, F and G were culled from seven proposed alternatives (Options B, C, and E were eliminated prior to our review) as the most viable and potentially opportune for the City. The process for developing options has been thorough, with extensive input from golfers, staff, concessionaires and the public at large. NGF Consulting has reviewed notes and summaries from these meetings to better understand the goals and objectives desired by those who will use and operate the facility following reconfiguration. GOALS AND OBJECTIVES Among the goals and objectives set forth to guide the design process for reconfiguration options, in addition to the fundamental goal to accommodate the flood project, included: Establish a more natural, aesthetic landscape that incorporates a “Baylands” theme Improve tree care and variety via a theme to use appropriate tree selection Find ways to eliminate geese and burrowing animals from ruining the course Improve bunkers (condition, strategy and aesthetics) Improve overall course conditioning (drainage, irrigation, turf, etc.) Adjust yardage so the course is shorter for beginners, women and seniors Create a “wow factor” to remain competitive with other regional facilities Add interest to the course strategy (dog-legs, differentiation of holes, etc.) Find ways to offer player development opportunities (short game area, range, etc.) Additionally, there was a strong desire to address long range issues that face the aging facility beyond those on the golf course itself. The City commissioned its own scope of work to address these issues concurrently with the course reconfiguration planning. These long range areas included the following: Clubhouse planning Entry, parking and signage Practice areas Cart storage and staging On-course restrooms Branding and image Trail connections from the Baylands and existing trails National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 3 The objective of the additional long-range planning was to look beyond the golf course to ensure that reconfiguration options would not preclude improvements to the areas on the above list. Specific goals and objectives included the following: Find ways to bring non-golfers to the facilities (group events, restaurant, etc.) Expand the clubhouse to seat 200 so larger groups can be accommodated Develop areas to hold multiple outings/events simultaneously Improve the arrival experience, entry aesthetics, trail connections and security Develop a cart storage area/facility Make overall improvements to the clubhouse and grounds (exterior and interior) Improve and expand the practice range Create new player development and practice opportunities Plan for upgrading the on-course restroom facility Develop a new brand and image consistent with the reconfiguration goals and design A common thread among the long range planning components was a strong design to return the facilities, with golf course approaching its 60th year and the clubhouse its 30th, to a “Point of Pride” status within the community. Along with this primary objective come the benefits of leveraging the facility for economic development, tourism and as a home to annual and special events. Secondarily, the community has a strong desire to see the golf course be more compatible with the Baylands environment. This goal is echoed by Mr. Richardson in his reconfiguration options, each of which adds more naturalized areas to the golf course. In addition, long range design concepts associated with the clubhouse, entry and image go hand- in-hand with this goal. OPTION A Option A represents the minimum reconfiguration in order to facilitate the San Francisquito Creek realignment as required by the SFCJPA. This option shifts holes laterally from west to east, retaining much of the same routing of the existing course. Golf holes are moved away from the levee on a minimal basis. Improvements are primarily restricted to the holes moved, with the remaining holes largely unchanged. Bunker work and naturalization enhancements are made throughout the course in order to provide a more consistent golf experience and landscape. The highlights of changes in this option include: 6.5 golf holes relocated 5 new greens constructed Par 72 6,900 / 6,500 / 5,200 yards All bunkers reconstructed and/or new 38.5 acres transformed to naturalized areas (non-managed turf) Revised Hole No. 18 (naturalized hazard) Adjusted Hole No. 12 Adjusted Hole Nos. 13 and 14 National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 4 The total projected cost for this option is $3,537,622, including all professional fees, project management and contingency. Additional Work Additional (“alternate”) items within the golf course itself may be undertaken by the City concurrently with the development of Option A. These optional items include: Sand capping of new turf areas (new fairways to be constructed) Use (spreading) of imported soil from the Stanford University Medical Center Project Reconstruction of all greens (13 additional to those covered) Re-turfing of all existing fairways (23.5 acres additional) Replacement of the balance of the existing irrigation system Reconstruction and features at the existing practice green area Construction of a new on-course restroom facility Projected Cost for Additional Items: $ 3,250,500 Among the additional (alternate) work, Mr. Richardson and NGF recognize that the full replacement of the existing irrigation system will become an eventual necessity. Our understanding is that the existing system, installed in 1998, presents regular issues due to deteriorating pipe fittings. Now entering its 14th year of service, the system is on the decline due to the high salts inherent within the soils. Even if the balance of the system remains in commission for another six years (20 years is a reasonable longevity for irrigation systems) there exists good probability that emergency repairs and costs may escalate. For this reason, we have studied this additional cost ($857,500) as an alternative scope to be considered for Option A. OPTION D Option D represents an enhanced reconfiguration version from Option A. This option facilitates the San Francisquito Creek realignment as required by the SFCJPA. The primary difference from Option A is that Option D realigns holes with more variety, departing from the common parallel routing of the existing course. Golf holes are moved away from the levee, but go beyond Option A to form new views and variation. Bunker work and naturalization enhancements are made throughout the course in order to provide a more consistent golf experience and landscape. These are more prevalent than that afforded through Option A. The highlights of changes in this option include: 8.5 golf holes relocated 8 new greens constructed Par 72 6,900 / 6,400 / 5,000 yards All bunkers reconstructed and/or new 43 acres transformed to naturalized areas (non-managed turf) New Island Green Hole No. 13 (elevated tee and Bay view) New Double Green Nos. 3 and 15 New Hole No. 5 (elevated green and Bay View) New Hole No. 7 (split fairway) National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 5 New Hole No. 18 (par-5 and naturalized hazard) New Hole No. 4 New Hole No. 17 New Hole No. 16 Future space afforded for a new practice green/short game area The total projected cost for this option is $4,118,748, including all professional fees, project management and contingency. Additional Work Additional (“alternate”) items within the golf course itself may be undertaken by the City concurrently with the development of Option D. These optional items include: Sand capping of new turf areas (new fairways to be constructed) Use (spreading) of imported soil from the Stanford University Medical Center Project Reconstruction of all greens (10 additional to those covered) Re-turfing of all existing fairways (21.5 acres additional) Replacement of the balance of the existing irrigation system Reconstruction and features at the existing practice green area Construction of a new on-course restroom facility Future development of a new practice green/short game area Projected Cost for Additional Items: $ 3,096,250 As with Option A, we recognize that the full replacement of the existing irrigation system will become an eventual necessity. The same comments apply to Option D as noted for Option A. We have studied the additional cost ($740,000), which is lower for Option D as more of the existing system is covered within areas impacted by the reconfiguration, as an alternative scope to be considered for Option D. OPTION F Option F represents an opportunity to remove land from golf course use and transform it to use for athletic field(s). This option was added to the reconfiguration scope of the golf course architect based on previous studies with the same objective. For Option F, a general constraint placed on the planning work was to retain yardage (6,800 yards) and a par of 72. Safety from the new trail system and within adjoining holes was to be maintained with no compromise to standard guidelines. Option F facilitates the San Francisquito Creek realignment as required by the SFCJPA. The option is primarily distinguished by the removal of approximately 2.5 acres from the golf course parcel. This land area is shown as athletic field use, accommodating a full NCAA sized soccer field or combination of fields and field types of the same proportion and area. This area would have limited room for parking expansion. Option F realigns holes with more variety than in Option A. As with Option D, the reconfiguration departs from the common parallel routing of the existing course. Golf holes are moved away from the levee to form new views and variation. Bunker work and naturalization enhancements are made throughout the course in order to provide a more consistent golf experience and National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 6 landscape. As a result of the “domino effect” of moving holes to make room for the athletic field area, these enhancements are as prevalent as that afforded through Option D. The highlights of changes in this option include: 12.5 golf holes relocated 12 new greens constructed Par 72 6,700 / 6,300 / 5,000 yards All bunkers reconstructed and/or new 43.4 acres transformed to naturalized areas (non-managed turf) New Island Green Hole No. 13 (elevated tee and Bay view) New Double Green Nos. 3 and 15 New Hole No. 5 (elevated green and Bay View) New Hole No. 7 (split fairway) Revised Hole No. 18 (naturalized hazard) New Hole No. 4 New Hole No. 17 New Hole No. 16 New Hole No. 3 New Hole No. 3 New Hole No. 15 New practice green/short game area developed along with reconfiguration Temporary preparation of the athletic field area (not field development or improvement) The total projected cost for this option is $5,855,454, including all professional fees, project management and contingency. Additional Work Additional (“alternate”) items within the golf course itself may be undertaken by the City concurrently with the development of Option F. These optional items include: Sand capping of new turf areas (new fairways to be constructed) Use (spreading) of imported soil from the Stanford University Medical Center Project Reconstruction of all greens (6 additional to those covered) Re-turfing of all existing fairways (21.5 acres additional) Replacement of the balance of the existing irrigation system Reconstruction and features at the existing practice green area Construction of a new on-course restroom facility Projected Cost for Additional Items: $ 2,530,000 As with Options A and D, we recognize that the full replacement of the existing irrigation system will become an eventual necessity. The same comments apply to Option F as noted for previous National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 7 options. We have studied the additional cost ($425,000), which is lower for Option F (than for A or D) as more of the existing system is covered within areas impacted by the reconfiguration, as an alternative scope to be considered for Option F. OPTION G Option G represents a plan to remove more land from golf course use, transforming this land to use for multiple athletic field and non-golf recreation purposes. This option was added to the reconfiguration scope of the golf course architect based on the direction of the City to investigate whether the viability of the golf course could be preserved while opening more area (than with Option F) for non-golf recreation. The constraint placed on the planning work was to retain a regulation layout with a par of 70 or 71. Safety from the new trail system and within adjoining holes was to be maintained with no compromise to standard guidelines. NGF Consulting was in the very early stages of our consulting work for the City when Option G was put into motion. Among the foremost questions we were asked was whether a significantly shorter course and/or a significantly lower par would be advisable for the City of Palo Alto. Our conclusion was that the Palo Alto market, especially in the City’s situation as a single-course owner, is best served in this locale by a regulation 18-hole golf course with a par of 72 being preferred. This conclusion is based on several factors, including the following: A strong history of this golf course producing annual rounds in excess of 80,000 Stated preferences by the current customer base to maintain length and par Viability to host group golf events “demanding” a full-length course experience Competitiveness to area courses Long term viability to host regional events (qualifying, larger tournaments, etc.) Regional offerings of shorter courses Plan options that accommodate more flexible (shorter) yardages flexibility as part of the reconfiguration work NGF Consulting shared this conclusion with the City and the golf course architect, recommending that Option G should, if possible, preserve a regulation length of about 6,500 yards (back tees) and a par of 72 preferred. If pressed to choose between a reduction in par (to 71) or a reduction in yardage lower than 6,500, we opined that it would be better to preserve yardage at 6,500 and allow par to drop to 71. (Note: A par 71 course measuring 6,500 yards is perceived as more difficult, and can be marketed such, than a course measuring the same yardage but holding a par of 72. This is because the ratio of par to yardage is more challenging.) Option G also facilitates the San Francisquito Creek realignment as required by the SFCJPA. The option involves the removal of approximately 10.5 acres from the golf course parcel. This land area is shown as athletic field use (three full sized NCAA soccer fields or combination of fields and field types of the same proportion and area), and additionally shows areas for a small playground, wetlands park and picnic space, and trails connecting to the San Francisquito Creek levee trails, Baylands and neighborhood. Option G realigns holes with more variety than in Option A. As with Option D and F, the reconfiguration departs from the common parallel routing of the existing course. Golf holes are moved away from the levee to form new views and variation. Bunker work and naturalization National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 8 enhancements are made throughout the course in order to provide a more consistent golf experience and landscape. As with Option F, but to an even greater extent, virtually all areas of the existing course would be reconstructed, enhanced and improved. The highlights of changes in this option include: 18 golf holes relocated 18 new greens constructed Par 71 6,600 / 6,100 / 5,000 yards All bunkers reconstructed and/or new 43 acres transformed to naturalized areas (non-managed turf) Irrigated Turf Reduced from 135 acres to 92 acres New Island Green Hole No. 12 (elevated tee and Bay view) New Double Green Nos. 3 and 15 New Hole No. 5 (elevated green and Bay View) New Hole No. 7 (split fairway) New Hole No. 18 (par-5, naturalized hazard) New Hole No. 4 New Hole No. 14 New Hole No. 10 New Hole No. 17 New Hole No. 16 New Hole No. 3 New Hole No. 3 New Hole No. 15 New practice green/short game area developed along with reconfiguration Full irrigation system replacement (all areas of the 18-hole golf course) Reconstruction and features at the existing practice green area Construction of a new on-course restroom facility Temporary preparation of the field/recreation area (not field development or improvement) The total projected cost for this option is $7,573,262, including all professional fees, project management and contingency. Additional Work Additional (“alternate”) items within the golf course itself may be undertaken by the City concurrently with the development of Option G. These optional items include: Sand capping of new turf areas (new fairways to be constructed) Use (spreading) of imported soil from the Stanford University Medical Center Project Reconstruction of all greens (3 additional to those covered) Re-turfing of all existing fairways (21.5 acres additional) Replacement of the balance of the existing irrigation system National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 9 Projected Cost for Additional Items: $ 1,675,236 Unlike other options, Option G includes full irrigation replacement. This is because there is no viable method of leaving only three golf holes without replacement. Variables include pumping pressure, control zones and other logistics that had to be considered. DEFERMENT OF CERTAIN IMPROVEMENTS Other additional work listed under each option above has not been incorporated to the pro formas prepared by NGF Consulting due to the complexity of attaching incremental rounds, revenues and expenses to these improvements. However, both NGF and Mr. Richardson believe that deferring some or all of the alternative (optional) improvements, including long- range work to the clubhouse building, grounds, entry, practice areas, etc., will likely have a negative affect on revenues and constrain somewhat the City’s ability to “re-brand” Palo Alto GC. Over the years, NGF Consulting has witnessed the implications of rounds and revenues on golf facilities that have deferred maintenance and/or capital improvements. Eventually, golf course conditions and/or the overall golf experience fall to a level where rounds, pricing and, as a result, revenues are constrained, as is the municipality’s ability to effectively market the golf course as anything other than a “value” provider. Golf consumers begin to migrate away from facilities that are not well maintained when there are other proximate facilities offering better conditions and/or equal or even slightly higher price points. Among the optional/alternative improvements associated with Palo Alto Golf Course, we find the most pressing are: Course conditions, especially greens, drainage and turf condition Yardage flexibility (to attract beginners, youth, women and seniors) Geese and burrowing animal intrusion and damage On-course restroom replacement Clubhouse condition and available space Most of the above are well corrected or mitigated though the reconfiguration options. However, replacement of the irrigation system, as an example, is not fully afforded within the base work of Options A, D and F. Especially in the case of A and D, this alternate cost may be prudent to examine closer as conditions cannot dramatically improve course-wide without a plan to replace the system. If the system is allowed to run for a long period without replacement, revenue is bound to drop incrementally as turf conditions decline. In terms of substantive clubhouse improvements, such as expanding the meeting space, improvements are not likely to pay for themselves under the current operating structure whereby only 7% of food & beverage revenue accrues to the City. Yardage flexibility is accommodated in most of the options, but more so as more work is covered. Options D, F and G adequately allow for more flexibility and will therefore have the potential to attract more player types. The geese and burrowing animal issues, according to the golf course architect, will be positively mitigated by all reconfiguration options. Yet, plan options with more area impacted will likely result in more appropriate habitat and areas for these animals to use rather than the turf areas currently intended for golfers. National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 10 Market Overview Below, NGF Consulting provides a summary of key “external” factors that characterize the trade area in which the Palo Alto Golf Course operates. We include basic demographic variables that have the potential to affect the economic performance of the golf facility, as well as an analysis of supply and demand indicators in the public golf market. DEMOGRAPHICS SUMMARY Utilizing research materials provided by Applied Geographic Solutions, Inc. (a supplier of demographic research based on U.S. Census results), NGF Consulting has examined relevant characteristics of the local population. In the following tables, NGF Consulting indicates the population, median age, and median household income trends for San Mateo and Santa Clara counties, as well as the 3-, 10-, and 15- mile market rings surrounding the golf course and the total United States. Palo Alto Golf Course 3 mi 10 mi 15 mi San Mateo County Santa Clara County U.S. Summary Demographics Population 1990 Census 94,021 697,234 1,482,687 649,622 1,496,702 248,710,012 Population 2000 Census 100,652 765,828 1,662,257 707,161 1,682,585 281,421,906 CAGR 1990-2000 0.68%0.94% 1.15%0.85% 1.18%1.24% Population 2010 Census 104,099 806,139 1,750,080 718,376 1,781,728 308,699,447 CAGR 2000-2010 0.34%0.51% 0.52%0.16% 0.57%0.93% Population 2016 Projected 105,110 817,407 1,775,178 725,980 1,805,397 325,288,086 CAGR 2010-2016 0.16%0.23% 0.24%0.18% 0.22%0.88% Median HH Inc $94,304 $96,743 $91,334 $88,233 $88,860 $53,908 Median Age 37.5 37.2 37.1 39.4 36.2 36.9 CAGR = Compound Annual Growth Rate From the data collected for this study, NGF Consulting has made the following observations regarding the demographics of Palo Alto and surrounding areas: The 10-mile and 15-mile markets around Palo Alto GC are dense, with 2010 estimates of about 806,000 and 1.775 million residents, respectively, in these two submarkets. The 10-mile market has added more than 40,000 net new residents since 2006, while the 15-mile market grew by nearly 88,000 people. Population growth is projected to be very moderate through 2016. The Median Ages in the subject market areas are generally similar to the national median age of 36.9 years, though San Mateo County overall is significantly higher at 39.4 years. In general, the propensity to play golf with greater frequency increases with age, making relatively older markets more attractive to golf facility operators, all other factors being equal. Median Household Incomes in the area are much higher than the national median. For instance, the 10-mile market exhibits incomes nearly 80% higher than the national median income of $53,908. In general, higher income residents are more likely to participate in golf, and they play more frequently than lower income National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 11 residents. These high figures are mitigated considerably by the very high cost of living in the Bay Area. GOLF MARKET OVERVIEW Below we provide an overview of recent and emerging national trends with respect to golf participation and municipal golf, as well as a summary of golf demand and supply indicators in the local markets for Palo Alto Golf Course. NGF Consulting utilizes predictive models as benchmarks for estimating potential market strength. The methodology for determining the relative strength of the subject market is described in the following section. National Trends in Golf Demand and Supply Participation Golf participation in the U.S. has grown from 3.5% of the population in the early 1960s to about 9.2% of the population today. NGF estimates that the number of golfers fell slightly in 2011 to 26.1 million; it was encouraging news that the number of golfers gained in 2010-11 held steady vs. previous years while the number of lost golfers dropped significantly. For research purposes, a golfer is defined as a person age 6 or above who plays at least one round of golf in a given year. All U.S. Golfers (in millions) 1985 1990 1995 2000 2005 2010 All golfers age 6+ 19.5 27.4 24.7 28.8 30.0 26.1 Source: National Golf Foundation The number of rounds of golf also fell 2.3% during the past year, from 486 million in 2009 to 475 million in 2010 (most recent year NGF has published), corroborating the decline in the number of golfers. In the Pacific Region, which includes California, the statistics are somewhat more favorable: Regional Profile Participation Rate Number of Golfers Percent of Golfers Total Annual Rounds (millions) Pacific Region 7.3% 3,276,000 12.5% 50.4 United States 9.2% 26,122,000 100.0% 475.0 Source:Golf Participation in the U.S., 2011 edition, National Golf Foundation Considering the severity of the recession and its effects on both discretionary income and time, golf has held up rather well. Multiple NGF studies of golfers since 2008 would attribute the gradual decline in golfers and rounds primarily to the impact of lower job security and concern over personal finances, not waning appeal for the game. Over the past 50 years, golf demand grew at about 4% per year while facility supply grew at about 2% per year. However, since 1990, the situation has reversed – demand has grown at only 0.5% per year while facility supply has grown at 1.4% per year. With the increase in supply, National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 12 we are seeing a marked increase in competition, and the supply is greater than the demand in some markets. In addition to increased competition, other factors have contributed to a decline in the number of rounds per course nationally from 2002 to 2011. In the NGF’s most recent survey of core golfers conducted in September 2011, we found that fearful financial outlooks, weak consumer confidence, and negative golfer attitudes have also played a role. The combination of these has caused many golf facilities to become distressed, particularly those that have a high debt load because of higher construction costs and the perceived need to build high-end courses. The number of golf course closings quadrupled from an annual average of 24 courses per year in the 1993-2001 time period to more than 100 courses in 2005.In 2006, there was negative net growth in golf facilities for the first time in six decades, with 146 18-hole equivalents closing and 119.5 opening. In 2007, there were 113 openings and 121.5 closures, and in 2008, 72 golf course openings and 106 closures. In 2009, 49.5 openings minus 139.5 closures equated to a net loss of 90 18-hole equivalents. Closures continue to be disproportionately public, stand-alone 9-hole facilities or short courses (executive or par-3 length) with a value price point. Net growth in supply has been negative now for four consecutive years, with the largest drop of 90 courses in 2009. However, U.S. openings averaged 200+ (net) for 20 years, and total 18-hole equivalent supply is up 5% since 2000, indicating a slow market correction is underway. In October 2011, NGF projected 2011 net growth of about negative 106.5 (openings minus closings), and projected actual closures for 2011 would be closer to 150. NGF estimates that national rounds played experienced an overall drop from 2000 to 2010 of -9.5%. By the end of 2011, rounds had further declined 2.5% in the U.S., but rounds in the Pacific Region had increased 1.2% and California was up 2.3%. On the positive side, the growth in golf course development has slowed considerably nationally and in the majority of local markets, a trend that should help ease some of the competitive pressure. Another positive trend is the aging of America. Baby Boomers are rapidly approaching retirement age when golf activity flourishes. The baby boomers represent not only the largest single demographic in the US, but they also approach retirement age with more disposable income than any previous generation. National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 13 Local and Regional Golf Supply and Demand Indicators The following table summarizes some key golf supply and demand measures for the local markets based on NGF research and golf demand predictive models. Palo Alto Golf Course 3 mi 10 mi 15 mi San Mateo County Santa Clara County U.S. Golf Demand Indicators # of Golfing Households 6,989 55,008 116,506 49,136 116,439 21,237,600 Number of Rounds Played 226,453 1,769,537 3,717,852 1,571,308 3,765,371 498,831,616 Golfing Household Index 101 104 103 105 106 100 Rounds Played Index 140 142 141 143 146 100 Golf Supply Summary Total Golf Facilities 2 13 25 14 33 15,902 Public Golf Facilities 2 8 16 6 20 11,633 Private Golf Facilities 0 5 9 8 13 4,269 Total Golf Holes 36 207 378 279 576 268,443 Public Golf Holes 36 117 225 108 342 191,214 Private Golf Holes 0 90 153 171 234 77,229 Household/Golf Supply Indicators Households per 18 Holes: Total 19,132 25,655 29,805 16,754 19,127 7,733 Households per 18 Holes: Public 19,132 45,390 50,073 43,282 32,214 10,856 Households per 18 Holes: Private NA 59,007 73,636 27,336 47,082 26,879 Households Supply Index: Total 242 325 378 212 242 100 Households Supply Index: Public 171 405 447 387 288 100 Households Supply Index: Private 0 221 275 102 176 100 Golf Course Construction Activity 2001-2010 Total holes added past 10 years 0 0 18 0 72 24,318 Public holes added past 10 years 0 0 0 0 54 17,469 Private holes added past 10 years 0 0 18 0 18 6,849 Percent Total Holes Added 0.00%0.00%4.80%0.00%12.50%9.10% Percent Public Holes Added 0.00%0.00%0.00%0.00%15.80%9.10% Percent Private Holes Added NA 0.00%11.80%0.00%7.70%8.90% National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 14 Golf participation rates in the subject markets around Palo Alto GC are very similar to the national benchmark, while rounds demanded per household are about 40% higher than the national figure. The high rounds demanded per household are indicative of the year-round golf climate, the high number of golf courses, and a demographic profile that is generally conducive to high golf demand, particularly as it relates to median household income. There are thirteen total, including eight public, golf facilities (including Palo Alto GC) in the 10-mile market area, while there are 25 total facilities, including 21 public, within 15 miles of Palo Alto GC. As the tables indicates, the subject markets have significantly more households per 18 holes of golf than the nation overall. For example, in the 10-mile market area surrounding Palo Alto GC, there are nearly four times as many households per total 18 holes and 4.5 times as many households per public 18 holes than in the overall U.S. (We contrast these supply ratios to some of Palo Alto’s key competitors in Appendix A). There was a spate of new golf course construction in the Bay Area in the 1990s and early 2000s. For the nine-county Bay Area region, 27 total golf facilities were added between 1997 and 2006. This included 6 private (comprising 90 holes) and 21 public (360 holes) facilities. However, as with the rest of the country, new golf course construction has slowed to a crawl in the subsequent years, and the NGF database reveals no new golf course projects currently in planning or under construction within 15 miles of Palo Alto GC. Palo Alto and the greater Bay Area are home to a large number of major corporate and public employers, including many high-tech and internet companies. These large employers are prime targets for soliciting tournament/outing play, and could be a key element to boosting play levels and revenues at the Baylands GC. Outings are generally sold at the highest green fee, and also expose a number of golfers to the facility for the first time. Visitors to the Palo Alto area have the potential to significantly impact demand at golf courses. Though visitation numbers were not available for Palo Alto specifically, it is estimated that about sixteen million people visit San Francisco alone each year, and the overall Bay Area has considerably more visitors than that. NGF research shows that roughly one-third of all golfers participate in the activity while traveling, playing .557 rounds per day of travel. This supplemental market should be a target of marketing efforts once the improved Baylands Golf Club is opened. National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 15 COMPETITIVE GOLF MARKET One of the objectives of this effort is to identify any opportunities that may exist for the improved “Baylands Golf Club” to increase market share, fees and revenues. In this section, we present an overview of the public access golf market in which the current Palo Alto GC operates, with a focus on key competitors. The map below shows the location of these facilities in relation to Palo Alto Golf Course. In the tables that follow, NGF Consulting presents summary operational information for the golf facilities identified as direct competition to the Palo Alto Golf Course. NGF Consulting identified the primary competitors based on a number of factors, including price point, location, NGF experience in this market, and input from both facility management and City staff. National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 16 Summary Information – Primary Competitors The table below provides summary information regarding the golf courses we have identified as Palo Alto GC’s primary competitors. Palo Alto Municipal Golf Course Key Competitors – Summary Information Golf Facility Location Type Year Open Par / Slope Front Tee / Back Tee Location Relative to PAGC* Palo Alto Municipal Golf Course Palo Alto MU 18H 1956 72 / 122 5,744 / 6,833 -- Crystal Springs Golf Course Burlingame MU 18H 1924 72 / 127 5,580 / 6,628 16 mi NW Poplar Creek Golf Course San Mateo MU 18H 1933 70 / 115 4,768 / 6,042 14.5 mi NW San Jose Municipal Golf Course San Jose MU 18H 1968 72 / 119 4,200 / 6,700 13 mi SE Santa Clara Golf & Tennis Club Santa Clara MU 18H 1987 72 / 118 5,521 / 6,723 8.5 mi SE Santa Teresa Golf Club San Jose DF 27H 1963 71 / 126 4,011 / 6,742 24.5 mi SE Shoreline Golf Links Mountain View MU 18H 1983 72 / 129 5,437 / 6,996 2.5 mi SE Spring Valley Golf Course Milpitas DF 18H 1956 70 / 113 5,453 / 6,116 15 mi E Sunnyvale Golf Course Sunnyvale MU 18H 1969 70 / 118 5,170 / 5,742 5.5 mi SE *Air miles from subject site, rounded to half-mile; actual driving distances will likely be greater. Type: DF – Daily Fee; MU – Municipal National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 17 The table below shows summary facility information regarding Palo Alto Municipal Golf Course and its primary competitors. Reported rounds for 2007 are from the 2008 Economic Research Associates report to the City. Average green/cart revenue per round for San Jose and Santa Teresa are estimated based on ERA 2007 numbers. Summary Operating Data – Palo Alto Municipal Golf Course and Primary Competitors Golf Facility Total 2007 Rounds Total 2011 Rounds Average Green / Cart Fee per Round 18-Hole Resident Green Fee (WD/WE) 18-Hole Non- Resident Green Fee (WD/WE) Per Person 18-Hole Cart Fee 18-Hole Twilight Green Fee (WD/WE) 18-Hole Senior Resident Green Fee (WD/WE) 18-Hole Super-Twi Green Fee (WD/WE) Palo Alto Municipal GC 76,241 66,740 $30.20 / $4.50 $37/$47 $39/$49 $14 $30/$34 $28/DNA1 $26/$28 Crystal Springs Golf Course 73,654 63,000* $24 / $8 DNA $44/$66 $16 $36/$43 $30/DNA $26/$36 Poplar Creek Golf Course 86,315 70,709 $33.11 / N/A $33$45 $38/$53 $13.50 $27/$33 $22/DNA1 $19/$25 San Jose Municipal GC 86,991 78,000* $32 / $5 DNA $37/$51 $14 $26/$33 $23/DNA $20/$24 Santa Clara Golf & Tennis 87,120 81,000 $26 / $10 $25/$34 $37/$50 $14 $17/$23 res $26/$29 n/r DNA2 $12/$14 res $16/$18 n/r Santa Teresa Golf Club 75,0003 65,000*$29.60 / $5.70 DNA $40/$46/$60 $13.50 $25/$29/$34 DNA $17/$19/$25 Shoreline Golf Links 67,135 50,000 $28 / $5.60 $31/$47 $38/$54 $12 $25/$28 $21/DNA1 $17/$17 Spring Valley Golf Course N/A N/A N/A DNA $37/$55 $14 DNA/$45 $28 M-F $27/$30 Sunnyvale Golf Course 80,513 72,535 $28 / $4.50 DNA/$44 $35/$48 $13.50 $25/$26 res $25/$30 n/r DNA1 $16/$20 KEY *NGF Consulting estimate N/A – Information not available DNA – Does not apply / Not offered Note: For San Jose, Santa Teresa, “afternoon” rates used for twilight and “twilight” for supertwilight; for Spring Valley, “midday” and afternoon used for twi / supertwi. 1 Non-resident seniors pay $33 at Palo Alto, $28 at Shoreline; senior discounts at Poplar Creek are for residents only. 2 Santa Clara offers senior monthly ticket; Sunnyvale offers senior discount card. 3 Rounds listed are for regulation 18-hole course only. National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 18 Summary of Findings – Primary Competitors Based on data reported to NGF Consulting by area golf operators, Palo Alto Golf Course is positioned quite similarly to its chief municipal competitors. The reported average green fee revenue per round among the subject municipal facilities in 2011 generally fell between $28 and $32, while average cart revenue per round was most commonly between $4.50 and $5.70. Posted green fees have been generally flat in this market for the last several years, with only periodic marginal increases aimed at cost recovery at some courses. Non-resident green fees fall within a relatively narrow range among Palo Alto GC and its municipal competitors, but NGF did note that Palo Alto is at the low end of the non-resident pricing spectrum, particularly on weekends. We believe that an improved and re-branded Palo Alto facility should be able to absorb $5 to $10 increases for non-resident rounds, depending on the reconfiguration option chosen and varying by fee category. Of the municipal golf courses profiled (leased Santa Teresa excluded), all but San Jose Municipal offered a fee discount for residents (Sunnyvale restricted the discount to weekends). Most people NGF spoke to consider the city of Mountain View’s Shoreline Golf Links Course to be Palo Alto GC’s most direct competitor. Shoreline’s reputation in terms of maintenance standards has reportedly taken a hit in recent years, and the golf course appeared to be in only fair condition during NGF’s visit. Shoreline has dropped about one-third of its rounds since the mid 2000s and was the least active facility among the key competitors in 2011, with a reported 50,000 rounds. Due to its location, Shoreline probably suffers more than most Bay Area golf courses with the Canadian Geese problem. There were also a large number of coots on the course during our visit. As was the case with nearly every golf market NGF examined nationally, average annual rounds played at many Bay Area golf courses dropped by 25% or more between the late 1990s / 2000 and the middle part of the 2000s. Based on rounds reported to NGF as part of this study effort, rounds played among the direct competitive set have continued to decline since the 2006-07 time period, though variations in the most recent years are at least partly attributable to weather variations. Even with the falling activity levels, rounds played per 18 holes among the subject municipal golf courses remain among the highest we’ve observed anywhere in the U.S. Santa Clara Golf & Tennis and San Jose Municipal, at ±80,000 rounds in recent years, are currently the most active among the competitive set. Because of heightened competition and today’s economic realities, fee discounting (e.g., through internal yield management, use of internet wholesalers such as golfnow.com), even among high-end daily fee courses, is now common in the Bay Area golf market. As a result, the lines can become blurred between “rack” rates and what the majority of customers are actually paying for a round of golf. This disparity is not common among the municipal golf courses we surveyed. National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 19 PALO ALTO GOLF COURSE MARKET POSITIONING ASSESSMENT NGF has attempted to provide a qualitative, or subjective, review of how Palo Alto GC, under both its current configuration and the alternate reconfiguration options being considered, stacks up against its key competitors as identified above. The objective of this relative assessment is to provide some justification for assuming an increase in market share (and sustainable green fees) for Palo Alto GC, especially with the more intensive renovation options. NGF Consulting has scored the key competitors to the plan options (A, D, F and G) for Palo Alto GC. A baseline score is also provided for the existing Palo Alto golf course and facility. This scoring has been accomplished by looking at the amenities, course quality and reputation associated with each competitive facility. Reliance has been made on available reviews, NGF data, discussions with Bay Area golf writers/course reviewers and our visits to the subject courses. To rank the reconfiguration plans for Palo Also we relied on the schematic planning work developed as of this date, together with our ratings for the plan options. Scores are expressed as A+, A, A-, B+, B, etc. through D-. Because of the options (alternate) work to be considered, no overall “average” grade is provided. Rather, categories of comparisons are provided. Such scorings are both subjective and objective, combining impressions with facts about the facilities, and in this case, proposed plans. Because of the subjective component of this review, personal opinion and disagreement with some of the relative scoring should be expected. As such, the scoring should be used as a method for the reader to form opinions in combination with the other reporting covered within this report. Comparison of Palo Alto GC to Key Competitors Golf Facility Clubhouse Facilities Practice Facilities Consumer Reputation Golf Conditions* Palo Alto (Existing) C- C+ C+ C Palo Alto (Option A) C- C+ B B- Palo Alto (Option D) C- C+ A- B+ Palo Alto (Option F) C- B A A- Palo Alto (Option G) C- B+ A+ A San Jose Golf Course D A- A- B- Santa Clara Golf & Tennis B A- A- C+ Shoreline Golf Links B+ B+ C C- Sunnyvale Golf Course C- D- D- C+ Crystal Springs Golf Course A- B+ B+ B Poplar Creek Golf Course A- D B- B Santa Teresa Golf Club B- B B- B- Spring Valley B- B- C+ C+ *As observed January-February 2012 National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 20 Financial Performance Models for Palo Alto Golf Course As part of this study effort, NGF Consulting has prepared an analysis to show what the potential economic performance of Palo Alto Municipal Golf Course could be considering the reconfiguration options presented in this report. In this section, we estimate the facility’s economic performance based on a set of assumptions that may or may not become reality. We feel that these estimates represent the best effort to create a “fair estimate of performance” for this facility based on our understanding of the golf facility operation, its place in the market and the changes proposed in the various renovation options. The Palo Alto Municipal GC performance has been projected under the assumption that the operation is continued ‘as-is’ with three separate contracts for maintenance, pro shop and food/beverage. The basic contract terms in place in FY2012 are assumed to continue through FY2021. The NGF has also assumed a “standard” set of external assumptions for regional economic performance, consumer discretionary income, and weather, with neither severe declines nor increases in any of these measures through 2021. RECENT HISTORICAL PALO ALTO GC PERFORMANCE In order to put the pro forma projections in context, we have summarized the five-year performance history of Palo Alto GC in the table below. Palo Alto Municipal Golf Course Historical Revenue Performance (2008-2011) Revenues FY2008 FY2009 FY2010 FY2011 Green Fees $2,169,230 $2,073,809 $1,958,234 $1,859,473 Cart Fees 345,656 313,224 339,090 302,815 Driving Range 346,447 365,908 399,773 343,878 Monthly Play Cards 161,368 161,544 135,848 154,933 Tournament / League Fees 2,227 2,651 1,921 2,190 Class Program / Other Fees 0 0 0 11,844 Total Golf Course Revenues $3,024,928 $2,917,136 $2,834,866 $2,675,133 Other Revenue Merchandise Sales 718,450 737,050 684,725 663,400 Food Sales 667,000 0 610,725 637,800 Liquor Sales 172,000 0 141,850 149,000 F & B Concession Payments Fixed Lease $0 $43,811 $0 $0 Variable Portion $58,730 $0 $52,680 $55,076 Utility Payment $25,920 $19,440 $28,080 $25,920 Total F & B Concession Payments $84,650 $63,251 $80,760 $80,996 Pro Shop Concession Payments Fixed Lease $0 $0 $0 $0 Merchandise (4%) $28,738 $29,482 $27,389 $26,536 Total Pro Shop Concession Payments $28,738 $29,482 $27,389 $26,536 Total Gross Margin to City $3,138,316 $3,009,869 $2,943,015 $2,782,665 Rounds Played 77,989 75,511 69,791 67,381 National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 21 Palo Alto Municipal Golf Course Historical Expense and Net Income Performance (2008-2011) Expenses FY2008 FY2009 FY2010 FY2011 Salaries & Benefits $951,786 $929,335 $721,596 $259,455 Range Fees 138,579 152,745 142,267 130,152 Cart Fees 131,789 127,836 121,630 117,529 Club Fees 6,473 6,198 5,424 5,576 Fixed Lozares Management Fee 373,435 409,989 388,898 381,544 Contract Maintenance ---475,000 Repairs & maintenance 34,791 39,295 33,321 21,943 Advertising & Publish 5,560 6,583 4,299 10,765 Supplies and Materials 129,891 144,037 119,458 43,742 Gen., Rents, Fac. & Equip 5,959 2,736 944 675 Water Expense 279,326 409,132 271,495 361,870 Other Direct Charges 36,998 39,255 38,882 45,263 Indirect Charges 108,641 132,072 110,343 102,571 Total City Operating Expenses $2,203,228 $2,399,213 $1,958,557 $1,956,085 Net Income From Operations (Loss)$935,088 $610,656 $984,458 $826,580 Income from Sale of Property $35,230 D/S Income $33,629 $32,855 $32,200 $0 Total Non-Operating 33,629 32,855 32,200 35,230 Total Income (Incl. Non-operating)$968,717 $643,511 $1,016,658 $861,810 Debt Service $559,795 $555,686 $560,674 $559,539 Payment to General Fund $94,849 $94,849 $47,684 $94,849 Cost Plan Charges $337,590 $318,969 $332,155 $41,455 Total Debt / Other Charges $992,234 $969,504 $940,513 $695,843 Net Income or (Loss)($23,517)($325,993)$76,145 $165,967 Source: City of Palo Alto Rounds played at Palo Alto GC decreased steadily from FY2008 to FY2011, falling by a total of 10,608, or 13.6%. During the same time, both golf revenues and net income from operations declined by 11.6%. Despite the significant decline in rounds and revenues, net income after debt service, general fund payments and cost plan charges improved by nearly $500,000 between FY2009 and FY2011 due to a reduction in operating expenses and a significant decrease in cost plan charges associated with the conversion to privatized golf course maintenance. National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 22 PROJECTIONS BASED ON “OPTION A” NGF Consulting has created a cash flow model for the continued operation of Palo Alto Municipal Golf Course (to be re-branded as “Baylands Golf Club) under the assumption of the “Option A” improvements. These improvements assume the basic minimum upgrades needed to improve the facility within the SFCJPA flood mitigation project, with no substantial change to the character of the golf course. The NGF revenue estimate has been combined with the present operating structure to provide a full estimate of Baylands GC performance for the next 10 years, assuming successful completion of the “Option A” upgrades. The NGF has projected growth to over $2.8 million in total gross facility revenue to the City (from all sources) by 2016. Key Assumptions The Base assumptions in preparing the projected financial performance estimates covers several categories, including rounds activity, green fees, average revenues (carts, range, concessions, etc.), total revenue, expenses, capital and debt. Under all scenarios, we have assumed use of more complimentary and discount rounds in the initial years after reopening for the purposes of gaining back lost customers, stimulating trial, and general promotions. Rounds Performance The rounds activity performance assumptions include: Rounds in FY2012 assume a 3% reduction from FY2011 total rounds based on actual performance in the first 6 months of FY2012 as reported by staff. Rounds in FY2013 assume ‘as-is’ operation on 18 holes for the first 9 months, then operation on only 9 holes for the last 3 months. During the last three months a reduction of 50% off historical rounds for the corresponding month is assumed. All rounds from April-June 2013 are assumed to be 9-hole rounds. Rounds in FY2014 assume operation on 9 holes for the first 6 months, then operation with an upgraded 18 holes for January-June 2014. All rounds from July- December 2013 are assumed to be 9-hole rounds with a reduction of 50% off historical totals for the corresponding month. Rounds projections assume increases to a stabilized level of 68,200 by 2017. The overall distribution of rounds by category is shown in the table below: National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 23 Palo Alto Municipal Golf Course (Baylands GC) Projected Activity for Option A (2012-2021) As-Is 9-Mos. 18-H / 3 Mos. 9-H 6-Mos. 18-H / 6 Mos. 9-H Operate on 18-holes with modest upgrade to the golf course design FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 -2021 Weekday 18-Hole 5,400 3,500 2,200 5,200 5,300 5,600 Senior Non-Resident 6,300 4,200 2,300 5,850 6,200 6,500 9-Hole 1,500 6,400 11,500 1,500 1,600 1,700 Senior 900 600 500 900 1,000 1,000 Junior 1,400 1,000 600 1,350 1,400 1,500 Early Bird 700 500 300 600 700 700 Twilight 11,300 7,800 4,500 10,800 11,000 11,600 Specials 7,500 5,400 3,500 9,400 7,600 8,000 Junior Card 1,100 800 500 1,050 1,200 1,200 Senior Card 800 600 400 900 1,000 1,000 Non-Resident Senior Card 4,000 2,600 1,500 3,750 4,000 4,200 Sub-Total Weekday 40,900 33,400 27,800 41,300 41,000 43,000 Weekend 18-Hole 10,200 7,000 4,000 8,550 9,800 10,300 9 Hole 1,900 8,700 12,500 1,850 2,000 2,100 Junior 800 600 400 800 900 900 Twilight 6,200 4,100 2,400 5,800 6,000 6,400 Sub-Total Weekend 19,100 20,400 19,300 17,000 18,700 19,700 Complimentary Play 2,500 1,700 1,200 2,500 2,500 2,500 Tournaments 2,200 1,500 1,000 2,000 2,500 3,000 TOTAL ROUNDS 64,700 57,000 49,300 62,800 64,700 68,200 Average Fees / Revenue The average green fees per round by category are shown in the table that follows. Key assumptions driving this estimate include: There is no change in average fees for FY2012 over FY2011. The only adjustment in FY2013 is for the 9-hole rate, which has been adjusted downward to reflect the various forms of discounting expected to be present when the facility is operating on only 9 holes in the final 3 months of FY2013 and the first 6 months of FY2014. NGF has assumed 9-hole green fee will go as low as $12.00 per round in some discount categories (e.g., late afternoon replay rate). Upon re-opening on 18 holes (assumed January 1, 2014), average fees in each category are increased approximately 5% over FY2012 (rounded). For FY2015 through FY2021, NGF has assumed 1% annual increases in all fee categories. Average Cart fee and driving range revenue per round in FY2012 is based on the actuals in FY2011. For FY2013, average cart / range revenue per round is reduced by 20% (from 2011) to reflect the operation on only 9 holes the last 3 months. For National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 24 FY2014, average cart and range revenue is reduced by 30% (from FY2011) to reflect 6 months on 9 holes. By FY2015, average cart and range revenue is restored at the 2011 level and then increased by 1% per year through 2021. Average merchandise sales in FY2012 are based on the actual in FY2011. Average sales are reduced by 20% (from 2011) in FY2013 to reflect 9 holes-only the last 3 months, and 30% in FY2014 to reflect 6 months on 9 holes. By FY2015, average sales are restored to the 2011 level with 1% increases through 2021. Average food and bar sales in FY2012 are based on the actual in FY2011. Average sales are reduced by 20% (from 2011) in FY2013 to reflect 9 holes-only the last 3 months, and 30% in FY2014 to reflect 6 months on 9-holes. By FY2015, average sales are restored to the 2011 level with 1% increases through 2021. The average green fees by category and ancillary revenue per round are shown in the table below (assume 1% annual increases for FY2018-2021 as noted): Palo Alto Municipal Golf Course (Baylands GC) Projected Average Green Fees for Option A (2012-2021) As-Is 9-Mos. 18-H /3 Mos. 9-H 6-Mos. 18-H /6 Mos. 9-H Operate on 18-holes with modest upgrade to the golf course design FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 Weekday 18-Hole $37.00 $37.00 $39.00 $39.39 $39.78 $40.18 Senior Non-Resident $32.00 $32.00 $33.50 $33.84 $34.17 $34.52 9-Hole $23.00 $18.00 $17.00 $25.00 $25.25 $25.50 Senior $28.00 $28.00 $29.50 $29.80 $30.09 $30.39 Junior $14.75 $14.75 $15.50 $15.66 $15.81 $15.97 Early Bird $23.00 $23.00 $24.00 $24.24 $24.48 $24.73 Twilight $30.00 $30.00 $31.50 $31.82 $32.13 $32.45 Specials $19.00 $19.00 $20.00 $20.20 $20.40 $20.61 Junior Card $19.70 $19.70 $20.75 $20.96 $21.17 $21.38 Senior Card $23.50 $23.50 $24.75 $25.00 $25.25 $25.50 Non-Resident Senior Card $27.50 $27.50 $29.00 $29.29 $29.58 $29.88 Weekend 18-Hole $47.00 $47.00 $49.50 $50.00 $50.49 $51.00 9 Hole $27.00 $24.75 $25.75 $28.75 $29.04 $29.33 Junior $15.80 $15.80 $16.50 $16.67 $16.83 $17.00 Twilight $34.00 $34.00 $35.75 $36.11 $36.47 $36.83 Tournaments $34.60 $34.60 $36.50 $36.87 $37.23 $37.61 Avg. Cart Fee / Round $4.54 $3.63 $3.18 $4.54 $4.58 $4.63 Avg. Range Revenue / Round $5.15 $4.12 $3.61 $5.15 $5.20 $5.26 Merchandise Sales / Round $9.94 $7.95 $6.96 $9.94 $9.94 $10.14 Food per Round $9.56 $7.64 $6.69 $9.56 $9.65 $9.75 Bar per Round $2.23 $1.79 $1.56 $2.23 $2.26 $2.28 National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 25 Other Revenue Assumptions Total green fee revenue includes all discount (10-play) cards and monthly passes. Ancillary revenue per round (carts, merchandise, range, food, bar, other) is derived from total rounds, including complimentary rounds. Concession revenue to the City of Palo Alto assumes the same current contract basics through FY2021,with no minimums after April 2013. The City is assumed to collect: (1) 7% of all F & B revenue; and (2) 4% of merchandise sales. Expense Assumptions Labor expenses are for City oversight only. These include allocations for contract oversight, Parks and Recreation Director, Division manager, etc. The estimate is intended to include both salary and benefits allocation and is increased by 4.5% per year through FY2021. Commissions paid to the pro shop vendor include 38% of driving range gross revenue and 40% of gross cart revenue (as per contract). The pro shop management fee is fixed at $28,775 per month for the full duration of the NGF projection. Reimbursements for merchant fees (mostly credit card fees) are assumed to be 1.4% of total facility revenue. Contract maintenance expense to the City of Palo Alto assumes: $62,500 per month for FY2012. $62,500 per month for the first 9 months, then $37,500 per months for the last 3 months of FY2013. $37,500 per month for the first 6 months, then $66,667 per months for the last 6 months of FY2014. $66,667 per month in FY2015, growing at 1.5% annually through 2021. Other expenses such as repairs, maintenance, supplies, club fees, materials and other indirect expenses are all based on actual figures for FY2011 with 20% reduction in FY2013 and 30% reduction in FY2014, returning to FY2011 levels in FY2015 plus 1.5% increases assumed through FY2021. Advertising and publishing expense is reduced by 50% during construction and operation on 9 holes, totaling 15% reduction in FY2013. Upon re-opening the golf course this expense is assumed to increase to $45,000 to account for enhanced marketing of the upgraded facility and re-theme as “Baylands GC.” Advertising and publishing expense is then reduced in subsequent years to a “standard” of around $17,000 per year. Water expense has been highly variable and NGF projections are based on the 4- year average (2008-2011), with assumptions of reductions in use as described previously: 25% reduction during construction 28% reduction upon re-opening Annual increases are assumed at 20% for 2013, 15% for 2014, 9% for 2015, 3% for 2016, 2% for 2017 and 4.5% for FY2018 through FY2021. National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 26 Other direct charges (including electric) are based on actual figures for FY2011 with 20% reduction in FY2013 and 30% reduction in FY2014. A slight reduction expected upon re-opening the golf course in FY2015 (as described by the architect). Annual increase of 1.5% is assumed from FY2015 through FY2021. Debt Service and Other Non-Operating Expense Assumptions Non-operating revenue attributed to debt service is assumed to continue at 6% of debt service payment as long as payments continue (through FY2019). Debt service payments were provided by the City of Palo Alto. The payment to the General Fund ($94,849) expires after FY2012. There is a new payment of ± $107,000 to the General Fund from FY2015 – FY2019 for repayment of a loan for the difference between the estimated capital cost for Option A and the expected reimbursement from the SFCJPA. The Cost Plan Charges are based on actual 2011 charges with historical 3% growth through the end of FY2021. The NGF has added a new “Operating & Capital Reserve” line to the pro forma beginning in FY2015, set at 10% of green fee revenue. Option A also assumes that the full irrigation replacement will be completed in FY2020 (or by 2020) at a cost of $750,000 (real 2012 dollars). Pro Forma Estimate for ‘Option A’ Scenario – FY2012 – FY2021 Utilizing the above assumptions and activity/revenue estimates, NGF Consulting has prepared a pro forma for the next 10 years of operation, including FY2012 (already underway). The table shows that the renovated Baylands Golf Club could produce net income to the City in the range of $690,000 to $950,000 (before debt, cost plan and reserve) through the term of the current debt program. After the City is no longer responsible for debt payments (beginning in FY2020), the facility is expected to produce net income to the City, after all expenses and charges, in the range of ±$620,000, although a one-time expense of $750,000 is projected for 2020 to upgrade the irrigation system. As this is a projection, all figures after FY2012 have been rounded to the nearest $100 for simplicity. National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 27 Palo Alto Golf Course Revenue / Expense - Option A Revenues FY2011 Actual FY2012 Projected FY2013 Projected FY2014 Projected FY2015 Projected FY2016 Projected FY2017 Projected FY2018 Projected FY2019 Projected FY2020 Projected FY2021 Projected Golf Course Revenues Green Fees (Incl. Cards) $2,016,537 $1,960,100 $1,605,200 $1,313,900 $1,967,700 $2,090,000 $2,233,100 $2,255,400 $2,278,000 $2,300,700 $2,323,800 Cart Fees 302,799 293,500 206,900 156,600 284,900 296,500 315,600 318,800 322,000 325,200 328,500 Driving Range 343,911 333,400 235,000 177,800 323,600 336,700 358,500 362,100 365,700 369,400 373,100 Tournament / League Fees 2,196 2,100 1,900 1,600 2,100 2,100 2,200 2,200 2,200 2,200 2,200 Other 11,813 11,500 8,100 6,100 11,100 11,500 12,300 12,300 12,600 12,600 12,800 Total Golf Course Revenues $2,677,256 $2,600,600 $2,057,100 $1,656,000 $2,589,400 $2,736,800 $2,921,700 $2,950,800 $2,980,500 $3,010,100 $3,040,400 Concession Payments Food and Beverage Concession Variable Portion $55,076 $53,400 $37,600 $28,500 $51,800 $53,900 $57,400 $58,000 $58,600 $59,200 $59,700 Utility Payment $25,920 $25,900 $26,400 $26,400 $26,900 $26,900 $27,400 $27,400 $27,900 $27,900 $28,500 Total from F & B Concession $80,996 $79,300 $64,000 $54,900 $78,700 $80,800 $84,800 $85,400 $86,500 $87,100 $88,200 Pro Shop Lease Merchandise (4%) $26,536 $25,700 $18,100 $13,700 $25,000 $25,700 $27,700 $27,700 $28,200 $28,200 $28,800 Total From Pro Shop Concession $26,536 $25,700 $18,100 $13,700 $25,000 $25,700 $27,700 $27,700 $28,200 $28,200 $28,800 Total Gross to City $2,784,788 $2,705,600 $2,139,200 $1,724,600 $2,693,100 $2,843,300 $3,034,200 $3,063,900 $3,095,200 $3,125,400 $3,157,400 Operating Expenses FY2011 Actual FY2012 Projected FY2013 Projected FY2014 Projected FY2015 Projected FY2016 Projected FY2017 Projected FY2018 Projected FY2019 Projected FY2020 Projected FY2021 Projected Salaries & Benefits $259,455 $139,000 $145,300 $151,800 $158,600 $165,700 $173,200 $181,000 $189,100 $197,600 $206,500 Range Fees 130,152 126,700 89,300 67,600 123,000 127,900 136,200 137,600 139,000 140,400 141,800 Cart Fees 117,529 117,400 82,800 62,600 114,000 118,600 126,200 127,500 128,800 130,100 131,400 Club Fees 5,576 5,700 4,600 4,000 5,700 5,800 5,900 6,000 6,100 6,200 6,300 Fixed Lozares Management Fee 345,333 345,300 345,300 345,300 345,300 345,300 345,300 345,300 345,300 345,300 345,300 Merchant Fees Reimbursement 36,211 36,400 28,800 23,200 36,300 38,300 40,900 41,300 41,700 42,100 42,600 Contract Maintenance 475,000 750,000 675,000 625,000 800,000 812,000 824,200 836,600 849,100 861,800 874,700 Repairs & maintenance 21,943 22,300 17,800 15,600 22,300 22,600 22,900 23,200 23,500 23,900 24,300 Advertising & Publish 10,765 10,900 9,300 45,000 30,000 17,000 17,300 17,600 17,900 18,200 18,500 Supplies and Materials 44,417 45,100 36,100 31,600 45,100 45,800 46,500 47,200 47,900 48,600 49,300 Water Expense 361,870 246,000 277,400 207,000 195,000 200,900 204,900 214,100 223,700 233,800 244,300 National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 28 Palo Alto Golf Course Revenue / Expense - Option A Revenues FY2011 Actual FY2012 Projected FY2013 Projected FY2014 Projected FY2015 Projected FY2016 Projected FY2017 Projected FY2018 Projected FY2019 Projected FY2020 Projected FY2021 Projected Other Direct Charges (Incl. Electric) 45,263 45,900 36,700 32,100 44,700 45,400 46,100 46,800 47,500 48,200 48,900 Indirect Charges 102,571 104,100 83,300 72,900 104,100 105,700 107,300 108,900 110,500 112,200 113,900 Total City Operating Expenses $1,956,085 $1,994,800 $1,831,700 $1,683,700 $2,024,100 $2,051,000 $2,096,900 $2,133,100 $2,170,100 $2,208,400 $2,247,800 Net Income From Operations (Loss)$828,703 $740,700 $333,200 $66,600 $694,700 $818,100 $963,200 $956,700 $951,000 $917,000 $909,600 Non-operating Income from Sale of Property 35,230 D/S Income $0 $29,900 $25,700 $25,700 $25,700 $25,800 $25,900 $25,900 $25,900 $0 $0 Total Non-operating $35,230 $29,900 $25,700 $25,700 $25,700 $25,800 $25,900 $25,900 $25,900 $0 $0 Total Income (Incl. Non-operating)$863,933 $656,200 $299,900 $30,700 $651,700 $770,300 $908,200 $899,200 $890,900 $854,200 $844,000 Debt Service $559,539 $499,000 $428,200 $429,000 $428,200 $430,800 $432,200 $432,300 $431,200 $0 $0 Payment to General Fund $94,849 $94,800 $0 $0 $107,600 $107,600 $107,600 $107,600 $107,600 $0 $0 New Debt Service $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Additional Capital $0 $0 $0 $0 $0 $0 $0 $0 $0 $750,000 $0 Reserve for Replacement $0 $0 $0 $0 $196,800 $209,000 $223,300 $225,500 $227,800 $230,100 $232,400 Cost Plan Charges $41,455 $42,700 $44,000 $45,300 $46,700 $48,100 $49,500 $51,000 $52,500 $54,100 $55,700 Total Debt / Other Charges $695,843 $636,500 $472,200 $474,300 $779,300 $795,500 $812,600 $816,400 $819,100 $1,034,200 $288,100 Net Income or (Loss)$168,090 $104,200 ($139,000)($407,700)($84,600)$22,600 $150,600 $140,300 $131,900 ($117,200)$621,500 National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 29 PROJECTIONS BASED ON “OPTION D” The NGF cash flow model for operation under “Option D” assumes a more significant upgrade to the facility with a “more dramatic transformation” as described by the golf course architect. The NGF revenue estimate has been combined with the present operating structure to provide a full estimate of Baylands GC performance for the next 10 years, assuming successful completion of the “Option D” upgrades. The NGF has projected growth to over $3.0 million in total gross revenue (from all sources) to the City by 2016. Key Assumptions The Base assumptions in preparing the projected financial performance match those presented in the projection for Option A,except the following changes noted below: Rounds Performance The rounds activity performance assumptions include: Rounds in FY2013 assume ‘as-is’ operation on 18 holes for the first 9 months, then operation on only 9 holes for the last 3 months. During the last three months a reduction of 50% off historical rounds for the corresponding month is assumed. All rounds from April-June 2013 are assumed to be 9-hole rounds. Rounds in FY2014 assume operation on 9 holes for the first 7 months, then operation with an upgraded 18 holes for February - June 2014. All rounds from July 2013 through January 2014 are assumed to be 9-hole rounds with a reduction of 50% off historical totals for the corresponding months. Rounds in FY2015 through FY2021 assume increases to a stabilized level of 73,300 by 2017. The overall distribution of rounds by category is shown in the table below: National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 30 Palo Alto Municipal Golf Course (Baylands GC) Projected Activity for Option D (2012-2021) As-Is 9-Mos. 18- H /3 Mos. 9-H 5-Mos. 18- H /7 Mos. 9-H Operate on 18-holes with upgraded golf design and more appealing features FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 -2021 Weekday 18-Hole 5,400 3,500 1,800 5,500 5,800 6,100 Senior Non-Resident 6,300 4,200 2,100 6,200 6,550 6,900 9-Hole 1,500 6,400 11,000 1,600 1,600 1,700 Senior 900 600 300 1,100 1,150 1,200 Junior 1,400 1,000 400 1,350 1,400 1,500 Early Bird 700 500 200 800 850 900 Twilight 11,300 7,800 3,700 11,200 11,750 12,400 Specials 7,500 5,400 3,000 7,550 8,000 8,400 Junior Card 1,100 800 400 1,150 1,250 1,300 Senior Card 800 600 300 1,000 1,050 1,100 Non-Resident Senior Card 4,000 2,600 1,200 3,950 4,200 4,400 Sub-Total Weekday 40,900 33,400 24,400 41,400 43,600 45,900 Weekend 18-Hole 10,200 7,000 3,500 9,900 10,450 11,000 9 Hole 1,900 8,700 11,900 2,000 2,150 2,200 Junior 800 600 300 900 950 1,000 Twilight 6,200 4,100 2,100 6,000 6,350 6,700 Sub-Total Weekend 19,100 20,400 17,800 18,800 19,900 20,900 Complimentary Play 2,500 1,700 1,000 2,500 2,500 2,500 Tournaments 2,200 1,500 800 3,000 3,500 4,000 TOTAL ROUNDS 64,700 57,000 44,000 65,700 69,500 73,300 Average Fees / Revenue The average green fees per round by category are shown in the table that follows. Key assumptions driving this estimate include: The only adjustment in FY2013 is for the 9-hole rate, which has been adjusted downward to reflect the various forms of discounting expected to be present when the facility is operating on only 9 holes in the final 3 months of FY2013 and the first 7 months of FY2014. Upon re-opening on 18 holes (assumed January 1, 2014), average fees in each category are increased approximately 10% over FY2012 (rounded). Average Cart fee and driving range revenue per round in FY2012 is based on the actuals in FY2011. For FY2013, average cart / range revenue per round is reduced by 20% (from 2011) to reflect the operation on only 9 holes the last 3 months. For FY2014, average cart and range revenue is reduced by 30% (from FY2011) to reflect 7 months on 9 holes. By FY2015, average cart and range revenue is restored at the 2011 level and then increased by 1% per year through 2021. National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 31 Average merchandise sales in FY2012 are based on the actual in FY2011. Average sales are reduced by 20% (from 2011) in FY2013 to reflect 9 holes-only the last 3 months, and 30% in FY2014 to reflect 7 months on 9 holes. By FY2015, average sales are restored to the 2011 level with 1% increases through 2021. Average food and bar sales in FY2012 are based on the actual in FY2011. Average sales are reduced by 20% (from 2011) in FY2013 to reflect 9 holes-only the last 3 months, and 30% in FY2014 to reflect 7 months on 9 holes. By FY2015, average sales are restored to the 2011 level with 1% increases through 2021. The average green fees by category and ancillary revenue per round are shown in the table below (assume 1% annual increases for FY2018-2021 as noted): Palo Alto Municipal Golf Course (Baylands GC) Projected Average Green Fees for Option D (2012-2021) As-Is 9-Mos. 18-H /3 Mos. 9-H 5-Mos. 18-H /7 Mos. 9-H Operate on 18-holes with upgraded golf design and more appealing features FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 Weekday 18-Hole $37.00 $37.00 $41.00 $41.41 $41.82 $42.24 Senior Non-Resident $32.00 $32.00 $35.00 $35.35 $35.70 $36.06 9-Hole $23.00 $18.00 $17.00 $25.00 $25.25 $25.50 Senior $28.00 $28.00 $31.00 $31.31 $31.62 $31.94 Junior $14.75 $14.75 $16.25 $16.41 $16.58 $16.74 Early Bird $23.00 $23.00 $25.50 $25.76 $26.01 $26.27 Twilight $30.00 $30.00 $33.00 $33.33 $33.66 $34.00 Specials $19.00 $19.00 $21.00 $21.21 $21.42 $21.64 Junior Card $19.70 $19.70 $21.75 $21.97 $22.19 $22.41 Senior Card $23.50 $23.50 $26.00 $26.26 $26.52 $26.79 Non-Resident Senior Card $27.50 $27.50 $30.00 $30.30 $30.60 $30.91 Weekend 18-Hole $47.00 $47.00 $52.00 $52.52 $53.05 $53.58 9 Hole $27.00 $24.75 $27.25 $28.75 $29.04 $29.33 Junior $15.80 $15.80 $17.50 $17.68 $17.85 $18.03 Twilight $34.00 $34.00 $37.50 $37.88 $38.25 $38.64 Tournaments $34.60 $34.60 $38.00 $38.38 $38.76 $39.15 National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 32 Expense Assumptions Contract maintenance expense to the City of Palo Alto assumes: $62,500 per month for FY2012. $62,500 per month for the first 9 months, then $37,500 per months for the last 3 months of FY2013. $37,500 per month for the first 7 months, then $71,000 per months for the last 5 months of FY2014. $71,000 per month in FY2015, growing at 1.5% annually through 2021. Other expenses such as repairs, maintenance, supplies, club fees, materials and other indirect expenses are all based on actual figures for FY2011 with 20% reduction in FY2013 and 30% reduction in FY2014, returning to FY2011 levels in FY2015 plus 1.5% increases assumed through FY2021. Water expense has been highly variable and NGF projections are based on the 4- year average (2008-2011), with assumptions of reductions in use as described previously: 25% reduction during construction 32% reduction upon re-opening Annual increases are assumed at 20% for 2013, 15% for 2014, 9% for 2015, 3% for 2016, 2% for 2017 and 4.5% for FY2018 through FY2021. Other direct charges (including electric) are based on actual 2011 totals, based on actual figures for FY2011 with 20% reduction in FY2013 and 30% reduction in FY2014. A slight reduction expected upon re-opening the golf course in FY2015 (as described by the architect). Annual increase of 1.5% is assumed from FY2015 through FY2021. Debt Service and Other Non-Operating Expense Assumptions There is a new payment of ± $223,700 to the General Fund from FY2015 – FY2019 for repayment of a loan for the difference between the estimated capital cost for Option D and the expected reimbursement from the SFCJPA. Option D also assumes that the full irrigation replacement will be completed in FY2020 (or by 2020) at a cost of $500,000 (real 2012 dollars). Pro Forma Estimate for ‘Option D’ Scenario – FY2012 – FY2021 Utilizing the above assumptions and activity/revenue estimates, NGF Consulting has prepared a pro forma for the next five years of operation, including FY2012 (already underway). The table shows that with a more comprehensive renovation, the Baylands GC could produce net income to the City in the range of $930,000 to $1.27 million (before debt, cost plan and reserve) through the term of the current debt program. After the City is no longer responsible for debt payments (beginning in FY2020), the facility is expected to produce net income to the City in the range of $915,000 per year, although there is a one-time expense of $500,000 for irrigation in 2020. National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 33 Palo Alto Golf Course Revenue / Expense - Option D Revenues FY2011 Actual FY2012 Projected FY2013 Projected FY2014 Projected FY2015 Projected FY2016 Projected FY2017 Projected FY2018 Projected FY2019 Projected FY2020 Projected FY2021 Projected Golf Course Revenues Green Fees (Incl. Cards) $2,016,537 $1,960,100 $1,605,200 $1,213,500 $2,204,500 $2,361,900 $2,522,200 $2,547,500 $2,572,900 $2,598,700 $2,624,600 Cart Fees 302,799 293,500 206,900 139,700 298,100 318,500 339,200 342,600 346,100 349,500 353,000 Driving Range 343,911 333,400 235,000 158,700 338,600 361,700 385,300 389,200 393,100 397,000 401,000 Tournament / League Fees 2,196 2,100 1,900 1,400 2,200 2,300 2,400 2,400 2,400 2,400 2,400 Other 11,813 11,500 8,100 5,500 11,600 12,300 13,200 13,200 13,500 13,500 13,800 Total Golf Course Revenues $2,677,256 $2,600,600 $2,057,100 $1,518,800 $2,855,000 $3,056,700 $3,262,300 $3,294,900 $3,328,000 $3,361,100 $3,394,800 Concession Payments Food and Beverage Concession Variable Portion $55,076 $53,400 $37,600 $25,400 $54,200 $57,900 $61,700 $62,300 $62,900 $63,600 $64,200 Utility Payment $25,920 $25,900 $26,400 $26,400 $26,900 $26,900 $27,400 $27,400 $27,900 $27,900 $28,500 Total from F & B Concession $80,996 $79,300 $64,000 $51,800 $81,100 $84,800 $89,100 $89,700 $90,800 $91,500 $92,700 Pro Shop Lease Merchandise (4%) $26,536 $25,700 $18,100 $12,200 $26,100 $27,600 $29,700 $29,700 $30,300 $30,300 $30,900 Total From Pro Shop Concession $26,536 $25,700 $18,100 $12,200 $26,100 $27,600 $29,700 $29,700 $30,300 $30,300 $30,900 Total Gross to City $2,784,788 $2,705,600 $2,139,200 $1,582,800 $2,962,200 $3,169,100 $3,381,100 $3,414,300 $3,449,100 $3,482,900 $3,518,400 Operating Expenses FY2011 Actual FY2012 Projected FY2013 Projected FY2014 Projected FY2015 Projected FY2016 Projected FY2017 Projected FY2018 Projected FY2019 Projected FY2020 Projected FY2021 Projected Salaries & Benefits $259,455 $139,000 $145,300 $151,800 $158,600 $165,700 $173,200 $181,000 $189,100 $197,600 $206,500 Range Fees 130,152 126,700 89,300 60,300 128,700 137,400 146,400 147,900 149,400 150,900 152,400 Cart Fees 117,529 117,400 82,800 55,900 119,200 127,400 135,700 137,000 138,400 139,800 141,200 Club Fees 5,576 5,700 4,600 4,000 5,700 5,800 5,900 6,000 6,100 6,200 6,300 Fixed Lozares Management Fee 345,333 345,300 345,300 345,300 345,300 345,300 345,300 345,300 345,300 345,300 345,300 Merchant Fees Reimbursement 36,211 36,400 28,800 21,300 40,000 42,800 45,700 46,100 46,600 47,100 47,500 Contract Maintenance 475,000 750,000 675,000 595,800 852,000 864,800 877,800 891,000 904,400 918,000 931,800 Repairs & maintenance 21,943 22,300 17,800 15,600 22,300 22,600 22,900 23,200 23,500 23,900 24,300 Advertising & Publish 10,765 10,900 9,300 45,000 30,000 17,000 17,300 17,600 17,900 18,200 18,500 Supplies and Materials 44,417 45,100 36,100 31,600 45,100 45,800 46,500 47,200 47,900 48,600 49,300 Water Expense 361,870 246,000 277,400 204,000 161,000 165,800 169,100 176,700 184,700 193,000 201,700 National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 34 Palo Alto Golf Course Revenue / Expense - Option D Revenues FY2011 Actual FY2012 Projected FY2013 Projected FY2014 Projected FY2015 Projected FY2016 Projected FY2017 Projected FY2018 Projected FY2019 Projected FY2020 Projected FY2021 Projected Other Direct Charges (Incl. Electric) 45,263 45,900 36,700 32,100 43,500 44,200 44,900 45,600 46,300 47,000 47,700 Indirect Charges 102,571 104,100 83,300 72,900 104,100 105,700 107,300 108,900 110,500 112,200 113,900 Total City Operating Expenses $1,956,085 $1,994,800 $1,831,700 $1,635,600 $2,055,500 $2,090,300 $2,138,000 $2,173,500 $2,210,100 $2,247,800 $2,286,400 Net Income From Operations (Loss)$828,703 $710,800 $307,500 ($52,800)$906,700 $1,078,800 $1,243,100 $1,240,800 $1,239,000 $1,235,100 $1,232,000 Non-operating Income from Sale of Property 35,230 D/S Income $0 $29,900 $25,700 $25,700 $25,700 $25,800 $25,900 $25,900 $25,900 $0 $0 Total Non-operating $35,230 $29,900 $25,700 $25,700 $25,700 $25,800 $25,900 $25,900 $25,900 $0 $0 Total Income (Incl. Non-operating)$863,933 $740,700 $333,200 ($27,100)$932,400 $1,104,600 $1,268,500 $1,266,700 $1,264,900 $1,235,100 $1,232,000 Debt Service $559,539 $499,000 $428,200 $429,000 $428,200 $430,800 $423,200 $432,300 $431,200 $0 $0 Payment to General Fund $94,849 $94,800 $0 $0 $223,700 $223,700 $223,700 $223,700 $223,700 $0 $0 Additional Capital $0 $0 $0 $0 $0 $0 $0 $0 $0 $500,000 $0 Reserve for Replacement $0 $0 $0 $0 $220,500 $236,200 $252,200 $254,800 $257,300 $259,900 $262,500 Cost Plan Charges $41,455 $42,700 $44,000 $45,300 $46,700 $48,100 $49,500 $51,000 $52,500 $54,100 $55,700 Total Debt / Other Charges $695,843 $636,500 $472,200 $474,300 $919,100 $938,800 $948,600 $961,800 $964,700 $814,000 $318,200 Net Income or (Loss)$168,090 $104,200 ($139,000)($501,400)$13,300 $165,800 $319,900 $304,900 $300,200 $421,100 $913,800 National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 35 PROJECTIONS BASED ON “OPTION F” The NGF cash flow model for operation under “Option F” assumes a more significant upgrade to the facility, with a two-thirds complete renovation the addition of a soccer field and a comparable “dramatic transformation” as proposed in Option D. The NGF estimate shows the Baylands GC revenue performance under Option F over the next 10 years would be comparable to Option D. Key Assumptions The Base assumptions in preparing the projected financial performance match those presented in the projection for Option D,except the following changes noted below: Rounds and Average Fee Performance The rounds activity and average fee performance assumptions are the same as proposed in “Option D,” except: Rounds in FY2014 assume operation on 9 holes for the first 9 months, then operation with an upgraded 18 holes for April - June 2014. All rounds from July 2013 through March 2014 are assumed to be 9-hole rounds with totals reduced by 50% for each corresponding month. Palo Alto Municipal Golf Course (Baylands GC) Projected Activity for Option F (2012-2021) As-Is 9-Mos. 18- H /3 Mos. 9-H 3-Mos. 18- H /9 Mos. 9-H Operate on 18-holes with nearly complete renovation FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 -2021 Weekday 18-Hole 5,400 3,500 1,000 5,500 5,800 6,100 Senior Non-Resident 6,300 4,200 1,100 6,200 6,550 6,900 9-Hole 1,500 6,400 12,800 1,600 1,600 1,700 Senior 900 600 200 1,100 1,150 1,200 Junior 1,400 1,000 300 1,350 1,400 1,500 Early Bird 700 500 200 800 850 900 Twilight 11,300 7,800 2,000 11,200 11,750 12,400 Specials 7,500 5,400 2,200 7,550 8,000 8,400 Junior Card 1,100 800 300 1,150 1,250 1,300 Senior Card 800 600 200 1,000 1,050 1,100 Non-Resident Senior Card 4,000 2,600 800 3,950 4,200 4,400 Sub-Total Weekday 40,900 33,400 21,100 41,400 43,600 45,900 Weekend 18-Hole 10,200 7,000 2,100 9,900 10,450 11,000 9 Hole 1,900 8,700 13,700 2,000 2,150 2,200 Junior 800 600 200 900 950 1,000 Twilight 6,200 4,100 1,000 6,000 6,350 6,700 Sub-Total Weekend 19,100 20,400 17,000 18,800 19,900 20,900 Complimentary Play 2,500 1,700 1,100 2,500 2,500 2,500 Tournaments 2,200 1,500 500 3,000 3,500 4,000 TOTAL ROUNDS 64,700 57,000 39,700 65,700 69,500 73,300 Average green and ancillary fees in “Option F” are identical to those presented for “Option D.” National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 36 Expense Assumptions Contract maintenance expense to the City of Palo Alto assumes: $62,500 per month for FY2012 $62,500 per month for the first 9 months, then $37,500 per months for the last 3 months of FY2013 $37,500 per month for the first 9 months, then $66,667 per months for the last 3 months of FY2014 $66,667 per month in FY2015, growing at 1.5% annually through 2021. Other expenses such as repairs, maintenance, supplies, club fees, materials and other indirect expenses are all based on actual figures for FY2011 with 20% reduction in FY2013 and 40% reduction in FY2014, returning to FY2011 levels in FY2015 plus 1.5% increases assumed through FY2021. Water expense has been highly variable and NGF projections are based on the 4- year average (2008-2011), with assumptions of reductions in use as described previously: 20% reduction during construction 32% reduction upon re-opening Annual increases are assumed at 20% for 2013, 15% for 2014, 9% for 2015, 3% for 2016, 2% for 2017 and 4.5% for FY2018 through FY2021 Other direct charges (including electric) are based on actual 2011 totals, based on actual figures for FY2011 with 20% reduction in FY2013 and 40% reduction in FY2014. A slight reduction expected upon re-opening the golf course in FY2015 (as described by the architect). Annual increase of 1.5% is assumed from FY2015 through FY2021. Debt Service and Other Non-Operating Expense Assumptions The NGF has assumed that the $2,855,400 in additional cost needed to complete Option F, over and above the amount estimated to be reimbursed by the SFCJPA, will be funded via the issuance of a new debt program (revenue or General Obligation Bond), with terms of 4.5% interest for 20 years, with payments beginning in FY2015. Option F also assumes that the full irrigation replacement will be completed in FY2020 (or by 2020) at a cost of $250,000 (real 2012 dollars). Pro Forma Estimate for ‘Option F’ Scenario – FY2012 – FY2021 Based on the inputs described above, the pro forma estimate for future performance under “Option F” shows that with this more comprehensive renovation, the Baylands GC could produce net income to the City in the range of $960,000 to $1.34 million (before existing and new debt, cost plan and reserve) through the term of the current debt program. After the City is no longer responsible for its older (1999 issue) debt payments, beginning in FY2020, the facility is expected to produce net income to the City in the range of $720,000 per year, although there is a one-time expense of $250,000 for irrigation in 2020. National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 37 Palo Alto Golf Course Revenue / Expense - Option F Revenues FY2011 Actual FY2012 Projected FY2013 Projected FY2014 Projected FY2015 Projected FY2016 Projected FY2017 Projected FY2018 Projected FY2019 Projected FY2020 Projected FY2021 Projected Golf Course Revenues Green Fees (Incl. Cards) $2,016,537 $1,960,100 $1,605,200 $969,500 $2,204,500 $2,361,900 $2,522,200 $2,547,500 $2,572,900 $2,598,700 $2,624,600 Cart Fees 302,799 293,500 206,900 126,100 298,100 318,500 339,200 342,600 346,100 349,500 353,000 Driving Range 343,911 333,400 235,000 143,200 338,600 361,700 385,300 389,200 393,100 397,000 401,000 Tournament / League Fees 2,196 2,100 1,900 1,300 2,200 2,300 2,400 2,400 2,400 2,400 2,400 Other 11,813 11,500 8,100 4,900 11,600 12,300 13,200 13,200 13,500 13,500 13,800 Total Golf Course Revenues $2,677,256 $2,600,600 $2,057,100 $1,245,000 $2,855,000 $3,056,700 $3,262,300 $3,294,900 $3,328,000 $3,361,100 $3,394,800 Concession Payments Food and Beverage Concession Variable Portion $55,076 $53,400 $37,600 $22,900 $54,200 $57,900 $61,700 $62,300 $62,900 $63,600 $64,200 Utility Payment $25,920 $25,900 $26,400 $26,400 $26,900 $26,900 $27,400 $27,400 $27,900 $27,900 $28,500 Total from F & B Concession $80,996 $79,300 $64,000 $49,300 $81,100 $84,800 $89,100 $89,700 $90,800 $91,500 $92,700 Pro Shop Lease Merchandise (4%) $26,536 $25,700 $19,300 $15,400 $28,100 $28,900 $29,700 $29,700 $30,300 $30,300 $30,900 Total From Pro Shop Concession $26,536 $25,700 $19,300 $15,400 $28,100 $28,900 $29,700 $29,700 $30,300 $30,300 $30,900 Total Gross to City $2,784,788 $2,705,600 $2,139,200 $1,305,300 $2,962,200 $3,169,100 $3,381,100 $3,414,300 $3,449,100 $3,482,900 $3,518,400 Operating Expenses FY2011 Actual FY2012 Projected FY2013 Projected FY2014 Projected FY2015 Projected FY2016 Projected FY2017 Projected FY2018 Projected FY2019 Projected FY2020 Projected FY2021 Projected Salaries & Benefits $259,455 $139,000 $145,300 $151,800 $158,600 $165,700 $173,200 $181,000 $189,100 $197,600 $206,500 Range Fees 130,152 126,700 89,300 54,400 128,700 137,400 146,400 147,900 149,400 150,900 152,400 Cart Fees 117,529 117,400 82,800 50,400 119,200 127,400 135,700 137,000 138,400 139,800 141,200 Club Fees 5,576 5,700 4,600 3,400 5,700 5,800 5,900 6,000 6,100 6,200 6,300 Fixed Lozares Management Fee 345,333 345,300 345,300 345,300 345,300 345,300 345,300 345,300 345,300 345,300 345,300 Merchant Fees Reimbursement 36,211 36,400 28,800 17,400 40,000 42,800 45,700 46,100 46,600 47,100 47,500 Contract Maintenance 475,000 750,000 675,000 537,500 800,000 812,000 824,200 836,600 849,100 861,800 874,700 Repairs & maintenance 21,943 22,300 17,800 13,400 22,300 22,600 22,900 23,200 23,500 23,900 24,300 Advertising & Publish 10,765 10,900 9,300 45,000 30,000 17,000 17,300 17,600 17,900 18,200 18,500 Supplies and Materials 44,417 45,100 36,100 21,700 45,100 45,800 46,500 47,200 47,900 48,600 49,300 Water Expense 361,870 246,000 280,400 217,600 182,400 187,900 191,700 200,300 209,300 218,700 228,500 National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 38 Palo Alto Golf Course Revenue / Expense - Option F Revenues FY2011 Actual FY2012 Projected FY2013 Projected FY2014 Projected FY2015 Projected FY2016 Projected FY2017 Projected FY2018 Projected FY2019 Projected FY2020 Projected FY2021 Projected Other Direct Charges (Incl. Electric) 45,263 45,900 36,700 22,000 42,500 43,100 43,700 44,400 45,100 45,800 46,500 Indirect Charges 102,571 104,100 83,300 50,000 104,100 105,700 107,300 108,900 110,500 112,200 113,900 Total City Operating Expenses $1,956,085 $1,994,800 $1,834,700 $1,529,900 $2,023,900 $2,058,500 $2,105,800 $2,141,500 $2,178,200 $2,216,100 $2,254,900 Net Income From Operations (Loss)$828,703 $710,800 $304,500 ($224,600)$938,300 $1,110,600 $1,275,300 $1,272,800 $1,270,900 $1,266,800 $1,263,500 Non-operating Income from Sale of Property 35,230 D/S Income $0 $29,900 $25,700 $25,700 $25,700 $25,800 $25,900 $25,900 $25,900 $0 $0 Total Non-operating $35,230 $29,900 $25,700 $25,700 $25,700 $25,800 $25,900 $25,900 $25,900 $0 $0 Total Income (Incl. Non-operating)$863,933 $740,700 $330,200 ($198,900)$964,000 $1,136,400 $1,300,700 $1,298,700 $1,296,800 $1,266,800 $1,263,500 Debt Service $559,539 $499,000 $428,200 $429,000 $428,200 $430,800 $423,200 $432,300 $431,200 $0 $0 Payment to General Fund $94,849 $94,800 $0 $0 $0 $0 $0 $0 $0 $0 $0 Additional Capital $0 $0 $0 $0 $0 $0 $0 $0 $0 $250,000 $0 New Debt Service $0 $0 $0 $0 $219,500 $219,500 $219,500 $219,500 $219,500 $219,500 $219,500 Reserve for Replacement $0 $0 $0 $0 $220,500 $236,200 $252,200 $254,800 $257,300 $259,900 $262,500 Cost Plan Charges $41,455 $42,700 $44,000 $45,300 $46,700 $48,100 $49,500 $51,000 $52,500 $54,100 $55,700 Total Debt / Other Charges $695,843 $636,500 $472,200 $474,300 $914,900 $934,600 $944,400 $957,600 $960,500 $783,500 $537,700 Net Income or (Loss)$168,090 $104,200 ($142,000)($673,200)$49,100 $201,800 $356,300 $341,100 $336,300 $483,300 $725,800 NOTE: Option F would likely include additional revenue from soccer fields of approximately $78,000 per field per year. National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 39 PROJECTIONS BASED ON “OPTION G” The NGF projection model for “Option G” represents a significant change from other options presented. This option would involve a complete renovation of the Palo Alto Municipal Golf Course (to be re-branded as “Baylands Golf Club). The project would involve a full closure of the golf course from April 2013 through March 2014, re-opening as a brand new golf course with the highest quality golf features commanding higher fees than any other option presented. The full golf course irrigation system would be replaced and three new soccer fields would be added to the site. Subsequent to the initial draft report, the City Finance Committee recommended that this option include rebuilding of all 18 greens, re-turfing of all fairways, construction of an on- course restroom, and rebuilding the practice green area. These changes should further enhance the product’s marketability and the golfer experience. The NGF revenue estimate has been combined with the present operating structure to provide a full estimate of Baylands GC performance for the next 10 years, assuming successful completion of the proposed “Option G” upgrades. The NGF has projected growth to almost $3.2 million in total gross revenues (from all sources) to the City by 2016. Key Assumptions The Base assumptions in preparing the projected financial performance estimates covers several categories, including rounds activity, green fees, average revenues (carts, range, concessions, etc.), total revenue, expenses, capital and debt. Rounds Performance The rounds activity performance assumptions include: Rounds in FY2012 assume a 3% reduction from FY2011 total rounds based on actual performance in the first 6 months of FY2012. Rounds in FY2013 assume ‘as-is’ operation on 18 holes for the first 9 months. The golf course then closes entirely for the next 12 months (April 2013 –March 2014), re- opening as an upgraded new facility on April 1, 2014. Upon re-opening, rounds are assumed to grow to 67,900 in FY2015, stabilizing at 75,700 rounds by 2017. The overall distribution of rounds by category is shown in the table below: National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 40 Palo Alto Municipal Golf Course (Baylands GC) Projected Activity for Option G (2012-2021) As-Is 9-Mos. 18- H / 3 Mos. closed 3-Mos. 18- H / 9 Mos. Closed Operate on 18-holes with maximum renovation and upgrade FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 -2021 Weekday 18-Hole 5,400 4,000 1,000 5,500 5,800 6,100 Senior Non-Resident 6,300 4,700 1,300 6,200 6,550 6,900 9-Hole 1,500 1,100 400 1,550 1,600 1,700 Senior 900 600 250 1,100 1,150 1,200 Junior 1,400 1,000 400 1,450 1,500 1,600 Early Bird 700 500 200 800 850 900 Twilight 11,300 8,400 2,800 11,500 12,150 12,800 Specials 7,500 5,600 2,200 7,650 8,050 8,500 Junior Card 1,100 800 300 1,150 1,250 1,300 Senior Card 800 600 200 1,000 1,050 1,100 Non-Resident Senior Card 4,000 3,000 1,000 4,000 4,300 4,500 Sub-Total Weekday 40,900 30,300 10,050 41,900 44,250 46,600 Weekend 18-Hole 10,200 7,600 2,500 10,050 10,650 11,200 9 Hole 1,900 1,400 500 2,000 2,100 2,200 Junior 800 600 200 900 950 1,000 Twilight 6,200 4,600 1,500 6,050 6,350 6,700 Sub-Total Weekend 19,100 14,200 4,700 19,000 20,050 21,100 Complimentary Play 2,500 1,800 650 3,500 3,500 3,500 Tournaments 2,200 1,600 600 3,500 4,000 4,500 TOTAL ROUNDS 64,700 47,900 16,000 67,900 71,800 75,700 Average Fees / Revenue The average green fees per round by category are shown in the table that follows. Key assumptions driving this estimate include: There is no change in average fees for FY2012 over FY2011. Upon re-opening on 18 holes (assumed April 1, 2014), average fees in each category are increased approximately 15% over FY2012 (rounded). For FY2015 through FY2021, NGF has assumed 1% annual increases in all fee categories. All other ancillary revenue centers mirror estimates made in Options D and F. The average green fees by category and ancillary revenue per round are shown in the table below (assume 1% annual increases for FY2018-2021 as noted): National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 41 Palo Alto Municipal Golf Course (Baylands GC) Projected Average Green Fees for Option G (2012-2021) As-Is 9-Mos. 18- H / 3 Mos. closed 3-Mos. 18- H / 9 Mos. Closed Operate on 18-holes with maximum renovation and upgrade FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 Weekday 18-Hole $37.00 $37.00 $42.50 $42.93 $43.35 $43.79 Senior Non-Resident $32.00 $32.00 $37.00 $37.37 $37.74 $38.12 9-Hole $23.00 $18.00 $24.00 $25.00 $25.25 $25.50 Senior $28.00 $28.00 $32.00 $32.32 $32.64 $32.97 Junior $14.75 $14.75 $17.00 $17.17 $17.34 $17.52 Early Bird $23.00 $23.00 $26.50 $26.77 $27.03 $27.30 Twilight $30.00 $30.00 $34.50 $34.85 $35.19 $35.55 Specials $19.00 $19.00 $22.00 $22.22 $22.44 $22.67 Junior Card $19.70 $19.70 $22.50 $22.73 $22.95 $23.18 Senior Card $23.50 $23.50 $27.00 $27.27 $27.54 $27.82 Non-Resident Senior Card $27.50 $27.50 $31.50 $31.82 $32.13 $32.45 Weekend 18-Hole $47.00 $47.00 $54.00 $54.54 $55.09 $55.64 9 Hole $27.00 $24.75 $28.50 $28.75 $29.04 $29.33 Junior $15.80 $15.80 $18.00 $18.18 $18.36 $18.55 Twilight $34.00 $34.00 $39.00 $39.39 $39.78 $40.18 Tournaments $34.60 $34.60 $40.00 $40.40 $40.80 $41.21 Other Revenue Assumptions Total green fee revenue includes all discount (10-play) cards and monthly passes. Ancillary revenue per round (carts, merchandise, range, food, bar, other) is derived from total rounds, including complimentary rounds. Concession revenue to the City of Palo Alto assumes the same current contract basics through FY2021,with no minimums after April 2013. The City is assumed to collect: (1) 7% of all food and beverage revenue; and (2) 4% of merchandise sales. Expense Assumptions Labor expenses are for City oversight only. These include allocations for contract oversight, Parks and Recreation Director, Division manager, etc. The estimate is intended to include both salary and benefits allocation and is increased by 4.5% per year through FY2021. Commissions paid to the pro shop vendor include 38% of driving range gross revenue and 40% of gross cart revenue (as per contract). The pro shop management fee is fixed at $28,775 per month while the golf course is open. No management fees are assumed for April 2013 through March 2014. Reimbursements for merchant fees (mostly credit card fees) are assumed to be 1.4% of total facility revenue. National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 42 Contract maintenance expense to the City of Palo Alto assumes: $62,500 per month for FY2012 $62,500 per month for the first 9 months of FY2013 No contract maintenance expense for April 2013 through March 2014 $68,750 per month (fixed) upon re-opening in April 2014 (3 months in FY2014), then $68,750 per month in FY2015, growing at 1.5% annually through 2021 Other expenses such as repairs, maintenance, supplies, club fees, materials and other indirect expenses are all based on actual figures for FY2011 with 20% reduction in FY2013 and 70% reduction in FY2014, returning to FY2011 levels in FY2015 plus 1.5% increases assumed through FY2021. Advertising and publishing expense is reduced by 50% during construction and operation on 9 holes, totaling 15% reduction in FY2013. Upon re-opening the golf course this expense is assumed to increase $45,000 to account for enhanced marketing of the upgraded facility and re-theme as “Baylands GC.” Advertising and publishing expense is then reduced in subsequent years to a “standard” of around $17,000 per year. Water expense has been highly variable and NGF projections are based on the 4- year average (2008-2011), with assumptions of reductions in use as described previously: 60% reduction during construction 32% reduction upon re-opening Annual increases are assumed at 20% for 2013, 15% for 2014, 9% for 2015, 3% for 2016, 2% for 2017 and 4.5% for FY2018 through FY2021 Other direct charges (including electric) are based on actual 2011 totals, based on actual figures for FY2011 with 20% reduction in FY2013 and 70% reduction in FY2014. A slight reduction expected upon re-opening the golf course in FY2015 (as described by the architect). Annual increase of 1.5% is assumed from FY2015 through FY2021. Debt Service and Other Non-Operating Expense Assumptions The NGF has assumed that the $4,570,000 in additional cost needed to complete Option G, over and above the amount reimbursed by the SFCJPA, will be funded via the issuance of a new debt program (revenue or General Obligation Bond), with terms of 4.5% interest for 20 years, with payments beginning in FY2015. Pro Forma Estimate for ‘Option G’ Scenario – FY2012 – FY2021 Based on the inputs described above, the pro forma estimate for future performance under “Option G” shows that with this complete renovation, the Baylands GC could produce net income to the City in the range of $1.07 to $1.42 million (before existing and new debt, cost plan and reserve) through the term of the current debt program that ends in 2019. After the City is no longer responsible for its older (1999 issue) debt payments, the facility is expected to produce net income to the City, after all expenses and other charges, in the range of $740,000 per year. National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 43 Palo Alto Golf Course Revenue / Expense - Option G Revenues FY2011 Actual FY2012 Projected FY2013 Projected FY2014 Projected FY2015 Projected FY2016 Projected FY2017 Projected FY2018 Projected FY2019 Projected FY2020 Projected FY2021 Projected Golf Course Revenues Green Fees (Incl. Cards) $2,016,537 $1,960,100 $1,445,100 $544,300 $2,341,500 $2,510,600 $2,680,900 $2,707,800 $2,734,800 $2,762,200 $2,789,800 Cart Fees 302,799 293,500 173,900 72,600 311,100 332,300 353,900 357,400 361,000 364,600 368,200 Driving Range 343,911 333,400 197,500 82,400 353,400 377,400 401,900 405,900 410,000 414,100 418,200 Tournament / League Fees 2,196 2,100 1,600 500 2,200 2,400 2,500 2,500 2,500 2,500 2,500 Other 11,813 11,500 6,800 2,800 12,000 12,700 13,700 13,700 13,900 13,900 14,200 Total Golf Course Revenues $2,677,256 $2,600,600 $1,824,900 $702,600 $3,020,200 $3,235,400 $3,452,900 $3,487,300 $3,522,200 $3,557,300 $3,592,900 Concession Payments Food and Beverage Concession Variable Portion $55,076 $53,400 $31,600 $13,200 $56,600 $60,400 $64,400 $65,000 $65,700 $66,300 $67,000 Utility Payment $25,920 $25,900 $26,400 $26,400 $26,900 $26,900 $27,400 $27,400 $27,900 $27,900 $28,500 Total from F & B Concession $80,996 $79,300 $58,000 $39,600 $83,500 $87,300 $91,800 $92,400 $93,600 $94,200 $95,500 Pro Shop Lease Merchandise (4%) $26,536 $25,700 $15,400 $6,600 $28,900 $29,500 $30,700 $30,700 $31,300 $31,300 $31,900 Total From Pro Shop Concession $26,536 $25,700 $15,400 $6,600 $28,900 $29,500 $30,700 $30,700 $31,300 $31,300 $31,900 Total Gross to City $2,784,788 $2,705,600 $1,898,100 $748,600 $3,130,700 $3,351,200 $3,575,400 $3,610,400 $3,647,100 $3,682,800 $3,720,300 Operating Expenses FY2011 Actual FY2012 Projected FY2013 Projected FY2014 Projected FY2015 Projected FY2016 Projected FY2017 Projected FY2018 Projected FY2019 Projected FY2020 Projected FY2021 Projected Salaries & Benefits $259,455 $139,000 $145,300 $151,800 $158,600 $165,700 $173,200 $181,000 $189,100 $197,600 $206,500 Range Fees 130,152 126,700 75,100 31,300 134,300 143,400 152,700 154,200 155,800 157,400 158,900 Cart Fees 117,529 117,400 69,600 29,000 124,400 132,900 141,600 143,000 144,400 145,800 147,300 Club Fees 5,576 5,700 4,600 1,700 5,700 5,800 5,900 6,000 6,100 6,200 6,300 Fixed Lozares Management Fee 345,333 345,300 259,000 86,300 345,300 345,300 345,300 345,300 345,300 345,300 345,300 Merchant Fees Reimbursement 36,211 36,400 25,500 9,800 42,300 45,300 48,300 48,800 49,300 49,800 50,300 Contract Maintenance 475,000 750,000 562,500 206,300 825,000 837,400 850,000 862,800 875,700 888,800 902,100 Repairs & maintenance 21,943 22,300 17,800 6,700 22,300 22,600 22,900 23,200 23,500 23,900 24,300 Advertising & Publish 10,765 10,900 8,700 45,000 30,000 17,000 17,300 17,600 17,900 18,200 18,500 Supplies and Materials 44,417 45,100 36,100 13,500 45,100 45,800 46,500 47,200 47,900 48,600 49,300 Water Expense 361,870 246,000 250,900 133,000 183,000 188,500 192,300 201,000 210,000 219,500 229,400 National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 44 Palo Alto Golf Course Revenue / Expense - Option G Revenues FY2011 Actual FY2012 Projected FY2013 Projected FY2014 Projected FY2015 Projected FY2016 Projected FY2017 Projected FY2018 Projected FY2019 Projected FY2020 Projected FY2021 Projected Other Direct Charges (Incl. Electric) 45,263 45,900 36,700 13,800 41,500 42,100 42,700 43,300 43,900 44,600 45,300 Indirect Charges 102,571 104,100 83,300 31,200 104,100 105,700 107,300 108,900 110,500 112,200 113,900 Total City Operating Expenses $1,956,085 $1,994,800 $1,575,100 $759,400 $2,061,600 $2,097,500 $2,146,000 $2,182,300 $2,219,400 $2,257,900 $2,297,400 Net Income From Operations (Loss)$828,703 $710,800 $323,000 ($10,800)$1,069,100 $1,253,700 $1,429,400 $1,428,100 $1,427,700 $1,424,900 $1,422,900 Non-operating Income from Sale of Property 35,230 D/S Income $0 $29,900 $25,700 $25,700 $25,700 $25,800 $25,900 $25,900 $25,900 $0 $0 Total Non-operating $35,230 $29,900 $25,700 $25,700 $25,700 $25,800 $25,900 $25,900 $25,900 $0 $0 Total Income (Incl. Non-operating)$863,933 $740,700 $348,700 $14,900 $1,094,800 $1,279,500 $1,454,800 $1,454,000 $1,453,600 $1,424,900 $1,422,900 Debt Service $559,539 $499,000 $428,200 $429,000 $428,200 $430,800 $423,200 $432,300 $431,200 $0 $0 Payment to General Fund $94,849 $94,800 $0 $0 $0 $0 $0 $0 $0 $0 $0 New Debt Service $0 $0 $0 $0 $351,300 $351,300 $351,300 $351,300 $351,300 $351,300 $351,300 Operating & Capital Reserve $0 $0 $0 $0 $234,200 $251,100 $268,100 $270,800 $273,500 $276,200 $279,000 Cost Plan Charges $41,455 $42,700 $44,000 $45,300 $46,700 $48,100 $49,500 $51,000 $52,500 $54,100 $55,700 Total Debt / Other Charges $695,843 $636,500 $472,200 $474,300 $1,060,400 $1,081,300 $1,092,100 $1,105,400 $1,108,500 $681,600 $686,000 Net Income or (Loss)$168,090 $104,200 ($123,500)($459,400)$34,400 $198,200 $362,700 $348,600 $345,100 $743,300 $736,900 NOTE: Option G would likely include additional revenue from soccer fields estimated by City at approximately $78,000 per field per year ($234,000 for 3 fields). National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 45 FINANCIAL PROJECTIONS SUMMARY Summary of Options Comparative table for options in 2015 and 2020 are shown below: Summary in 2015 Summary in FY2015 Modest Upgrade Option A More significant upgrade / nicer features Option D Nearly complete renovation Option F Maximum renovation Option G TOTAL ROUNDS 62,800 65,700 65,700 67,900 ANNUAL ROUNDS REVENUE $1,967,709 $2,204,512 $2,204,512 $2,341,455 AVERAGE GREEN FEE PER ROUND $31.33 $33.55 $33.55 $34.48 Revenues FY2015 Projected FY2015 Projected FY2015 Projected FY2015 Projected Total Golf Course Revenues $2,589,400 $2,855,000 $2,855,000 $3,020,200 Concessions Total from F & B Concession $78,700 $81,100 $81,100 $83,500 Total From Pro Shop Concession $25,000 $26,100 $26,100 $27,000 Total Gross to City $2,693,100 $2,962,200 $2,962,200 $3,130,700 Expenses Water 195,000 161,000 182,400 225,600 Maintenance Contract 800,000 852,000 800,000 825,000 Total to Pro Shop Contract 618,600 633,200 633,200 646,300 All Other Expenses 410,500 409,300 408,300 407,300 Total City Operating Expenses 2,024,100 2,055,500 2,023,900 2,104,200 Net Income From Operations (Loss)$669,000 $906,700 $938,300 $1,026,500 Total Income (Incl. Non-operating)$694,700 $932,400 $964,000 $1,052,200 Total Debt/Other Charges $779,300 $1,501,100 $914,900 $1,016,600 Net Income or (Loss)($84,600)($568,700)$49,100 $35,600 Footnotes Partial irrigation Partial irrigation Potential for additional $78,000 Soccer revenue Potential for additional $234,000 Soccer revenue National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 46 Summary in 2020 Summary in FY2020 Modest Upgrade Option A More significant upgrade / nicer features Option D Nearly complete renovation Option F Maximum renovation Option G TOTAL ROUNDS 68,200 73,300 73,300 75,700 ANNUAL ROUNDS REVENUE $2,300,746 $2,598,658 $2,598,658 $2,762,185 AVERAGE GREEN FEE PER ROUND $33.74 $35.45 $35.45 $36.49 Revenues FY2015 Projected FY2015 Projected FY2015 Projected FY2015 Projected Total Golf Course Revenues $3,010,100 $3,361,100 $3,361,100 $3,557,300 Concessions Total from F & B Concession $87,100 $91,500 $91,500 $94,200 Total From Pro Shop Concession $28,200 $30,300 $30,300 $31,300 Total Gross to City $3,125,400 $3,482,900 $3,482,900 $3,682,800 Expenses Water 233,800 193,000 218,700 219,500 Maintenance Contract 861,800 918,000 861,800 888,800 Total to Pro Shop Contract 657,900 683,100 683,100 698,300 All Other Expenses 454,900 453,700 452,500 451,300 Total City Operating Expenses $2,208,400 $2,247,800 $2,216,100 $2,257,900 Net Income From Operations (Loss)$917,000 $1,235,100 $1,266,800 $1,424,900 Total Income (Incl. Non-operating)$917,000 $1,235,100 $1,266,800 $1,424,900 Total Debt/Other Charges $1,034,200 $814,000 $783,500 $681,600 Net Income or (Loss)($117,200)$421,100 $483,300 $743,300 Footnotes Partial irrigation Partial irrigation Potential for additional $78,000 Soccer revenue Potential for additional $234,000 Soccer revenue Summary Results The results of the NGF Consulting financial projections for Palo Alto Golf Course, based on the various reconfiguration options and the analysis and assumptions presented in this report, show that the facility will generate, to varying degrees based on the renovation option, improved rounds and revenue performance compared to the base “as is” scenario. In relation to estimating lost rounds and revenues during construction, NGF has assumed for all options under which the facility will remain open for 9-hole play that the City will still be able to provide a quality golf experience that is minimally disruptive to the golfer. National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 47 Key observations regarding projected “Baylands Golf Club at Palo Alto” financial performance: NGF has estimated that total revenues to the City will decrease by varying amounts during construction for the four options evaluated. For instance, under Option A, the total two-year cumulative reduction in gross revenue to the City is nearly $1.5 million. This is based on estimated FY 2012 gross revenues. However, because of expense reductions (e.g., range and cart payments, contract maintenance, water, indirect charges) during the time of construction, net income from operations (before debt, other costs) is estimated to decrease by ±$1.08 million over the two-year period, based on actual estimated FY 2012 net operating income. Option G, which involves a 12-month closure of all 18 holes, naturally results in the greatest reduction in revenue, with only $748,600 gross income from operations in FY 2014, when the course is closed for 9 months. The two-year cumulative loss in gross revenue to the City, using FY 2012 as a base, is estimated at nearly $2.7 million, while the loss in net income is estimate at ± $1.1 million. Rounds played, after years of decline, are projected to rebound under all of the reconfiguration options, with options D and F at stabilized total rounds at 73,300, representing a 5,100 round improvement over Option A. Option G – full renovation – results in the highest stabilized activity level, at nearly 76,000 annual rounds. Option D, which is expected to cost ±$600,000 more than base Option A, is projected to produce significantly higher net operating income than Option A, resulting in a quick pay back of the investment. Stabilized Net Operating Income (before debt and other costs such as capital, reserve, and cost plan) is projected to be highest under Option G, with 2021 NOI projected at about $1.42 million. Option F is second with ±$1.26 million, followed closely by Option D at about $1.23 million. After additional debt associated with improvements is considered, Option G is projected to produce overall Net Income to the City that is moderately lower than that of Option D. However, further down the road when the debt for Option G is paid off, it is expected to produce the highest Net Income for the City of Palo Alto. Justifications for Revenue Projections NGF is confident, given the inputs (e.g., expected quality and appeal following improvements) for each option, that the rounds, fees, revenues, and expenses projected under each scenario are reasonable and achievable. The highest stabilized rounds activity we have projected under any scenario was less than 76,000 total rounds, a level that was achieved as recently as 2007- 08 (and was far exceeded in the past) with a product that was inferior to what a reconfigured and re-branded golf course will bring to market. Also, we feel we have been conservative in terms of the fee increases that the improved facility will be able to sustain. Likewise, we believe it is more difficult to estimate the impact on revenues during the time of construction, as there are many variables, not the least of which are golfer behavior and preferences. Pro formas are, by their nature, models based on a set of assumptions that may or may not become reality and which are subject to a number of uncontrollable factors (e.g., weather variations, the economy, quality/quantity of the competition), but NGF believes that our projections represent a “reasonable” estimate of performance for the “Baylands” facility based on the factors discussed in this report. Among the factors considered when crafting our projections for each model are: National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 48 Expected higher quality of the Palo Alto Municipal Golf Course (level of improvement depends on intensity of Reconfiguration Option chosen, level of “additional” work). Re-branding and effective marketing of the “Baylands Golf Club at Palo Alto”, along with more proactive direct selling of larger tournaments and events. Reinventing the product should re-energize the current customer base, resulting in increased frequency of play, and also position the facility to compete more effectively for non-resident rounds. Results of ERA’s 2008 survey revealed that the number one reason Palo Alto GC was not the primary course of respondents was “course quality/play experience”. Maintenance conditions that will position the facility in the mid-to-upper tier of municipal golf courses in this market. Non-resident green fees at Palo Alto, especially on weekends, are at the low end of the price range among the direct municipal competitors. With an improved product, there should be little resistance to modest price increases at the “Baylands”. Maintaining a strong price/value proposition will ensure that the improved golf course remains very competitive in the area market despite expected modest fee increases. Palo Alto Municipal Golf Course is operating at rounds levels that are will below peak levels from 1990s and early-to-mid 2000s. The facility has achieved rounds played levels close to what NGF Consulting is projecting under the most favorable option as recently as FY 2008. The Bay Area remains one of the most active markets for municipal golf in the nation. At the peak of the market, Palo Alto and several of its chief competitors realized annual activity levels approaching, or even exceeding, 100,000 rounds. Though play levels may never approach these extraordinary numbers again, we believe the market has the potential to make a recovery. NGF believes there is a lack of truly outstanding direct competitors to Palo Alto GC. Also, it is likely that no new golf course inventory will be added to this market for the foreseeable future. Potential for regional economic recovery, increased discretionary income, etc. The Bay Area and Silicon Valley have some specific economic attributes that act as natural demand drivers for quality golf courses, including high incomes, an extremely robust corporate presence, and one very high visitation numbers. Other Considerations Regarding Improvement Options Aside from the expected economic impact of the various base Reconfiguration Options, there remain questions that will need to be addressed as the City weighs the reconfiguration options, their respective forecasts in terms of rounds/revenue and what additional work will still be required in the instance of doing less now and deferring certain improvements to later. The overriding decision to be made is plan option (A, D, F or G) to go with and how that fundamental decision will affect future decisions. For example, reconfiguration Option A, while least costly of those to be considered, precludes routing improvements beyond those of the few holes being shifted and places overall restrictions on future improvements to the golf asset. Largely, the golf course would remain the same in its anatomy for the long term under A, but of course the golf course may be in much better condition and may be complemented by better support amenities in the future. The misconnection may be the course itself — much nicer, but as our grading exercise concludes, not to the level of the other options because of their improvements to hole- orientation, variety and excitement. National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 49 The success rate for increased revenues, better reputation and the ability to be true to the idea of a transformed golf experience, increases with a more intensive re-working of the golf course. The decision on which option to adopt will need to take into account many factors, together with the financial forecasts prepared. OPTION “G” SENSITIVITY ANALYSIS As noted, pro forma projections have been made under a set of assumptions that may or may not come to fruition. Also, projections are subject to several uncontrollable factors such as yearly weather variations, economic conditions, and the nature of the competition. Therefore, in the interest of conservatism we have prepared a sensitivity analysis for Option G (identified by the City as the preferred option) of two key variables related to revenues – rounds played and average green fee. Specifically, we have run three scenarios that present deviations from the “base” model presented above: (1) Rounds reduced to moderately lower than projected FY 12 performance, continuing downward trend; (2) Average green fee increasing over current by just less than half the 15% projected increase in base model; and (3) Rounds and average green fees both lower, in combination. Because of the virtually limitless number of combinations, other variables, such as fixed operating expenses, remain the same as in the base scenario. The sensitivity scenarios reveal that the lower than projected (base) green fee growth would result in a reduction in net income of approximately 47% over the base case. Reduced rounds result in a ±$500,000 reduction in net income, while the “worst case” – both rounds and green fee increases below the projected base model – produces about $640,000 lower net income. Option “G” Sensitivity Analysis - Summary for 2017 Summary in FY2017 Expected Case Option G Reduced Rounds Option G Reduced Fees Option G Reduced Rounds + Fees Option G TOTAL ROUNDS 75,700 63,100 75,700 63,100 ANNUAL ROUNDS REVENUE $2,680,949 $2,221,879 $2,487,511 $2,062,380 AVERAGE GREEN FEE PER ROUND $35.42 $35.21 $32.86 $32.68 Revenues FY2017 Projected FY2017 Projected FY2017 Projected FY2017 Projected Total Golf Course Revenues $3,452,900 $2,865,400 $3,259,500 $2,705,900 Concessions Total from F & B Concession $91,800 $81,100 $91,800 $81,100 Total From Pro Shop Concession $30,700 $25,600 $30,700 $25,600 Total Gross to City $3,575,400 $2,972,100 $3,382,000 $2,812,600 Expenses Total City Operating Expenses 2,146,000 2,088,800 2,143,300 2,086,600 Net Income From Operations (Loss)$1,429,400 $883,300 $1,238,700 $726,000 Total Income (Incl. Non-operating)$1,454,800 $908,700 $1,264,100 $751,400 Total Debt/Other Charges $1,092,100 $1,046,200 $1,072,800 $1,030,200 Net Income or (Loss)$362,700 ($137,500)$191,300 ($278,800) National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 50 Option G Sensitivity Spreadsheets Palo Alto Golf Course Revenue / Expense - Option G (Reduced Rounds Sensitivity) FY2011 Actual FY2012 Projected FY2013 Projected FY2014 Projected FY2015 Projected FY2016 Projected FY2017 Projected FY2018 Projected FY2019 Projected FY2020 Projected FY2021 Projected Total Rounds 66,740 64,700 47,900 16,000 53,150 58,100 63,100 67,900 67,900 67,900 67,900 Golf Course Revenues Green Fees (Incl. Cards) $2,016,537 $1,960,100 $1,445,100 $544,300 $1,810,100 $2,013,600 $2,221,900 $2,424,700 $2,448,900 $2,473,400 $2,498,200 Cart Fees 302,799 293,500 173,900 72,600 243,600 268,900 295,000 320,600 323,800 327,000 330,300 Driving Range 343,911 333,400 197,500 82,400 276,600 305,400 335,000 364,100 367,700 371,400 375,100 Tournament / League Fees 2,196 2,100 1,600 500 1,700 1,900 2,100 2,200 2,200 2,200 2,200 Other 11,813 11,500 6,800 2,800 9,400 10,300 11,400 12,300 12,500 12,500 12,800 Total Golf Course Revenues $2,677,256 $2,600,600 $1,824,900 $702,600 $2,341,400 $2,600,100 $2,865,400 $3,123,900 $3,155,100 $3,186,500 $3,218,600 Concession Payments Food and Beverage Concession Variable Portion $55,076 $53,400 $31,600 $13,200 $44,300 $48,900 $53,700 $58,300 $58,900 $59,500 $60,100 Utility Payment $25,920 $25,900 $26,400 $26,400 $26,900 $26,900 $27,400 $27,400 $27,900 $27,900 $28,500 Total from F & B Concession $80,996 $79,300 $58,000 $39,600 $71,200 $75,800 $81,100 $85,700 $86,800 $87,400 $88,600 Pro Shop Lease Merchandise (4%) $26,536 $25,700 $15,200 $6,400 $21,100 $23,100 $25,600 $27,500 $28,100 $28,100 $28,600 Total From Pro Shop Concession $26,536 $25,700 $15,200 $6,400 $21,100 $23,100 $25,600 $27,500 $28,100 $28,100 $28,600 Total Gross to City $2,784,788 $2,705,600 $1,898,100 $748,600 $2,433,700 $2,699,000 $2,972,100 $3,237,100 $3,270,000 $3,302,000 $3,335,800 Operating Expenses FY2011 Actual FY2012 Projected FY2013 Projected FY2014 Projected FY2015 Projected FY2016 Projected FY2017 Projected FY2018 Projected FY2019 Projected FY2020 Projected FY2021 Projected Salaries & Benefits $259,455 $139,000 $145,300 $151,800 $158,600 $165,700 $173,200 $181,000 $189,100 $197,600 $206,500 Range Fees 130,152 126,700 75,100 31,300 105,100 116,100 127,300 138,400 139,700 141,100 142,500 Cart Fees 117,529 117,400 69,600 29,000 97,400 107,600 118,000 128,200 129,500 130,800 132,100 Club Fees 5,576 5,700 4,600 1,700 5,700 5,800 5,900 6,000 6,100 6,200 6,300 Fixed Lozares Management Fee 345,333 345,300 259,000 86,300 345,300 345,300 345,300 345,300 345,300 345,300 345,300 Merchant Fees Reimbursement 36,211 36,400 25,500 9,800 32,800 36,400 40,100 43,700 44,200 44,600 45,100 Contract Maintenance 475,000 750,000 562,500 206,300 825,000 837,400 850,000 862,800 875,700 888,800 902,100 Repairs & maintenance 21,943 22,300 17,800 6,700 22,300 22,600 22,900 23,200 23,500 23,900 24,300 Advertising & Publish 10,765 10,900 8,700 45,000 30,000 17,000 17,300 17,600 17,900 18,200 18,500 Supplies and Materials 44,417 45,100 36,100 13,500 45,100 45,800 46,500 47,200 47,900 48,600 49,300 National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 51 Palo Alto Golf Course Revenue / Expense - Option G (Reduced Rounds Sensitivity) FY2011 Actual FY2012 Projected FY2013 Projected FY2014 Projected FY2015 Projected FY2016 Projected FY2017 Projected FY2018 Projected FY2019 Projected FY2020 Projected FY2021 Projected Water Expense 361,870 246,000 250,900 133,000 183,000 188,500 192,300 201,000 210,000 219,500 229,400 Other Direct Charges (Incl. Electric) 45,263 45,900 36,700 13,800 41,500 42,100 42,700 43,300 43,900 44,600 45,300 Indirect Charges 102,571 104,100 83,300 31,200 104,100 105,700 107,300 108,900 110,500 112,200 113,900 Total City Operating Expenses $1,956,085 $1,994,800 $1,575,100 $759,400 $1,995,900 $2,036,000 $2,088,800 $2,146,600 $2,183,300 $2,221,400 $2,260,600 Net Income From Operations (Loss)$828,703 $710,800 $323,000 ($10,800)$437,800 $663,000 $883,300 $1,090,500 $1,086,700 $1,080,600 $1,075,200 Non-operating Income from Sale of Property 35,230 D/S Income $0 $29,900 $25,700 $25,700 $25,700 $25,800 $25,900 $25,900 $25,900 $0 $0 Total Non-operating $35,230 $29,900 $25,700 $25,700 $25,700 $25,800 $25,900 $25,900 $25,900 $0 $0 Total Income (Incl. Non-operating)$863,933 $740,700 $348,700 $14,900 $463,500 $688,800 $908,700 $1,116,400 $1,112,600 $1,080,600 $1,075,200 Debt Service $559,539 $499,000 $428,200 $429,000 $428,200 $430,800 $423,200 $432,300 $431,200 $0 $0 Payment to General Fund $94,849 $94,800 $0 $0 $0 $0 $0 $0 $0 $0 $0 New Debt Service $0 $0 $0 $0 $351,300 $351,300 $351,300 $351,300 $351,300 $351,300 $351,300 Operating & Capital Reserve $0 $0 $0 $0 $181,000 $201,400 $222,200 $242,500 $244,900 $247,300 $249,800 Cost Plan Charges $41,455 $42,700 $44,000 $45,300 $46,700 $48,100 $49,500 $51,000 $52,500 $54,100 $55,700 Total Debt / Other Charges $695,843 $636,500 $472,200 $474,300 $1,007,200 $1,031,600 $1,046,200 $1,077,100 $1,079,900 $652,700 $656,800 Net Income or (Loss)$168,090 $104,200 ($123,500)($459,400)($543,700)($342,800)($137,500)$39,300 $32,700 $427,900 $418,400 NOTE: Option G would likely include additional revenue from soccer fields of approximately $78,000 per field per year ($234,000 for 3 fields). National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 52 Palo Alto Golf Course Revenue / Expense - Option G (Reduced Fees Sensitivity) FY2011 Actual FY2012 Projected FY2013 Projected FY2014 Projected FY2015 Projected FY2016 Projected FY2017 Projected FY2018 Projected FY2019 Projected FY2020 Projected FY2021 Projected Total Rounds 66,740 64,700 47,900 16,000 67,900 71,800 75,700 75,700 75,700 75,700 75,700 Golf Course Revenues Green Fees (Incl. Cards) $2,016,537 $1,960,100 $1,445,100 $503,800 $2,172,600 $2,329,500 $2,487,500 $2,512,400 $2,537,500 $2,562,900 $2,588,500 Cart Fees 302,799 293,500 173,900 72,600 311,100 332,300 353,900 357,400 361,000 364,600 368,200 Driving Range 343,911 333,400 197,500 82,400 353,400 377,400 401,900 405,900 410,000 414,100 418,200 Tournament / League Fees 2,196 2,100 1,600 500 2,200 2,400 2,500 2,500 2,500 2,500 2,500 Other 11,813 11,500 6,800 2,800 12,000 12,700 13,700 13,700 13,900 13,900 14,200 Total Golf Course Revenues $2,677,256 $2,600,600 $1,824,900 $662,100 $2,851,300 $3,054,300 $3,259,500 $3,291,900 $3,324,900 $3,358,000 $3,391,600 Concession Payments Food and Beverage Concession Variable Portion $55,076 $53,400 $31,600 $13,200 $56,600 $60,400 $64,400 $65,000 $65,700 $66,300 $67,000 Utility Payment $25,920 $25,900 $26,400 $26,400 $26,900 $26,900 $27,400 $27,400 $27,900 $27,900 $28,500 Total from F & B Concession $80,996 $79,300 $58,000 $39,600 $83,500 $87,300 $91,800 $92,400 $93,600 $94,200 $95,500 Pro Shop Lease Merchandise (4%) $26,536 $25,700 $15,200 $6,400 $27,000 $28,500 $30,700 $30,700 $31,300 $31,300 $31,900 Total From Pro Shop Concession $26,536 $25,700 $15,200 $6,400 $27,000 $28,500 $30,700 $30,700 $31,300 $31,300 $31,900 Total Gross to City $2,784,788 $2,705,600 $1,898,100 $708,100 $2,961,800 $3,170,100 $3,382,000 $3,415,000 $3,449,800 $3,483,500 $3,519,000 Operating Expenses FY2011 Actual FY2012 Projected FY2013 Projected FY2014 Projected FY2015 Projected FY2016 Projected FY2017 Projected FY2018 Projected FY2019 Projected FY2020 Projected FY2021 Projected Salaries & Benefits $259,455 $139,000 $145,300 $151,800 $158,600 $165,700 $173,200 $181,000 $189,100 $197,600 $206,500 Range Fees 130,152 126,700 75,100 31,300 134,300 143,400 152,700 154,200 155,800 157,400 158,900 Cart Fees 117,529 117,400 69,600 29,000 124,400 132,900 141,600 143,000 144,400 145,800 147,300 Club Fees 5,576 5,700 4,600 1,700 5,700 5,800 5,900 6,000 6,100 6,200 6,300 Fixed Lozares Management Fee 345,333 345,300 259,000 86,300 345,300 345,300 345,300 345,300 345,300 345,300 345,300 Merchant Fees Reimbursement 36,211 36,400 25,500 9,300 39,900 42,800 45,600 46,100 46,500 47,000 47,500 Contract Maintenance 475,000 750,000 562,500 206,300 825,000 837,400 850,000 862,800 875,700 888,800 902,100 Repairs & maintenance 21,943 22,300 17,800 6,700 22,300 22,600 22,900 23,200 23,500 23,900 24,300 Advertising & Publish 10,765 10,900 8,700 45,000 30,000 17,000 17,300 17,600 17,900 18,200 18,500 Supplies and Materials 44,417 45,100 36,100 13,500 45,100 45,800 46,500 47,200 47,900 48,600 49,300 National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 53 Palo Alto Golf Course Revenue / Expense - Option G (Reduced Fees Sensitivity) FY2011 Actual FY2012 Projected FY2013 Projected FY2014 Projected FY2015 Projected FY2016 Projected FY2017 Projected FY2018 Projected FY2019 Projected FY2020 Projected FY2021 Projected Water Expense 361,870 246,000 250,900 133,000 183,000 188,500 192,300 201,000 210,000 219,500 229,400 Other Direct Charges (Incl. Electric) 45,263 45,900 36,700 13,800 41,500 42,100 42,700 43,300 43,900 44,600 45,300 Indirect Charges 102,571 104,100 83,300 31,200 104,100 105,700 107,300 108,900 110,500 112,200 113,900 Total City Operating Expenses $1,956,085 $1,994,800 $1,575,100 $758,900 $2,059,200 $2,095,000 $2,143,300 $2,179,600 $2,216,600 $2,255,100 $2,294,600 Net Income From Operations (Loss)$828,703 $710,800 $323,000 ($50,800)$902,600 $1,075,100 $1,238,700 $1,235,400 $1,233,200 $1,228,400 $1,224,400 Non-operating Income from Sale of Property 35,230 D/S Income $0 $29,900 $25,700 $25,700 $25,700 $25,800 $25,900 $25,900 $25,900 $0 $0 Total Non-operating $35,230 $29,900 $25,700 $25,700 $25,700 $25,800 $25,900 $25,900 $25,900 $0 $0 Total Income (Incl. Non-operating)$863,933 $740,700 $348,700 ($25,100)$928,300 $1,100,900 $1,264,100 $1,261,300 $1,259,100 $1,228,400 $1,224,400 Debt Service $559,539 $499,000 $428,200 $429,000 $428,200 $430,800 $423,200 $432,300 $431,200 $0 $0 Payment to General Fund $94,849 $94,800 $0 $0 $0 $0 $0 $0 $0 $0 $0 New Debt Service $0 $0 $0 $0 $351,300 $351,300 $351,300 $351,300 $351,300 $351,300 $351,300 Operating & Capital Reserve $0 $0 $0 $0 $217,300 $233,000 $248,800 $251,200 $253,800 $256,300 $258,900 Cost Plan Charges $41,455 $42,700 $44,000 $45,300 $46,700 $48,100 $49,500 $51,000 $52,500 $54,100 $55,700 Total Debt / Other Charges $695,843 $636,500 $472,200 $474,300 $1,043,500 $1,063,200 $1,072,800 $1,085,800 $1,088,800 $661,700 $665,900 Net Income or (Loss)$168,090 $104,200 ($123,500)($499,400)($115,200)$37,700 $191,300 $175,500 $170,300 $566,700 $558,500 NOTE: Option G would likely include additional revenue from soccer fields estimated by City to be approximately $78,000 per field per year ($234,000 for 3 fields). National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 54 Palo Alto Golf Course Revenue / Expense - Option G (Reduced Rounds + Fees Sensitivity) FY2011 Actual FY2012 Projected FY2013 Projected FY2014 Projected FY2015 Projected FY2016 Projected FY2017 Projected FY2018 Projected FY2019 Projected FY2020 Projected FY2021 Projected Total Rounds 66,740 64,700 47,900 16,000 53,150 58,100 63,100 67,900 67,900 67,900 67,900 Golf Course Revenues Green Fees (Incl. Cards) $2,016,537 $1,960,100 $1,445,100 $503,800 $1,680,700 $1,869,300 $2,062,400 $2,250,400 $2,272,900 $2,295,600 $2,318,600 Cart Fees 302,799 293,500 173,900 72,600 243,600 268,900 295,000 320,600 323,800 327,000 330,300 Driving Range 343,911 333,400 197,500 82,400 276,600 305,400 335,000 364,100 367,700 371,400 375,100 Tournament / League Fees 2,196 2,100 1,600 500 1,700 1,900 2,100 2,200 2,200 2,200 2,200 Other 11,813 11,500 6,800 2,800 9,400 10,300 11,400 12,300 12,500 12,500 12,800 Total Golf Course Revenues $2,677,256 $2,600,600 $1,824,900 $662,100 $2,212,000 $2,455,800 $2,705,900 $2,949,600 $2,979,100 $3,008,700 $3,039,000 Concession Payments Food and Beverage Concession Variable Portion $55,076 $53,400 $31,600 $13,200 $44,300 $48,900 $53,700 $58,300 $58,900 $59,500 $60,100 Utility Payment $25,920 $25,900 $26,400 $26,400 $26,900 $26,900 $27,400 $27,400 $27,900 $27,900 $28,500 Total from F & B Concession $80,996 $79,300 $58,000 $39,600 $71,200 $75,800 $81,100 $85,700 $86,800 $87,400 $88,600 Pro Shop Lease Merchandise (4%) $26,536 $25,700 $15,200 $6,400 $21,100 $23,100 $25,600 $27,500 $28,100 $28,100 $28,600 Total From Pro Shop Concession $26,536 $25,700 $15,200 $6,400 $21,100 $23,100 $25,600 $27,500 $28,100 $28,100 $28,600 Total Gross to City $2,784,788 $2,705,600 $1,898,100 $708,100 $2,304,300 $2,554,700 $2,812,600 $3,062,800 $3,094,000 $3,124,200 $3,156,200 Operating Expenses FY2011 Actual FY2012 Projected FY2013 Projected FY2014 Projected FY2015 Projected FY2016 Projected FY2017 Projected FY2018 Projected FY2019 Projected FY2020 Projected FY2021 Projected Salaries & Benefits $259,455 $139,000 $145,300 $151,800 $158,600 $165,700 $173,200 $181,000 $189,100 $197,600 $206,500 Range Fees 130,152 126,700 75,100 31,300 105,100 116,100 127,300 138,400 139,700 141,100 142,500 Cart Fees 117,529 117,400 69,600 29,000 97,400 107,600 118,000 128,200 129,500 130,800 132,100 Club Fees 5,576 5,700 4,600 1,700 5,700 5,800 5,900 6,000 6,100 6,200 6,300 Fixed Lozares Management Fee 345,333 345,300 259,000 86,300 345,300 345,300 345,300 345,300 345,300 345,300 345,300 Merchant Fees Reimbursement 36,211 36,400 25,500 9,300 31,000 34,400 37,900 41,300 41,700 42,100 42,500 Contract Maintenance 475,000 750,000 562,500 206,300 825,000 837,400 850,000 862,800 875,700 888,800 902,100 Repairs & maintenance 21,943 22,300 17,800 6,700 22,300 22,600 22,900 23,200 23,500 23,900 24,300 Advertising & Publish 10,765 10,900 8,700 45,000 30,000 17,000 17,300 17,600 17,900 18,200 18,500 Supplies and Materials 44,417 45,100 36,100 13,500 45,100 45,800 46,500 47,200 47,900 48,600 49,300 National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 55 Palo Alto Golf Course Revenue / Expense - Option G (Reduced Rounds + Fees Sensitivity) FY2011 Actual FY2012 Projected FY2013 Projected FY2014 Projected FY2015 Projected FY2016 Projected FY2017 Projected FY2018 Projected FY2019 Projected FY2020 Projected FY2021 Projected Water Expense 361,870 246,000 250,900 133,000 183,000 188,500 192,300 201,000 210,000 219,500 229,400 Other Direct Charges (Incl. Electric) 45,263 45,900 36,700 13,800 41,500 42,100 42,700 43,300 43,900 44,600 45,300 Indirect Charges 102,571 104,100 83,300 31,200 104,100 105,700 107,300 108,900 110,500 112,200 113,900 Total City Operating Expenses $1,956,085 $1,994,800 $1,575,100 $758,900 $1,994,100 $2,034,000 $2,086,600 $2,144,200 $2,180,800 $2,218,900 $2,258,000 Net Income From Operations (Loss)$828,703 $710,800 $323,000 ($50,800)$310,200 $520,700 $726,000 $918,600 $913,200 $905,300 $898,200 Non-operating Income from Sale of Property 35,230 D/S Income $0 $29,900 $25,700 $25,700 $25,700 $25,800 $25,900 $25,900 $25,900 $0 $0 Total Non-operating $35,230 $29,900 $25,700 $25,700 $25,700 $25,800 $25,900 $25,900 $25,900 $0 $0 Total Income (Incl. Non-operating)$863,933 $740,700 $348,700 ($25,100)$335,900 $546,500 $751,400 $944,500 $939,100 $905,300 $898,200 Debt Service $559,539 $499,000 $428,200 $429,000 $428,200 $430,800 $423,200 $432,300 $431,200 $0 $0 Payment to General Fund $94,849 $94,800 $0 $0 $0 $0 $0 $0 $0 $0 $0 New Debt Service $0 $0 $0 $0 $351,300 $351,300 $351,300 $351,300 $351,300 $351,300 $351,300 Operating & Capital Reserve $0 $0 $0 $0 $168,100 $186,900 $206,200 $225,000 $227,300 $229,600 $231,900 Cost Plan Charges $41,455 $42,700 $44,000 $45,300 $46,700 $48,100 $49,500 $51,000 $52,500 $54,100 $55,700 Total Debt / Other Charges $695,843 $636,500 $472,200 $474,300 $994,300 $1,017,100 $1,030,200 $1,059,600 $1,062,300 $635,000 $638,900 Net Income or (Loss)$168,090 $104,200 ($123,500)($499,400)($658,400)($470,600)($278,800)($115,100)($123,200)$270,300 $259,300 NOTE: Option G would likely include additional revenue from soccer fields estimated by City at approximately $78,000 per field per year ($234,000 for 3 fields). National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 56 Other Issues and Considerations MARKET POSITION / RE-BRANDING OPPORTUNITY NGF Consulting has reviewed the image and brand recommendations made to the City as part of the expanded scope of services to address long range considerations. We conclude that closer integration of the golf course to the Palo Alto Baylands Preserve, “The Baylands”, should positively affect the City’s efforts to brand this area as a destination for Palo Alto residents and visitors alike. Celebrated as an open space and nature preserve area, the Baylands represents a rich and positive locale within Palo Alto and the Silicon Valley Region and will be enhanced with an improved and re-branded golf product. Currently, Palo Alto Municipal Golf Course effectively lacks a brand image, and the facility is very closely associated with the long-time golf concessionaire – so much so that the website address for the golf course is bradlozaresgolfshop.com, and recorded phone messages mention only the golf shop and not the golf course. We believe that a name change to “Baylands Golf Club at Palo Alto” represents a positive move that will have the effect of repositioning the golf course, distancing it from a “muni” layout. Additionally, it will signal a transformation from an older, “worn down” layout to one that has renewed excitement and positive change. The recommendation to retain “Palo Alto” as part of the course image and brand is a good way to connect with the existing name, as well as the City itself. Use of “Golf Club” in lieu of “Golf Course” is an additional signal that the golf experience is not only something new, but at a higher quality. The marketing theme “Public only in price, access and pride”is an excellent message to remind the customer that the golf facility remains accessible, open to the public and priced to provide one of the better golfing values in the Bay Area. This message also reinforces the transformation, ideally a win-win for the golf consumer to receive high quality at a “municipal” price point. Sample magazine ads provided as part of the Marketing and Theme recommendations hit on important concepts, including: Silicon Valley Location Tradition – The design legacy of Billy Bell The Transformation (i.e., the changes) The “Green” Environmental Commitment of the Facility Our belief is that proper implementation (adequate budgets, quality control and proper media placement) of the program will have a dramatic effect on driving new business to the “new” golf facility. Equally important will be the affect that these messages and the new brand will have on existing customers, and residents of Palo Alto and its neighboring communities who currently play golf elsewhere. In essence, the program for re-branding, introducing a new image and theme, and the marketing program, has the potential to have a very positive affect on rounds and associated revenues. National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 57 A commitment on the City’s part to becoming certified with Audubon international as a “Sanctuary Golf Facility” is an integral part of the ability to market the course as a “green” aware and operated golf facility. This goal should be undertaken regardless of which reconfiguration option is opted by the City and should be workable given the operation and/or marketing budgets afforded. (Note: Beginning this process now, prior to any reconfiguration work, will help guide the reconfiguration work and will also establish a greater degree of improvement by which to attain the Audubon status for the facility). Plan Option A poses the greatest challenge to be consistent with the image, brand and marketing changes recommended because it does not go as deep into the many areas of the course in terms of new features and reconstructed areas. However, the fact that Plan Option A will dramatically reduce turf through the course-wide work to create native areas and new “Baylands” themed areas should be an adequately appreciated change. Plan Options D, F and G will have no issues aligning with any of the themes and messages recommended. With emphasis on a quality, outstanding golf facility, the City may be able to realize what we have referred to as a “destination” public golf experience. In the Bay area we would point to such courses as Pasatiempo in Santa Cruz and Harding Park in San Francisco as meeting this definition. These two courses are good examples of courses that have attained a reputation through the following attributes: Legacy of the original design Transformation from marginal to excellent conditions Commitment by the municipal owners to reinvest in the assets Quality rebuilding efforts Good marketing of the finished courses and facilities While both of the above examples are classic era designs (Pasatiempo by Alister MacKenzie, and Harding Park by Willie Watson) it is still appropriate to reference their successes relative to what Palo Alto Golf Course could attain. Whether undertaken under one, larger reinvestment project, or carried out over time, the potential transformation of Palo Alto Golf Course is bolstered by a number of factors inherent in the facility: A design legacy that can be leveraged — William P. and William F. Bell, the former responsible for designs such as Stanford, Riviera and Bel-Air A location that sits at the heart of Silicon Valley A seaside setting that has greater potential to take advantage of its natural landscape — the Baylands environment, Bay and adjoining Sanfrancisquito Creek A population base that is robust for golf rounds by non-residents A location that is in one of the top tourist areas in the nation Obviously, undertaking more intensive reconfiguration (such as with Plan G) will transform more of the existing course and is likely to meet this goal on a stronger basis. So, too, may investing in more of the alternate, optional improvements, including many of the long range improvements before the City for consideration. National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 58 ECONOMICS OF POTENTIAL LONG-TERM / ADDITIONAL IMPROVEMENTS Forrest Richardson has proposed that the City study the feasibility of certain facility improvements that are in addition to the base improvements recommended within Reconfiguration Options A, D, F, and G (please see Appendix E for summary table of potential improvements and estimated costs). Though NGF believes that many of these improvements would improve the overall quality of the golfer (and non-golf customer) experience, as well as the image of the facility in the eyes of area golfers, it is not practical to assign incremental rounds played and revenue dollars to many of these improvements (e.g., exterior and entry upgrades, signage/parking, rebuilding practice greens, “alternate” golf course improvements, designated youth area). Practically, these improvements, to varying degrees individually and certainly as a sum of their parts, are likely to draw more patrons overall, keep them on-site longer, and increase their propensity to spend while at the golf course. We have confined our break-even analysis to several potential improvements that tie more directly to revenue: (1) The cart storage building; (2) Expanded meeting space; and (3) Range Performance Center. Cart Storage Building At just $4.54 per round in FY 2011, the average gross cart fee revenue per round at Palo Alto Golf Course significantly trails the average of its chief competitive set (see ERA 2008 report for City). While the low cart utilization is partially a function of the “walkability” of the golf course, ridership and revenues have also likely been constrained by the very limited cart storage. Palo Alto GC has only 46 carts available, some of which are older gasoline powered carts stored in open storage outside the clubhouse (fewer than 35 carts can be stored below the clubhouse). A more typical inventory for most regulation length 18-hole golf courses is ±70 carts. We are told that for larger tournaments, additional carts must be leased and brought in from off-site. In summary, NGF believes it is likely that the limited cart inventory and storage space available has constrained ridership and may have actually negatively affected demand for daily fee and, especially, tournament play on occasion. As part of Forrest Richardson’s overall capital improvement plan for Palo Alto GC, he has included construction of a new cart storage building at an estimated cost of $440,000. In the table below, we illustrate the number of years it will take for the City to break even on this investment, assuming different levels of incremental gross cart rental revenue per round, the current rent percentage of 60%, and stabilized rounds activity under Options D and F – 73,300 rounds. Of course, as noted, it is possible that having additional carts will have a positive effect on rounds played as well, but for purposes of conservatism we are illustrating only increases in cart revenue per round. We also assume that all expenses associated with the cart lease and maintenance will remain the responsibility of the vendor, and that there will be no incremental City operating costs associated with the new building. Palo Alto Golf Course Break-Even Analysis for Cart Storage Building Average Gross Cart Revenue Per Round Increase $0.50 $1.00 $1.50 $2.00 $2.50 Incremental Gross Revenue* $36,650 $73,300 $109,950 $146,600 $183,250 Incremental Revenue to City* $21,990 $43,980 $65,970 $87,960 $109,950 Years to B/E* 20.0 10.0 6.7 5.0 4.0 *Assumes $440,000 estimated cost and stabilized rounds played of 73,300 from Options D,F National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 59 Expanded Meeting Space The existing restaurant at Palo Alto GC has limited meeting space that has significantly constrained meeting and banquet business at the facility. Not being able to accommodate larger events of ±250 people precludes the facility from competing for the most lucrative, high margin food & beverage business. As such, expanding the meeting/banquet space is another component of the long range improvement plan prepared for the City by Mr. Richardson. Based on the estimated cost provided of $1.7 million, and assuming the City incurs all of the cost of the improvement, the annual debt service on a 20-year note at 3.5% would be $120,000 (rounded). NGF has calculated that the incremental annual gross food & beverage revenue necessary to generate $120,000 in additional rents to the City to meet the annual debt service is more than $1.71 million. This calculation is based on the current rent percentage of 7%. In its 2008 study, ERA noted: “Based on the experience of similar golf course oriented banquet facilities and the demographics of the area, expanding the clubhouse to accommodate special events with up to 250 attendees would add $600,000 to $700,000 in annual special event revenue. This rental income would justify about one-half of the cost of the improvements.” NGF concurs that achieving this level of incremental gross revenue would likely be an achievable goal, but with updated cost estimates, this level of revenue would justify only about 40% of the investment cost. Therefore, the balance of the City investment in the expanded facility would have to be justified through the incremental rounds and associated revenues attributable directly to the expanded meeting facilities. Based on current and projected average green + cart (City share) fee revenue per round, it would take 2,000 to 3,000 of these rounds to help fund the expanded facilities. Of course, the equation would change markedly if gross revenues accrued to the City under an alternate operating structure. Range Performance Center In the table below, we provide a similar break-even analysis to the one for the cart storage building. Mr. Richardson’s cost estimate for the range performance center, plus the additional 6- bay range expansion (we assume both are undertaken together), is $600,000. In the table below, we illustrate the number of years it will take for the City to break even on this investment, assuming different levels of incremental gross driving range revenue per round (gross per round was $5.15 in FY 11), the rent percentage of 62%, and stabilized rounds activity under Options D and F – 73,300 rounds. Of course, it cannot be determined what percentage of range activity is a function of number of bays as opposed to rounds played, so we have chosen to do a sensitivity analysis by increasing average revenue per round rather than per tee station. Another factor driving this methodology is that the performance center bays will be used for teaching, and will likely have less utilization than the already existing bays. We also assume that all incremental expenses associated with the expanded range remain the responsibility of the concessionaire, and that there will be no incremental City operating costs associated with the new building. Finally, we assume that the City receives no lesson revenue. National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 60 Palo Alto Golf Course – B/E Analysis for Range Performance Center + 6-Bay Expansion Average Gross Range Revenue Per Round Increase $0.50 $0.75 $1.00 $1.25 $1.50 Incremental Gross Revenue* $36,650 $54,975 $73,300 $91,625 $109,950 Incremental Revenue to City* $22,723 $34,085 $45,446 $56,808 $68,169 Years to B/E* 26.4 17.6 13.2 10.6 8.8 *Assumes $600,000 estimated cost and stabilized rounds played of 73,300 from Options D,F MANAGEMENT STRUCTURE NGF was told that some City staff would like to further explore - via issuance of an RFP in advance of the Pro Shop and Maintenance agreements expiring in April, 2013 - the implications of changing the operating structure at Palo Alto Golf Course to a management contract. We have been asked to offer our opinion as to whether this type of structure would be more effective, or produce higher net operating income to the City, than the current “hybrid” structure that involves both a management fee and a concession on the golf operations side, privatized maintenance, and a separate food & beverage concession. As Economic Research Associates (ERA) noted in their 2008 Operations Review of the Palo Alto Municipal Golf Course, the current agreement for golf operations evolved due to IRS regulations related to the tax-exempt financing utilized for the late 1990s renovation of the golf course. Specifically, at least 50% of the compensation within a management agreement must be fixed fee in such a case. ERA, after doing the full operations analysis, concluded that the current pro shop deal was “slightly favorable” to the concessionaire. After running cash flow models under various operating scenarios, ERA concluded that City Net Income was maximized with private maintenance (subsequently put in place) and “market rate” concession terms. However, they also noted that “market rate”, which involved lower concession rents to the City and an elimination of the management fee, was not permissible by the IRS without a restructuring of the current debt. ERA concluded that, among the operating models that were permissible within the current debt framework, the structure that is now in place at Palo Alto Golf Course – no change in contract terms, but with private maintenance – produced the highest City Net Income. A full-service Management Agreement produced the second highest City Net Income. Without doing a full operations review, NGF does not have sufficient information to critically evaluate ERA’s analysis or to identify the operating structure that would be the best fit for Palo Alto GC. While there are a number of advantages to the full service management contract structure, it is also true that “no one size fits all”. There are many factors and variables to consider when evaluating options, and it would be unfair to both the City and the current vendors for a consultant to make a recommendation regarding the optimal structure without being retained to do a full facility analysis. Carefully evaluating the value proposition that each of the current vendors brings to the table would be just one component of such an analysis. For instance, the golfer survey that ERA implemented as part of their 2008 study showed that Brad Lozares was rated quite high by golfers, indicating considerable goodwill and “equity” built up in the golf shop. Similarly, NGF has been told of improved maintenance conditions (as well as considerable cost savings) since ValleyCrest was brought on. National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 61 Having said that, we do feel confident recommending that the City retain the current structure at least through the completion of the renovation project.However, delaying consideration of a fundamental change in operating structure should not preclude modifying terms. For instance, the City and the golf vendor may come to an agreement resulting in lowering the management fee to reflect reduced responsibilities and concession revenues during renovation (especially under Option G), while still adhering to IRS guidelines.Not only will the project substantially disrupt business, but significant unknowns include the timing of the project and how the newly improved facility will cash flow after being brought back to market and “re-branded”. Also, the food & beverage contract doesn’t expire until 2018, so some of the advantages of the single operator management structure may be lessened unless an early termination to the agreement can be successfully negotiated with the current vendor. Finally, negotiating a new agreement during construction, when proposers themselves will not have full information about how the improved facility will cash flow, may result in the City not entering into the best deal possible. NGF believes that these are just a few of the important variables that make issuing an RFP at this stage less than optimal. We recommend that the City wait until after renovation is completed and the improved facility has been up and running for a year or more before considering a substantive change in structure. This strategy will provide additional information that will put the City in a better position to make an informed decision regarding operating structure (for instance, the City may find that the improved “Baylands Golf Club” has significant upside revenue potential, thus making it relatively more attractive to control all revenues under the management contract structure). LONG RANGE CONCERNS Concerns raised through the public process of reviewing reconfiguration options have included the following long term implications: High salts present in the native soils Intrusion by geese and burrowing animals Potential for the adjacent airport to negatively affect the golf experience In essence, the question raised is: “Can the Palo Alto Golf Course be expected to become a significantly better golf experience given these issues?” NGF Consulting relies on the opinions of professionals associated with individual golf facilities to address certain questions. For example, in the case of the high salts we look to agronomists, the course superintendent and/or the golf course architect. In the case of animal intrusion, because these are often site specific, we look to nearby facilities to see how they have dealt with the issue. High Salts Soils high in salts are not uncommon to golf courses located along coastal waterways and oceans. In the case of Palo Alto the soils are not only affected by the location by San Francisco Bay, but by the poorly draining soil types. Additionally, the use of effluent (recycled) water, which typically has higher salt content, exacerbates the condition. While our work has not included agronomic evaluation, we have endeavored to understand the general situation by comparing outcomes we have observed at other golf operations. National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 62 “Links courses,” those layouts along the dunes formed coasts of the British Isles and similar locales around the world, are prone to salty soils. Yet, with their sandy soil basis, these sites support good turf because the salts are leached regularly downward by natural rains. This is the hallmark of links courses, and why their development on these natural, sandy soils were so appropriate. When soils are not sandy and porous, the build-up of salts becomes problematic. This is the case at Palo Alto Golf Course, where management over the years has been to periodically irrigate with fresh water, driving salts downward, and to add gypsum to the soils. Additionally, the most recent remodeling work added a cap of sand and better soil mix to several fairways, making them much easier to manage and support healthy turf. These best practices have resulted in reasonably healthy turf growth despite the salty soil conditions. According to staff, while salts are high, the turf has “learned” to adapt. There is a definite difference between fairways where the sand cap has been placed and areas where drainage is not as good and where older native soils are present. Also, Paspalum turf varieties have flourished at the golf course in a few areas. These areas appear to have much better success rates of healthy growth because the nature of Paspalum grass is to tolerate salts to a significantly higher degree. NGF Consulting posed the question of managing high salts to Forrest Richardson & Associates, specifically asking what additional measures would be afforded through the reconfiguration options to address this issue. The response summary is as follows: Management of existing sand capping and healthy turf rootzone material (the uppermost layers of rootzone) will be managed through the reconfiguration, replacing that material as “topsoil” to new fairway and turf areas; this cost is represented in the probable cost estimates presented to the City for reconfiguration options. New soils will be imported as possible within the budgets, potentially from the Stanford University Medical Center project(s); these additional costs (and revenue potential) have been accounted in probable cost estimates. Paspalum turfgrass will be used to sod all new areas of fairways, roughs and tees (Note: The specific variety is yet to be determined). The irrigation system will provide dual watering capabilities, able to deliver potable water to selected areas and a mix of effluent (higher salt counts) and fresh water; this capability allows flushing (leaching of salts downward) as is being done currently. Significantly improved drainage is afforded in each reconfiguration option, helping to prevent build-up of salts by quicker transportation of surface water away from turf areas and the soil rootzone, and thereby reducing the build-up of salts that occurs when water is allowed to stand and slowly seep into the rootzone. These are prudent measures that are common among golf course sites with high salts present in the soil. Additionally, we understand that the City has a goal to reduce salt counts within its effluent water system, a goal that is not necessarily aimed at improving conditions at the golf course, but will have a definite value to City’s golf operation asset. While the success rate of overall condition improvement cannot be guaranteed, we can look at comparable operations where high salts are effectively managed. There are numerous examples of this throughout California, including the Bay Area. California examples include National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 63 Monarch Bay (San Leandro), Las Positas (Livermore), Metropolitan (Oakland), Olivas Links and Buenaventura (Ventura), and Irvine (Shady Canyon Club). Many courses with salt issues are turning to Paspalum turfgrass as an answer. Some of the example courses cited have moved to 100% Paspalum grass. NGF Consulting notes that this trend is widespread in Florida, the Caribbean, Mexico, South Texas, and Hawaii. In Hawaii, for example, Paspalum varieties have literally transformed the golf landscape from a struggling Bermudagrass region to one that now predominantly uses Paspalum in order to overcome high salts from water, soils and the proximity to the ocean. Even in Monterey we are seeing Paspalum use. At the Monterey Peninsula Club, for example, some areas located on the shore that were never in good condition, have been completely re-planted with Paspalum and are now in excellent condition. Our conclusion is that Palo Alto can enjoy a good success over the long term at the existing golf course site. Managing salts will have a good result, not only through good maintenance practices, but in combination with the reconfiguration work, which should make the City’s efforts to manage salts more productive, less costly and, ultimately, more impacting to a positive golf experience. Our caution is that the plan options (A, D, F and G) each have an associated result that is specific to the investment. Plan A, for example, addresses only a minority of the course turf areas (drainage, rootzone, topsoil management, irrigation, etc.) and will therefore not produce positive results across the full golf course. Plan G, at the other end of the spectrum, resolves virtually all areas. Animal Intrusion Managing Canadian Geese infestation is often dependent on regulations and restriction placed on locales. Our advice to the City is to study available mitigation measures and to carefully note the measures taken by neighboring courses. Geese populations have been successfully managed through the following measures: Trained dogs, such as border collies Reducing standing water and open water (ponds, lakes, swamps) Increasing habitat surrounding the golf course that will appeal to geese populations Implementing noise, reflective or other repellants Sterilization agents to stop generational return of geese to the golf course areas Among the most successful operations in Northern California are the courses of the Monterey Peninsula, notably Pebble Beach Companies and the private clubs in the area. With few exceptions, these operators have used trained dogs to manage geese away from their turf areas. An on-site dog specifically trained to manage geese populations remains the most efficient measure to rid geese infestation from golf courses in the U.S. Not only is this method humane, but it has the benefit of a lower cost than many other measures, and is less interruptive to the golf experience. We understand there is added complexity relative to the adjacent airport operation and the requirements associated with making sure that geese are not diverted to the airport, but away from both the golf course and the airport. For this reason, we recommend that the City take a look at jointly working out a plan for both the golf and airport needs. National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 64 With regard to the ground squirrel infestation, we understand that this is being met with ongoing mitigation efforts that are allowed under state guidelines. Also, the increase of naturalized areas afforded by all reconfiguration options will help drive habitat away from turf and in-play areas of the golf course. Airport Effects Many golf facilities are located immediately adjacent to airports, and yet enjoy a good reputation and high quality of golfing experience. We see no undue negative associated with the relatively small private plane airport, especially given that the flight paths do not directly overtop the golf course itself. Moreover, Silicon Valley appears to be utilizing the airport for corporate flights in favor of the larger regional airports that pose delays and complexities due to their scheduled, commercial flight business. This fact may actually prove beneficial to the golf operation should the golf course and its facilities be elevated a “destination” level of quality and reputation. The result with nominal airport use is that more visitors to Palo Alto will know about the golf course and be able to get a firsthand view of its offerings. Summary Based on experience and input from Forrest Richardson, NGF Consulting believes that long- term mitigation of the concerns of this site is workable and worth the premiums required for maintenance and management. In many cases, golf courses are located on degraded land because that land cannot be used for other purposes. We suspect this is the case in Palo Alto and would find it difficult to justify alternate solutions to the renovations that might be considered: (a) continued operation in a declined state; (b) abandonment of the asset in favor of a new location, given land values in the area; or (c) abandonment of the recreation amenity altogether, given its high use and the financial forecasts presented. POTENTIAL ECONOMIC DEVELOPMENT OF THE AIRPORT & GOLF “BAYLANDS GATEWAY” AREA The golf course “corner” and shared entry with the airport are considered a “gateway” to the Baylands Preserve areas. As such, this intersection has great potential to become more than just a golf clubhouse and airport with nominal retail offerings. According to the Community Services Department, forward and creative thinking has been aimed at the potential for this area to become a more user-friendly and service-oriented destination. Thus far, thinking has included whether the area could support a modest collection of cafes, retail shops, and perhaps even a hotel. While no formal plans have been commissioned, the City has discussed a general, long range approach to looking more in depth at this possibility. Such development, especially if it included a small hotel, would add natural demand drivers in immediate proximity to the golf course, thus resulting in increased rounds and revenues. As an example, a 130-room business hotel in a high demand locale may have as many as 28,000 room nights based on an average 60% occupancy rate. Using a multiplier of 1.3 guests per room, this equates to approximately 36,000 guests per year. Using a percentage of 10% golfers and assuming that the golf course could get even 20% of these guests to play, the resulting bump would be near 1,000 additional golfers per year. Also, these golfers would comprise non- residents paying the highest applicable rates, and traveling golfers typically exhibit less price National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 65 sensitivity and would be likely to also spend money on the practice range, pro shop, and/or restaurant. PRIVATE FUNDING POSSIBILITIES Of course, aside from receiving compensatory money from the San Francisquito Creek Joint Powers Authority, the City may have to grapple with how to fund additional money required if Reconfiguration Options D, F, or G is chosen, and/or if any work identified as “additional” or “alternate” in this report it undertaken. One of the mechanisms that would obviously be very preferable to the City is raising private money to fund some, or even all, of the needed money. Based on preliminary discussion held between Forrest Richardson, NGF, and the City, the private funding mechanism may take a combination of the following avenues that the City will have to explore further: Naming rights for some components of the facility (e.g., range performance center, certain holes, tee markers, designated youth area); this may be feasible do to the number of very wealthy individuals in Palo Alto, as well as the very strong corporate (especially high-tech/ internet-based) presence. Grants – for example, the First Tee, which is very active in the area. Lease-Back – some within the City have mentioned the possibility of finding a design/build entity that might be interested in undertaking all of the improvements, including soccer fields if Option F or G is chosen, and restructuring the financing package to get the entire project, including some or all optional master plan improvements, done at one time. In this case, the ±$3 million the City receives from the SFCJPA could be used toward paying off the old debt and a new arrangement put in place for the work to rebuild the golf course. The Stanford Soil Import is a wildcard in the equation. It could bring revenue into the equation, but likely not more than $500,000. This may provide a partial funding mechanism to help pay for some of the miscellaneous suggested work that will not have a revenue stream attached directly to it (entry experience, trails, signage, parking, etc.). National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 66 Appendices APPENDIX A – COMPARATIVE SUPPLY RATIOS – PALO ALTO GC & KEY MUNICIPAL COMPETITORS APPENDIX B – COMPARATIVE SCORING OF RECONFIGURATION OPTIONS APPENDIX C – WATER & POWER USE DISCUSSION & ASSUMPTIONS APPENDIX D – REVIEW OF PROBABLE COST ESTIMATES APPENDIX E – POTENTIAL LONG-TERM MASTER PLAN IMPROVEMENTS National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 67 APPENDIX A – COMPARATIVE SUPPLY RATIOS – PALO ALTO GC & KEY MUNICIPAL COMPETITORS NGF has presented a comparison of some key golf supply measures for Palo Alto GC and its key municipal competitors, with the 5-mile radius around each facility the basis for comparison. We note that all of the subject facilities, except for Santa Teresa, have very high household/supply ratios, which is one of the key factors that explains the very high rounds figures realized per 18 holes among municipal golf courses in this market. Also of note, in its 2009 publication “The Future of Public Golf in America,” NGF hypothesized that the best predictor of a public golf course’s success was the number of golfers per 18 holes within a 10-mile radius, with 4,000 identified as the key number for projected financial stability. As shown in the second table below, all of the subject courses (again with exception of Santa Teresa) exceed this number for the 5-mile market. Golf Facility Supply – 2011 (5-Mile Radius) 5-mile Rings Total No. of Golf Facilities Total No. of Golf Holes Households per 18 holes Households per 18 Hole Index (US=100) Palo Alto Golf Course 4 72 19,836 251 Poplar Creek Golf Course 5 81 17,942 227 San Jose Municipal Golf Course 6 90 31,377 398 Santa Clara Golf & Tennis Club 6 90 21,027 266 Santa Teresa 6 135 7,841 99 Shoreline Golf Links 4 72 24,206 307 Sunnyvale Golf Course 8 126 19,435 246 Source: National Golf Foundation Golfers per 18 Holes (5-Mile Radius) 5-mile Rings Golfing Households Est. No. of Golfers1 Total 18-H Equivalent Golfers per 18 holes Palo Alto Golf Course 14,206 21,309 4 5,327 Poplar Creek Golf Course 14,243 21,365 4.5 4,748 San Jose Municipal Golf Course 30,527 45,791 5 9,158 Santa Clara Golf & Tennis Club 17,855 26,783 5 5,357 Santa Teresa 12,250 18,375 7.5 2,450 Shoreline Golf Links 16,695 25,043 4 6,261 Sunnyvale Golf Course 24,118 36,177 7 5,168 Total U.S. “Threshold” for Successful Public Golf (10-mile Ring) 4,000 1 Golfing Households x 1.5 Source: National Golf Foundation National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 68 APPENDIX B – COMPARATIVE SCORING OF RECONFIGURATION OPTIONS As a useful tool in formulating pro forma projections, NGF has compared the Reconfiguration Options using a “scorecard approach” whereby attributes and benefits are assigned scores (1- 10). This method allows a side-by-side comparison, providing a way to review pluses and minuses associated with each option. We base our scoring on several factors, including the following: Details presented (plans, conceptual images, etc.) Public comments and historical use of the facility (rounds and use) NGF Market Analysis (local and regional trends and golf participation) Competition within the market area Details and other givens regarding the changes to take place (golf design consultant involved, how far along the proposed changes have been studied, budgets, etc.) Long term viability of the changes and market acceptance Known preferences of golfers relative to course conditioning, consistency, etc. Quality of the consultants involved In situations where golf facilities are proposed to be reconfigured, there are both subjective and objective considerations. Additionally, there is often difficulty in verifying to what degree proposed changes will be carried out. Fortunately in the case of the Palo Alto Golf Course, the City and SFCJPA have accommodated a very thorough process and detail so we are able to look at the plans, before and after images, and other documentation that quantify the changes associated with the options. Scoring is one factor considered in estimating potential changes in the financial performance of the golf facility. For example, a golf course with significantly more practice opportunities, especially when such use is in demand, will potentially bring in new use and associated revenue. In the case of a significant transformation of a golf course from an average or below average experience to one with new holes, views and overall landscape improvement, it is likely that an increase in use and/or revenue will be realized. And, where we can see potential to market the facility beyond the immediate area, it is possible to realize an added price-per-round for non-resident use. In this latter example we often cite the ability of golf courses such as Torrey Pines to adopt a green fee structure that holds low rates for residents of the area while charging market rates that are very high for players from out of state. In the case of Torrey Pines, the gap between resident rates and visitor rates are among the widest in the golf business. Though this type of gap will not be realistic for Palo Alto, we do expect that, depending on the reconfiguration option chose, non-residents will effectively be “subsidizing” to some degree a high quality, but still affordable, golf experience for city residents. The following ratings use a 1-10 scale where 1 is the lowest and 10 is the highest. This ranking includes some financial considerations, but is ancillary to the pro forma financial analysis for each option. The rankings here are used to form some of the forecasts within the pro forma analyses. Scoring is based on the base reconfiguration work for each option (i.e., less all optional/alternate work listed). A summary table of rankings is presented following the category descriptions. National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 69 The following are categories used to form the scoring: Yardage & Par –Accommodation of yardage (regulation length) for a course and par that will be viable and competitive within the market and region Interruption of Play During Reconfiguration – Ability of the plan to retain some holes (9-hole play) and practice during reconfiguration work Consistency of Bunkers & Hazards – Overall impact of the plan relative to bunker consistency, aesthetics and other hazards Consistency of Greens – Overall result of greens quality and consistency Drainage Improvement – Overall positive impact on drainage; eliminating wet conditions Irrigation Improvement – Overall positive impact on irrigation control, consistency and associated turf quality Pace-of-Play – Degree to which the plan accommodates positive pace-of-play and long range ability to manage for good pace Improved Visual Impact –Overall landscape enhancements (added naturalizes areas and visual impact) Improved Views – Accommodation of more views to the Bay and territorial vistas Improved Golf Experience Impact -Overall plan benefits to strategy, excitement of holes, variation of direction, orientation to wind, etc.) Competitiveness with Area Courses –Ability of the course to compete with courses in the immediate area Competitiveness with Regional Courses –Ability of the course to compete with courses in the region Likelihood for Destination Visits –Ability of the course to attract specific visits expressly to play the course Ability to Leverage “Green” Marketing –Consistency of the plan with a “green” environmental message (Baylands tie-in, more naturalized areas, natural landscape, etc.) Consistency with Long Range Planning –Integration of the plan with future planning (clubhouse, practice, etc.) Turf Reduction (irrigation) –Reduction of managed turf acreage for less water use and reduced pumping Turf Reduction (managed care) –Reduction of managed turf in relation to the ability to shift maintenance emphasis from out-of-play areas to golf features and areas more appreciated by the golfer National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 70 Comparative Scoring of Reconfiguration Options Option A Option D Option F Option G Yardage & Par 8 8 8 6 Interruption of Play during Reconfiguration 5 4 3 1 Consistency of Bunkers & Hazards 7 8 9 10 Consistency of Greens 3 5 6 8 Drainage Improvement 4 6 8 9 Irrigation Improvement 3 6 7 10 Pace-of-Play 5 10 7 7 Improved Visual Impact 4 6 7 8 Improved Views 2 7 7 8 Improved Golf Experience Impact 3 7 8 8 Competitiveness with Area Courses 5 8 8 8 Competitiveness with Regional Courses 2 6 7 8 Likelihood for Destination Visits 1 5 7 7 Ability to Leverage “Green” Marketing 5 7 8 9 Consistency with Long Range Planning 7 9 9 9 Turf Reduction (irrigation) 4 6 8 9 Turf Reduction (managed care) 4 7 8 9 National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 71 APPENDIX C – WATER & POWER USE DISCUSSION & ASSUMPTIONS NGF Consulting was not charged with a full water or power use analysis. However, forecasting costs associated with each reconfiguration option requires reasonable estimates on the affects of a more efficient irrigation system combined with less turf acreage. Our conclusions on water and power use are based on the following assumptions, derived from City Staff and the golf course architect/design team: Current irrigation (managed) turf acreage: 135 New irrigation areas efficiency over/above the existing system: +10% Current irrigation inefficiency due to leaks and breaks (loss): -5% Current power inefficiency: -10% New power efficiency realized with full course better watering times/durations: +15% Annual cost for irrigation repair due to age and condition: $30,000 Using the data and assumptions, NGF Consulting has developed the following forecast for water and power use differences with each reconfiguration option. Option A Total irrigated turf following reconfiguration: 96.5 acres Water use reduction based on new irrigated acreage: 28% Approximate area of reconfigured course with new irrigation system: 35 acres Percentage of irrigated Area with New Irrigation: 36% Water use reduction of new usage based on efficiencies of new system area: 3.6% (10% efficiency x 36% = 3.6%) Water efficiency of new usage gained due to fewer leaks/breaks: 2% (5% efficiency x 36% = 2%) Power efficiency realized with better watering times/duration: +5% Conclusions Reduced Water Cost Est. (effluent) $ - 0 - Reduced Water Cost Est. (potable) $72,800 (28% x $260,000) Reduced Water Cost Est. (potable efficiencies) $5,645 ([3.6% + 2%] x $100,800) Reduced Power Cost Est. (efficiencies realized) $1,200(5% x $24,000) Total Est. Reduction in Water & Power Cost $79,645 / annual Option D Total irrigated turf following reconfiguration: 92 acres Water use reduction based on new irrigated acreage: 32% Approximate area of reconfigured course with new irrigation system: 40 acres Percentage of irrigated Area with New Irrigation: 43% Water use reduction of new usage based on efficiencies of new system area: 4.3% (10% efficiency x 43% = 4.3%) Water efficiency of new usage gained due to fewer leaks/breaks: 2% (5% efficiency x 43% = 2%) National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 72 Power efficiency realized with better watering times/duration: +10% Conclusions Reduced Water Cost Est. (effluent) $- 0 - Reduced Water Cost Est. (potable) $83,200 (32% x $260,000) Reduced Water Cost Est. (potable efficiencies) $7,258 ([4.3% + 2%] x $115,200) Reduced Power Cost Est. (efficiencies realized) $2,400 (10% x $24,000) Total Est. Reduction in Water & Power Cost $92,858 / annual Option F Total irrigated turf following reconfiguration: 91.5 acres Water use reduction based on new irrigated acreage: 32% Approximate area of reconfigured course with new irrigation system: 58 acres Percentage of irrigated Area with New Irrigation: 63% Water use reduction of new usage based on efficiencies of new system area: 6% (10% efficiency x 63% = 6.3%) Water efficiency of new usage gained due to fewer leaks/breaks: 3% (5% efficiency x 63% = 3%) Power efficiency realized with better watering times/duration: +12.5% Conclusions Reduced Water Cost Est. (effluent) $ - 0 - Reduced Water Cost Est. (potable) $83,200 (32% x $260,000) Reduced Water Cost Est. (potable efficiencies) $10,711 ([6.3% + 3%] x $115,200) Reduced Power Cost Est. (efficiencies realized)$ 3,000 (12.5% x $24,000) Total Est. Reduction in Water & Power Cost $96,911 / annual Option G Total irrigated turf following reconfiguration: 92 acres Water use reduction based on new irrigated acreage: 32% Approximate area of reconfigured course with new irrigation system: 92 acres Percentage of irrigated Area with New Irrigation: 100% Water use reduction of new usage based on efficiencies of new system area: 10% (10% efficiency x 100% = 10%) Water efficiency of new usage gained due to fewer leaks/breaks: 5% (5% efficiency x 100% = 5%) Power efficiency realized with better watering times/duration: +15% Conclusions Reduced Water Cost Est. (effluent) $ - 0 - Reduced Water Cost Est. (potable) $83,200 (32% x $260,000) Reduced Water Cost Est. (potable efficiencies) $23,040 ([15% + 5%] x $115,200) Reduced Power Cost Est. (efficiencies realized) $3,600 (15% x $24,000) Total Est. Reduction in Water & Power Cost $109,840 / annual National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 73 APPENDIX D – REVIEW OF PROBABLE COST ESTIMATES NGF Consulting has reviewed the probable cost estimates provided to the City for reconfiguration Options A, D, F, and G. In order to objectively evaluate proposed budgets we look for a baseline of comparison. The best resources are similar public sector golf course projects involving reconfiguration. All golf course projects are unique, as are the conditions of the site, construction costs, availability of construction materials (sand, proximity of sod growing, etc.), and terrain. Additionally, in a situation where the proposed modifications to the course are underway, as in this case, we look to other projects by the same golf course architect. The best comparisons are three projects by Forrest Richardson, ASGCA: Buenaventura Golf Course (City of Ventura, California) Peacock Gap Golf Course (San Rafael, California – privately owned) Olivas Links (City of Ventura, California) The Buenaventura project was undertaken to rebuild an existing 18-hole facility originally designed by William P. and William F. Bell. The scope was to largely retain hole corridors through existing mature trees, but to re-turf all of the golf course. The project involved approximately 88 acres of full re-turfing, greens rebuilding (19), new ponds (3) and complete rebuilding of all features (bunkers, tees and fairways). This project had a stated budget of $4.5 million which also included site work for a new maintenance area, a new maintenance building and improvements to the entry and parking areas. The work was completed in 2005 and was funded by the City of Ventura through a capital bond program. NGF was told that the golf course specific work totaled approximately $3.6 million and the market conditions at that time were very similar to current conditions. The Peacock Gap project was a complete re-build of an 18-hole golf course (also an original design of William F. Bell), associated re-routing work for safety reasons, a new pond, new drainage, full new irrigation system, and all new features including a new practice range. The total acreage involved was approximately 94 acres and included similar naturalized area development as has been proposed for Palo Alto. The project was carried out over two phases beginning in 2004 for a reported investment of $5.1 million. Of note is that topsoil management was very similar to that covered in the Palo Alto Probable Cost Estimates. The Olivas Links project is most similar to Palo Alto among these three examples. This course was originally designed by William P. and William F. Bell and also borders a river at its estuary termination point. The course was prone to flooding and had very poor soil conditions as a result of effluent irrigation and inherent salts by way of its seaside locale. Also a part of the capital bond program of the City of Ventura, this 2006-07 work was contracted at $5 million in terms of direct golf course improvements. These included full re-building using on-site soils. Paspalum grass was used for fairways, with Bentgrass on the greens. Our estimation of the timing of this work was that it fell during the most aggressive contracting time in the past 10-15 years. The work appears to have been publically bid with six qualified bids, each very close to the lowest bid at the $5 million point. The City spent additional funds to relocate and replace their maintenance facility over and above the golf course construction contract. Though there are variables that could affect cost, such as the ultimate timing of the project and a change in regional economic conditions, NGF’s general assessment given our exchanges with Forrest Richardson on this matter is that the probable cost estimates prepared for the City (Options A, D, F and G) appear to cover the scope of the work shown for the options, and are National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 74 conservative in approach. According to representatives of the Golf Course Builders Association of America (GCBAA) the Bay Area represents one of the most costly working locales in Northern California based on available labor, housing and the general cost of fuel, operations and logistics. We note that the architect, recognizing this reality, has included a significant degree of project management and contingency in estimates prepared for the City - important components that we often see omitted at this stage of planning. National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 75 APPENDIX E – POTENTIAL LONG-TERM MASTER PLAN IMPROVEMENTS The tables below summarize some of the long-term and/or optional improvements that have been presented by Forrest Richardson to the City of Palo Alto for consideration. Clubhouse Improvements Exterior Condition & Upgrades - Estimate: $250,000 Aesthetic improvement to facings, color, materials Replace, upgrade landscaping Expand Meeting Spaces - Estimate: $1,700,000 Current Space: 75 in one room + 70 on patio Expand main pavilion room to hold 200 Expand/open patio to hold 100 additional (300 total) Create outdoor wedding garden Reconfigure grill as potential restaurant space (60) Reconfigure bar as pub seating w/ patio for 60 addl. Expand/improve kitchen Expand/screen service yard Expand/open patio to hold 100 additional (300 total) Golf Shop Upgrades - Estimate: $100,000 Expand office/storage Free-up 1,000 s.f. retail space Create Cart Storage Building - Estimate: $440,000 Currently storage for 15 carts; balance kept outdoors and leased temporarily as needed for groups New building for 70 carts Arrival & Entry Improvements New Entry, Signage and Parking - Estimate: $400,000 New entry New signage Resurfaced parking w/ Landscaping & Lighting (expand to 300 spaces) New Entry, Signage and Parking - Estimate: $200,000 New trail connections (to Baylands, etc.) Bike racks, signage, etc. Practice Facility Improvements Range Performance Center - Estimate: $500,000 New building & hitting bays for Instruction Small meeting spaces and offices Range Expansion - Estimate: $100,000 (6) Additional hitting bays (adjusted netting to north) Rebuild Existing Practice Green - Estimate: $180,000 New green complex as short game area Create Designated Youth Area - Estimate: $200,000 Along Embarcadero (2 Acres) Range Performance Center - Estimate: $500,000 New building & hitting bays for Instruction Small meeting spaces and offices National Golf Foundation Consulting, Inc. – City of Palo Alto Report – 76 Other “Alternate” Improvements On-course Restroom Replacement - Estimate: $95,000 New structure and demo existing Replace Balance of Irrigation System (Varies w/ Plan Option)Complete new system & control Rebuild All Greens on Course (Varies w/ Plan Option)Rebuild all greens to USGA specs Resod all Fairways on Course (Varies w/ Plan Option)New and consistent turf variety throughout New Event Practice Green/Area - Estimate: $80,000 Separate event green and area (Plan D only) Sand Plate New Fairways (Varies w/ Plan Option)Sand cap to 6 in. 1 To: City Council From: Parks and Recreation Commission Date: April 16, 2012 Title: Palo Alto Golf Course Re‐configuration Resulting From the San Francisquito Flood Control Project On March 27th, 2012 the Palo Alto Parks and Recreation Commission (PAPRC) endorsed option G for the renovation of the Palo Alto Municipal Golf Course (Golf Course) in conjunction with the San Francisquito Creek Joint Powers Authority (SFCJPA) renovation of the levy adjoining the Golf Course. Below the PAPRC articulate the benefits and areas requiring special consideration with option G: This valuable recreation area is transformed into a magnificent layout integrating more naturally with the Baylands. It can be a destination “park” for golfers and other outdoor enthusiasts with the opportunity over time to make the clubhouse and its environs a true community center. This design allows the City to reserve 10.5 acres suitable for multiple recreation and park needs while maintaining a full “regulation” golf course appealing to golfers of all ages and drawing golfers from a wide area. The Commission recommends that an open and inclusive process be undertaken to explore the full array of recreation needs for the use of the 10.5 acres. The current course is profitable and contributes positively to City revenues. Assumptions and projections on estimated rounds played on the renovated course indicate that this asset is highly likely to substantially increase revenue contribution to the City after construction with option G contributing the highest revenue of all the options. The new design with “wow‐factors” in many places will be a real draw for golfers from an extended geographical area. The full long‐term vision to complete transformation of the site – including clubhouse architectural drawings, new parking and pedestrian flow and practice areas ‐ needs to be presented to the Council now for future planning. The above recommendation is tempered by the following facts: Costs for option G are the highest of the choices ‐ exceeding $7 million. Recently the Blue Ribbon Infrastructure Committee completed work on expenditure priorities. This new project needs to be prioritized and fully funded from known sources. In addition there will be one‐year of course closure which will negatively impact stretched City budgets. Lastly, the City should be cognizant of the disproportionate burden on golfers 2 to pay for a golf course design that sets aside 10.5 acres of land for other recreational uses. While there is a lot of ad‐hoc comment on the need for athletic fields there is no documented urgent need for additional athletic field space at present. The City has done a good job of expanding field space already. Notable examples are the new Stanford fields and the current construction on El Camino Park which will include a full size turf field. Further play on existing fields could be created by adding lights at lower cost than additional fields. Demographic and community trends need to be watched closely to address future recreational needs. The full benefit of the golf course renovation (for golfers and non‐golfers) cannot be realized without additional significant changes to the buildings, parking and pedestrian access, and practice area of the course. Maximum revenue will likely be blunted for tournament play and corporate outings/meetings by the current unappealing amenities. There will be a jarring difference between the entry to the facility and the course itself. Ideally, this would all be addressed as a total package on close construction timelines. This project will have significant environmental impacts that will need to be evaluated prior to development given the proximity to sensitive environmental areas and riparian habitat. E M B A R C A D E R O R O A D E M B A R C A D E R O R O A D E M B A R C A D E R O EMBARCADERO WAY GE N G R O A D 14 12 13 17 4 11 16 15 2 3 8 5 10 18 1 7 9 Driving Range 6 Legend Assessment Parcel Golf Hole GOLF COURSE CLUB HOUSE PARKING LOT MAINTENANCE FACILITY LAKE HISTORIC WATERS WETLANDS 0'150'300' Palo Alto Golf Course City of Palo Alto GIS This map is a product of the This document is a graphic representation only of best available sources. CITY O F PALO A L T O I N C O R P O R A T E D C ALIFO R N I A P a l o A l t o T h e C i t y o f A P R IL 1 6 1 8 94 The City of Palo Alto assumes no responsibility for any errors. ©1989 to 2005 City of Palo Alto mraschk, 2005-05-24 09:29:48, GOLF COURSE AREAS (\\cc-maps\gis$\gis\admin\Personal\mraschk.mdb) Attachment B CMR:168:06 Page 1 of 10 TO: HONORABLE CITY COUNCIL FROM: CITY MANAGER DEPARTMENT: PLANNING AND COMMUNITY ENVIRONMENT DATE: MARCH 20, 2006 CMR: 168:06 SUBJECT: GOLF COURSE PRELIMINARY FEASIBILITY STUDY – REPORT TO COUNCIL IN RESPONSE TO COLLEAGUES MEMO ON GOLF COURSE REDESIGN OPTIONS TO INCLUDE SPORTS FIELDS AND RECOMMENDATIONS FOR FUTURE ACTION. REPORT IN BRIEF This preliminary feasibility study provides important information about adding playing fields at the golf course. The information will be useful in helping the City participate more effectively in exploring possible multi-use recreation/flood control options in the San Francisquito Creek Flood Control Study now underway. Several of the flood control options that will be evaluated in the study include modifications to the golf course; flood control solutions incorporating multi- use flood control/recreation facilities will be considered. If a feasible multi-use option is identified, public funds may be available to help offset the cost of a golf course or other recreation facilities that also serve a flood control purpose. The preliminary design studies indicate that there may be room to add up to two playing fields while retaining the existing championship golf course*. However, the costs resulting from the need to reconfigure as many as eight golf holes reduce the desirability of this option. The golf course site does not appear to be large enough to accommodate several playing fields as well as a public regulation/championship golf course, due to the special requirements of a public golf course. The golf course site would be large enough to accommodate a new, smaller non- championship golf course or golf practice facility as well as several sports playing fields. These types of golf facilities provide a different golfing experience and serve a different market segment than the existing championship golf course. The marketability of a smaller non- championship golf course and/or golf practice facility on the Palo Alto golf course site and the level of community support for such a change is unknown. The cost of a new smaller golf course/golf practice facility with 4 or 5 sports playing fields is estimated to be over eighteen million dollars. Private development scenarios that would pay all or most of the cost of a new smaller golf course and sports playing fields were not formally evaluated, but input was solicited from golf course developers and other real estate developers. *Championship course is used to describe a course with a length greater than 6000 yards from the forward (white) tees and a par between 70 – 72. It does not imply that the course would likely hold major championship tournaments Attachment D CMR:168:06 Page 2 of 10 RECOMMENDATION Staff recommends that the City Council: 1) Receive and file this report. 2) Participate in locating funding for the golf course/recreation component of the flood control project if the San Francisquito Creek Joint Power Authority/Army Corps of Engineers flood control study identifies feasible multiuse flood control/recreation options. BACKGROUND Responding to a March 7, 2005 memorandum from City Council members Burch, Kleinberg and Kishimoto, the City Council directed staff to conduct a preliminary feasibility review of possible redesign of the 18-hole championship municipal golf course with the goal of freeing up substantial acreage for sports fields. The objectives to be achieved by such a redesign are: creation of 20-40 acres of new playing field space; improvement of the golfing experience and provision of additional golfing amenities; expansion and enhancement of the natural habitat; and helping to address San Francisquito Creek flood control needs. The Council was also interested in determining whether these changes could facilitate redevelopment of nearby private properties, and identifying possible private funding strategies that could help cover the costs of the golf course redesign and construction of playing fields. See attached City Council memorandum, Golf Course redesign and Playing Fields Creation, dated March 7, 2005 (Attachment A). DISCUSSION Assessment process A working group consisting of City staff from the Public Works, Community Services, Planning, and Administrative Services Departments, as well as a representative from the San Francisquito Creek Joint Powers Authority and consultants from the land use planning firm, Ken Kay Associates (KKA), reviewed City Council direction and comments from the public on this topic and the status of the flood control project; identified key issues to be explored; and developed a framework for examining the potential for locating playing fields on the golf course. For special golf course design expertise, the team included a golf course architect provided pro bono to the City by the golf course design firm, Robert Trent Jones II (RTJII). Through research and site visits to the Palo Alto municipal golf course and a number of other local golf courses, staff assembled information about size and other characteristics typical of different types of golf courses, including public and private regulation/championship courses and non-regulation courses and golf practice facilities. According to the US Golf Association, the average total land area for 18 hole golf facilities is 150 to 200 acres, making the Palo Alto golf course at 169.8 acres a little less than average size. In general, golf courses that are built on fewer acres are either private clubs, such as the Olympic Club, Sharon Heights and Los Altos Hills, that typically play about one-third to one-half as many rounds per year as Palo Alto and other municipal courses, or they are non-regulation courses, such as Poplar Creek, Sunnyvale and Los Lagos, that do not have the par or yardage of a “championship” course. See Attachment B for more information about comparative sizes of different types of golf courses, and Attachment C for the size of current facilities at the Palo Alto municipal golf course. The “championship” designation does not mean that golf championships are played on a course but rather indicates that the course meets the minimum accepted standards of a full size golf Attachment D CMR:168:06 Page 3 of 10 course. According to the RTJII representing architect advising the working group, while the standard is somewhat ambiguous there is general consensus that a regulation/championship course will be a minimum par 70 and have a minimum length of 6000 yards from the forward white tees. The Palo Alto golf course is par 72 and 6200 yards, the length having been slightly reduced during the most recent renovation completed in 1999. Par and yardage influence a golfer’s decision to play a course and the fee he/she is willing to pay. A non-championship course provides a different golfing experience and serves a different market segment than a regulation/championship course. Based on the City Council memorandum, the following five goals were identified to guide development of schematic alternatives for adding sports fields to the golf course: • Provide from one to five sports fields. • Maintain viability of the 18 hole regulation/championship golf course. • Provide sufficient parking. • Preserve and maintain opportunities for flood control solutions. • Protect existing wetlands located on or near the golf course, including incorporating wetlands into the playing area. Several staff/consultant work sessions culminated in an all-day workshop at the golf course on September 14, 2005, attended by working group staff members, the KKA consultants, the RTJII golf course architect and two members of the City’s Golf Advisory Committee. Members of the Golf Advisory Committee and the Parks and Recreation Commission were invited to attend. Prior to the workshop, KKA staff developed exhibits illustrating possible locations for one to five sports fields on the golf course site. In all options, the sports fields are located in the south and west part of the golf course to minimize impacts on the course, take advantage of unused space and make efficient use of nearby parking areas. See attached layout diagrams A, B, C, and D showing the conceptual location of playing fields on an aerial map of the golf course and the Baylands Athletic Center (Attachment D). Evaluation of Four Alternative Sports Field Layouts The purpose of the workshop was to assess the impact to the golf course as increasing numbers of sports fields are added, in terms of the number of golf holes that would require modification or complete redesign; as well as possible impacts to the regulation/championship status of the golf course; playability; and possible impacts on economic viability, operations and safety. The golf course architect described to the working group the key principles of golf course design and other factors to be considered in redesigning the golf course in response to the addition of sports fields. In addition to the rules of golf and the need to design for an interesting, challenging and enjoyable golf game, the following influencing factors were identified by the golf course architect: • There is a “domino effect” when any part of the golf course is displaced. Change to one hole can ripple through several other holes, increasing the risk that yardage and par of the course will be affected by the change. • Differences between public and private golf courses translate into additional space requirements for public courses. The principal difference is that public courses typically have two or three times the volume of play compared to private clubs. Public courses Attachment D CMR:168:06 Page 4 of 10 must be designed to accommodate 80,000 to 90,000 rounds per year while avoiding crowding and delay. Also, more people are on the course at the same time, and players have a wider range of skill levels, both of which increase risk; however, the general public has a lower tolerance for risk than would be the case at a private club. • The continually changing technology of golf clubs and golf balls requires greater distances between players to provide an acceptable level of safety. • On a flat site with no significant high vertical elements such as groves of mature trees, the safety buffer between fairways, green and tees is provided by distance. Due to salt water intrusion in the Baylands area, establishment of large stands of mature trees for buffering would be difficult to achieve, and redesign of the existing course would result in removal of many of the existing trees. • Golf is incompatible with close adjacency to most other uses due to the risk of bystanders being struck by golf balls. Golf customers knowingly assume that risk when they enter the golf course, but users of adjacent sites do not assume that risk. The risk can be managed through design by providing distance or physical barriers. • The wetlands areas located throughout the golf course are a design constraint. While the wetland areas could be incorporated into the course design, the need to design around them will restrict design choices. Following is a description of the four schematic layouts developed and studied in the workshop, including the number of sports fields added, the number of golf holes impacted, and how additional parking is provided under each option: Layout A. One soccer field is provided in the southwest corner of the golf course. This requires the redesign of four holes on the golf course. Existing paved areas are restriped to provide 50 additional parking spaces at the Baylands Athletic Center parking lot and along one side of Geng Road. Layout B. Two soccer fields are located in the southwest corner of the golf course. One of the fields would displace the existing lake. Eight golf holes would have to be redesigned and reconstructed. In addition to the 50 parking spaces added at the existing Athletic Center parking lot and along Geng Road, a new parking lot with 50 spaces is constructed on the golf course. Layout C. Two soccer fields and one baseball diamond are added in the southwest corner of the golf course and along Embarcadero Road. Ten holes on the golf course would have to be redesigned and reconstructed. In addition to the parking provided in the two previous options, Embarcadero Road would be restriped to provide 32 curbside parking spaces along the north side of the street, and a second new parking lot with 25 spaces would be constructed on the golf course, providing a total of 157 new spaces. Layout D. Four soccer fields and one baseball diamond are added in the southwest corner of the golf course and along Embarcadero Road. This would impact all 18 holes, requiring a complete redesign and reconstruction of the entire golf course. Parking would be provided as in Option C, plus 25 additional spaces constructed on the golf course for a total of 182 new parking spaces. Attachment D CMR:168:06 Page 5 of 10 FOUR SCHEMATIC LAYOUTS STUDIED New Parking Provided Layout Sports Fields Added Golf Holes Impacted Restripe existing paving New paving Total new spaces A 1 4 50 0 50 B 2 8 50 50 100 C 3 10 82 75 157 D 4 or 5 Entire Course 82 100 182 Results of the Analysis of Four Alternative Sports Field Layouts The results of the design exercise indicate that if the golf course is to remain a public 18 hole championship golf course serving current or similar user groups, there is limited space that could be dedicated for active recreation uses without compromising the playability, economic viability, and safety of the golf course. See the attached letter from RTJII dated February 28, 2006 for a more detailed description of its analysis and conclusions (Attachment E). Layout A: One sports field could be added to the existing 18 hole course while retaining the championship status; at least four golf holes would need to be redesigned and reconstructed. Layouts B and C: Adding two or three sports field to the existing golf course would require redesign / reconstruction of a large part of the golf course and may not maintain 18 hole regulation category par and course distance. More detailed design study would be required to determine the precise impact of these changes on the championship status of the golf course. Layout D: Adding 4 or 5 sports fields and the additional required parking would require a total redesign and reconstruction of the golf course. While this provides an opportunity to design a completely different course, the area available for the new golf course would be significantly smaller than the existing course. The area may not be sufficient to provide the regulation length and par of a championship course and also meet the special requirements of a public golf course: accommodate a high volume of play and a wide range of skill levels while minimizing risk of injury from errant golf balls. The addition of four or more playing fields presents a decision point between maintaining championship par and yardage or adding playing fields. The golf course par and yardage could be reduced to provide a smaller non-championship golf course that would meet the volume and safety standards of a public golf course and also provide space for additional playing fields. IMPACT OF SPORTS FIELDS ON CHAMPIONSHIP STATUS OF GOLF COURSE Layout Sports Fields Added Impact on championship status of Golf Course A 1 Unchanged B and C 2 or 3 May be Compromised D 4 or 5 Unlikely to provide an 18 hole championship golf course serving the golfing public without compromising playability and safety Attachment D CMR:168:06 Page 6 of 10 Costs and Financial Feasibilty of the Four Golf Course/Sports Field Alternatives The cost of adding sports fields to the golf course would include the cost of designing and reconstructing the impacted portions of the golf course, the cost of constructing the sports fields and any related parking improvements, golf tenant contract changes (revenue reductions) or buyout of existing leases and contracts, and lost revenue for a period during and following construction when it may take several years to regain the existing customer base. During construction some players will go elsewhere and some may not return when the construction is completed, resulting in lost revenue. The number of golf rounds played at the course is still down from the previous golf course renovation completed in 1999. ORDER OF MAGNITUDE COST ESTIMATES (millions) Layout A B C D Revised Revenue $2.0 $1.3 $0.7 $0.01 Costs Golf Course Redesign $3.0 $6.0 $8.0 $10.0 Sports Fields ($1.5 million/field) $1.5 $3.0 $4.5 $7.5 Continuing Operating Costs $2.6 $1.5 $1.5 $0.5 Tenant Contract Pay Off (High Estimate) $10 $10 $10 Total Financial Impact - $5.1 million - $19.2 million - $23.3 million -$28.0 million Total Assuming Donated Sports Field Construction -$3.6 million -$16.2 million -$18.8 million -$20.5 million Included in the above costs is the City’s Golf Course Corporation’s obligation to pay debt service on the outstanding golf course bonds, about $560,000 annually, which will continue regardless of changes that may be made to the golf course. Certificates of Participation were issued in 1998 with the understanding that the debt would be paid from golf course revenues. Reduction or elimination of revenues during reconstruction of the golf course would shift some or all of this cost to the General Fund. Deciding to fund any of the alternatives would have a significant impact on the City’s budget. The City’s ability to fund current service levels and other priorities would be significantly impacted. Potential Flood Control Solutions In October, the San Francisquito Creek Joint Powers Authority (JPA) and the US Army Corps of Engineers (Corps) initiated a feasibility study for a potential flood damage reduction and ecosystem restoration project on San Francisquito Creek. The study is expected to take five to seven years and will identify and analyze potential options to reduce flooding along the creek. The study products will include a preferred flood control project alternative, an environmental Attachment D CMR:168:06 Page 7 of 10 impact report prepared in conformance with both the California Environmental Quality Act (CEQA) and the National Environmental Policy Act (NEPA), and a cost/benefit analysis that will determine whether future federal funding is warranted for the project. Some of the flood control options that the study will evaluate include modifications to the Palo Alto Municipal Golf Course while others do not. The preferred San Francisquito Creek flood control option identified in the study may be one on the following list or a combination of one or more of the listed options: • Upstream storage reservoir • Series of upstream storm water detention basins • Parallel bypass channel or pipeline to convey excess flood flows • Downstream overflow basin • Channel widening • Construction of higher levees or floodwalls • Bridge modifications Implementation of the bypass channel, overflow basin, and to a lesser extent the channel widening options will require a redesign of at least a portion of the golf course. This introduces the possibility of investigating the potential for a flood control solution incorporating a multi-use flood control/ recreation facility. Public funds may be available to help offset the cost of multiuse recreation facilities, and the City should participate in identifying funding sources if a multiuse flood control option appears feasible. The information gained in this golf course preliminary feasibility study has helped position the City to participate more effectively in exploring a golf/recreation component in a possible multi-use flood control facility. For additional information about possible flood control project impacts on the golf course see Attachment F, Public Works Department memorandum. Private Financing Strategies The City Council memorandum directed staff to consider possible private financing strategies that could help cover the costs of designing and constructing a new golf course and playing fields, and also whether changes to the golf course could encourage redevelopment of nearby private properties. Private commercial or residential development scenarios that would contribute substantially to the cost of redesigning and constructing a new golf course and playing fields do not appear promising at this time. City staff spoke with several golf course developers and with representatives of the owners of the Harbor office park about factors influencing possible golf course/commercial/residential development options. There was consensus among the experts consulted that the Baylands is not a good location for developing a resort hotel with golf course. Residential development was described as potentially feasible only with substantial City involvement that would eliminate the upfront cost and risk for the developer, requiring the City to conduct all development studies and environmental review and provide the developer with a “ready to build” site, and at a scale involving several hundred units on 30 to 50 acres of land. Airport noise and the costs associated with meeting flood zone requirements were also considered impediments to residential development in the Baylands. There is some evidence that the current golf course or an improved golf course may support existing and new private development in the Baylands. The Harbor office complex markets the location amenities of the Attachment D CMR:168:06 Page 8 of 10 Baylands, airport and golf course; however, while some of its tenants use these facilities, they do not consider them to be a really big draw. The owners of Ming’s restaurant are now exploring the feasibility of converting the property they own at the corner of East Bayshore Road and Embarcadero Road from a restaurant to a hotel; they have indicated that the presence of the Palo Alto golf course is seen as an asset, particularly for business visitors. VillaSport Athletic Club and Spa, a health club developer, has expressed an interest in exploring the possibility of leasing land on the golf course to construct a private, family-oriented, full service health club. While usually a private membership club, Villasport is willing to provide for some use of the health club by the public. VillaSport constructs and retains ownership of its facilities and manages the facilities. If the City were to develop a new profit-making golf course, Villasport would pay the City for the right to operate the golf course. These payments to the City, which could be substantive, to lease land for the health club and for the right to operate the golf course could be used to help offset the cost of a new golf course. During preliminary discussions with VillaSport, some of the issues that have been identified that would need to be resolved are use of dedicated parkland, access by the general public, and policy implications of the size of the typical Villasport facility - an 85,000 square feet building with a height of 38 feet located on 8 acres, and related parking and traffic issues. While some golf course developers could be interested in developing a new 18 hole championship golf course on the Palo Alto golf course property, as discussed previously there does not appear to be room on the site for both a public 18 hole championship golf course as well as several playing fields. According to the golf course developers and golf course designers who talked with staff, a golf course developer would want the site as unconstrained as possible. Golf course designer Gary Linn described a scenario that might accommodate both a championship golf course and several sports fields if all constraints were removed from the site by eliminating a major portion of the Bay Trail that runs along the golf course so that the golf holes could be raised and extended out to the levies, and eliminating the wetlands on the golf course and mitigating them on or off site. These changes are possible, but they would involve substantial environmental challenges and increased costs. Some golf course developers also may be interested in developing a smaller non-championship golf course and/or golf practice facilities, such as a nine hole golf course and double deck driving range, and providing sports playing fields, as these facilities can be very profitable. However, some of the golf experts who spoke with staff stated that they believe the market for golf practice facilities is saturated in this area. RESOURCE IMPACT No additional costs are associated with the recommended actions. If the City Council were to pursue other options that are discussed in the report, costs would be incurred, and these are discussed in the report on page 6. POLICY IMPLICATIONS The recommended actions do not represent any change to City policies. ENVIRONMENTAL REVIEW This report is statutorily exempt from the California Environmental Quality Act (CEQA) under Section 15262, Feasibility and Planning Studies. Studies for possible future actions which are Attachment D CMR:168:06 Page 9 of 10 not approved, adopted or funded do not require preparation of an EIR or negative declaration. Environmental review will be required for any future project on the golf course. All of the options discussed in this report would result in a more intense use of the site than the existing golf course use. Some of the environmental issues that would need to be addressed for a future project include the following: • Special status species. The Mitigated Negative Declaration (MND) prepared for the 1994 Golf Course Master Plan found that at that time suitable habitat existed on the golf course to support at least eight special status species, several of which were thought likely to be using the site. • Wetlands and riparian habitat. The 1994 MND identified jurisdictional wetlands in eleven locations on the golf course, totaling 2.51 acres. These wetland areas are required to be protected, or mitigated on or off site if they are removed. While some of the wetland areas were of low habitat value, several were considered potential habitat for special status species. The riparian area of San Francisquito Creek is adjacent to the golf course on the north and west. • Artificial night lighting. Artificial night light in the vicinity of natural areas, particularly coastal environments, is considered a potentially significant environmental impact because of its detrimental affect on basic biological and ecological systems. See Attachment G for the article, “Degraded Darkness”, Conservation in Practice, Spring 2004, and additional reference sources on this topic). • Parking and traffic. Some potential future changes to the golf course would require construction of additional paved parking areas and would result in increased traffic. The intersection at Embarcadero Road and East Bayshore Road currently operates with PM level of service D. • Aesthetics. Construction of buildings and tall fences could impact views and the visual character of the Baylands. • Flooding and seismic risk. The golf course elevation is approximately at sea level with site elevations varying from -4.4 feet in drainage channels to + 7.5 feet at the tops of several greens. The one hundred year (1%) high tide event is 8 feet above sea level. The golf course site has high susceptibility for earthquake liquefaction and ground shaking. • Consistency with relevant plans and policies. Some of the concepts discussed in this report could present possible conflicts with adopted land use and environmental policies in the Comprehensive Plan and the Baylands Master Plan. Attachment D CMR:168:06 Page 10 of 10 PREPARED BY: __________________________________ VIRGINIA WARHEIT Senior Planner DEPARTMENT HEAD: __________________________________ STEVE EMSLIE Director of Planning and Community Environment CITY MANAGER APPROVAL: __________________________________ EMILY HARRISON Assistant City Manager ATTACHMENTS Attachment A: City Council memorandum, March 7, 2005 Attachment B: Size Comparison of different types of golf courses with photos Attachment C: Palo Alto Municipal Golf Course: Size by subarea Attachment D: Golf Course/Sports Field Schematic Layouts A, B, C, and D and Impact/Benefit Assessment Table Attachment E: Letter from Robert Trent Jones II Attachment F: Public Works Department memorandum Attachment G: Artificial Night Light Reference Sources cc: Parks and Recreation Commission Palo Alto Golf Course Advisory Committee Patrycja Bossak, San Francisco Bay Trails Robert Trent Jones II Gary Linn Cynthia D’Agosta, San Francisquito Creek Joint Powers Authority Walter Altholz, VillaSport Timothy Cahill,UBS Realty Investors LLC Attachment D 10990 Wilshire Boulevard Suite 1500 Los Angeles, CA 90024 310.477.9585 FAX 310.478.1950 www.econres.com Los Angeles San Francisco San Diego Chicago Washington DC New York London Palo Alto Muni Operational Analysis Executive Summary The City of Palo Alto provides golf services through its municipal golf course – Palo Alto Muni. Presently, the golf course operation and food and beverage functions are the responsibility of private sector providers, while the City maintains the golf course. The Bay Area golf market, like nearly every major metropolitan market in the country, has experienced very soft market conditions over the past six to seven years. The Bay Area public golf market has been more severely affected and recovered more slowly than most markets. Play at Palo Alto Muni has declined from about 90,000 rounds in 2000 to 76,240 rounds in 2007, a decline of 16 percent over the 2000-2007 period. By comparison, the average play per public access course in the Bay Area has declined about 12 percent since 2000, with play at the more relevant competitive set of public access courses down about 17 percent. Conditions at most Bay Area public courses have stabilized and there has been modest improvement in play levels over the past two years. Over the next five- to ten-year period, the regional golf market is expected to continue to gradually improve as the “baby boom” population ages in-place and limited expansion of the inventory of public golf courses occurs. Annual play at competitive Bay Area courses ranges from 57,000 to 87,000 rounds, averaging 70,700 rounds. Palo Alto Muni, at 76,000 rounds, ranks third among the 15 competitive courses surveyed. Greens fees at Palo Alto Muni of $36 weekdays and $47 weekends, excluding cart, are near the top of the range among competitive Bay Area courses, and are deemed at, or approaching, market levels. Palo Alto Muni revenue performance generally is favorable: – The average greens fee is $30.40 which compares with an average of $28.89 for competitive courses over a range of $19.31 to $37.92 per round. – Cart revenue per round is $4.08, lowest among competitive courses due to very low cart utilization which stems primarily from the limited course topography and short distance between greens and tees. Economics Research Associates Project No. 17383 Page 2 – Range revenue averages $13,600 per tee per year for the 26-tee facility, ranking the facility among the top of the competitive set of courses. – Merchandise sales at Brad Lozares Golf Shop are at a very high level, ranking Palo Alto Muni as one of the top golf retail operations at municipal courses in the country. – Given the limited capacity of the clubhouse to accommodate special events, food and beverage revenue is consistent with the performance at competitive facilities. Approximately 20 percent of Palo Alto Muni golfers reside within the City, with the majority of others residing in other South Bay communities. A survey of golfers at Palo Alto Muni revealed a high satisfaction level in terms of the tee time reservation system, tee time reliability, marshalling, and pace of play. Nearly 90 percent of golfers deemed weekday and 73 percent weekend greens fees acceptable. A very high percentage of golfers rate golf operations (instruction, customer service, merchandise) “excellent” or “good,” while only about one-half rated food and beverage facilities/services at this level. The majority of golfers rated golf course conditions as “fair” or “poor.” Of those respondents who stated that Palo Alto was not their primary course, primary reasons were: – Course quality/play experience: 41.1% – Location: 23.4% – Fees: 12.5% – Tee time availability: 6.8% Clearly, course quality and play experience, and not fee levels or tee time availability, are the primary reasons why most people choose another facility over Palo Alto Muni as their primary course. About 40 percent of the golf course master plan improvements were completed in the 1998-1999 course renovation. In light of the cost of completing the master plan improvements, and the threat of major disruption/impacts related to the San Francisco Economics Research Associates Project No. 17383 Page 3 Creek Flood Control project, it is prudent to consider limited targeted improvements to the course. The highest priority capital improvements needed for the golf course to remain competitive in the marketplace are summarized below: Component Amount ($000) Golf Course $ 870 Driving Range 600 Maintenance Yard 100 Clubhouse --- Soft Costs/Contingency 314 Total $1,884 The $870,000 allowance for the golf course improvements addresses primarily problems with original greens and bunkers which require rebuilding. Completion of the full master plan improvements would likely cost $4 to $5 million, or more, and is not considered to be cost-effective at this time. At least in the near- to mid-term, it would appear to be more appropriate to intensify golf course maintenance – including resumption of the fairway sanding program – than investing in extraordinary golf course improvements. Maintenance staffing levels at Palo Alto Muni compared with Bay Area competitive facilities is summarized as follows: Course Maintenance Employees Full Time Part Time (FTE) Total (FTE) Palo Alto Muni 9 1 10 Comparative Courses Range 10-15 0-3 12-17 Average 12 2 14 Excluding irrigation, annual maintenance costs at Palo Alto Muni are compared with benchmark facilities, as follows: Economics Research Associates Project No. 17383 Page 4 Annual Maintenance Expenses ($000) Palo Alto Muni $1,195 Public Provider Range (5 courses) $1,033-1,336 Average $1,171 Private Provider Range (10 courses) $ 474-1,105 Average $ 778 As with most public agencies, the City of Palo Alto assesses a charge to the golf course for Citywide overhead services such as human resources, legal, accounting, budget, management, purchasing, insurance (the City is self-insured), and similar functions. Referenced as the Cost Plan, currently the assessment totals about $380,000 per year. Clearly, there is a value of the overhead services provided by the City. While it is difficult to precisely determine the value of these overhead services, an estimate based on assessing the cost of these services if provided by a typical owner/operator can be offered: Overhead Service Annual Amount On-Site Accounting $ 50,000 Audit 25,000 Insurance (liability, general) 40,000 Contract Management 35,000 Other Services* 75,000 Total $225,000 *Represents portion of typical professional management fee related to providing human resources, budget, cash management, accounting and reporting systems, and other required overhead services. Net income accruing to the City from golf operations for FY 2007 is shown after deducting an allowance for the Cost Plan: Economics Research Associates Project No. 17383 Page 5 FY 2007 Net Income ($000) As Reported Adjusted City Net Operating Income $992 $992 Less: Debt Service ( 558) ( 558) Cost Plan ( 380) ( 225) Adjusted Net Income $ 54 $209 Under the current operating structure, and assuming completion of the limited capital improvement program, the golf course is expected to generate $950,000 per year in net operating income at a stabilized play level, prior to debt service ($559,000 existing plus $145,000 related to financing proposed capital improvements) and the City’s Cost Plan (overhead) allocation. This compares with about $900,000 reported for 2007 (after deducting an allowance for capital improvement replacement reserves). Thousands of 2008 Constant Dollars Projected at Stabilized Play Actual 2007 Cost Plan Adjusted Cost Plan Revenue $2,851 $3,148 $3,148 Less: Operating Expenses1 1,859 2,098 2,098 Net Operating Income $ 992 $1,050 $1,050 Less: Existing Debt Service $ 558 $ 558 $ 558 New Debt Service --- 145 145 Cost Plan 380 380 225 Replacement Reserve 95 101 101 Subtotal $1,033 $1,184 $1,029 Net Cash Flow ($ 41) ($ 134) $ 21 While net cash flow is projected to decline slightly following the completion of capital improvements, a more precipitous decline would be expected in the absence of such a program as the course becomes less competitive. The current golf operations agreement is a hybrid structure which is slightly favorable to the concessionaire. Hypothetically, the golf operations function could be converted to a more traditional facility lease (concession agreement) or fee-for-service management agreement. If the City continues to maintain the golf course, nominal improvement in net cash flow would result from a change in the operating structure. The differential between City and private providers maintenance function of the golf course is estimated at $250,000 to $300,000 per year. Thus, any form of Economics Research Associates Project No. 17383 Page 6 management, with private maintenance, would likely increase City net income by this amount of cost savings. The City funded the $7 million 1998-1999 capital improvements with a tax-exempt bond issue. To maintain the tax-exempt status of the bonds, the IRS requires compliance with several provisions including the form and structure of management. These provisions, in large part, have influenced the current structure. Altering the operating structure to a traditional concessionaire agreement or leasing the facility likely would require modification of the current debt structure. ATTACHMENT I 1 December 5, 2011 Council Study Session Questions and Answers a. Does $3 million reconfiguration estimate include replacement of the irrigation system? Response: Yes, but not the entire irrigation system, rather only for the holes that are reconfigured which varies in the four design options. b. How much money would we get for the Stanford dirt The exact dollar amount would need to be negotiated. Staff has met with Stanford twice since the December 5, 2011 study session. Stanford has indicated interest but has not yet proposed a dollar figure. c. Will the SFCJPA pay for loss of revenue during construction? Unknown at this time; staff has expressed the concern of lost revenue to the SFCJPA and have quantified what the loss in revenue may be with the four design options being considered - See National Golf Foundation Golf Course Pro Formas d. What will be the difference in rounds of play with the proposed improvements? See National Golf Foundation Golf Course Pro Formas e. What is the anticipated revenue after improvements? See National Golf Foundation Golf Course Pro Formas f. What is the size (acreage, holes, par) of other neighboring or competing golf courses (both public and private) (Shoreline, Sunnyvale, etc.) Palo Alto Golf Course Driving Range 4.9 acres Clubhouse 1.5 acres Parking Lot 1.9 acres Maintenance Facility 2.0 acres Pond 1.7 acres Designated Wetland Areas 2.5 acres Historic Waters 17.3 acres Golf Course irrigated acres 135 Golf Course (excluding existing facilities) 157.8 acres Golf Course (excluding facilities and sensitive areas) 138 acres Weekdays $39 Residents $37 / Weekends $49 Residents $47 / Senior Resident $28 Other golf course comparisons: Poplar Creek Golf (public course in San Mateo, Ca) 18 holes / Par 71 / 6042 yards /Rest / Pro Shop / No Driving Range ATTACHMENT I 2 105 acres which has 80 irrigated Weekdays $38 , Residents $33 / Weekends $53 Residents $45 Moffitt Field Golf Course (public golf course in Santa Clara County) 18 holes / 6517 yards / Par 72 / Pro Shop 125 acres which has 73 acres irrigated Military Weekdays $10 / Retired $25 / Weekends Military $20 Retired / $25 / NASA $25 Weekdays $34 Weekends Quail Lodge Golf Club (semi private resort Monterey County) 18 holes / par 71 / 6515 yards / CH / Maintenance Yard / DR / Pro Shop 130 acres which has 115 acres irrigated The Olympic Club Golf Course (San Francisco, Ca. Private) It has 45 holes / 2-18 Hole Par 71 courses / Lake Course 6871 yards /Ocean Course 6496 yards / DR/ CH / Maintenance yard / Pro Shop 365 acres which has a 200 acres irrigated. Callippe Golf Course (public course in Pleasanton, Ca.) 18 holes / 6748 yards / Par 72 /CH / Maintenance yard / DR / Pro Shop 175 acres which has 126 acres irrigated Weekday $37, non-resident $44 / Weekend $53, non-resident $64 / senior $27 Stanford Golf Club (private course in Stanford, Ca.) 18 holes / Par 72 / 6231 yards /CH / Maintenance yard /Pro Shop 170 acres which has 110 acres irrigated. San Jose Municipal Golf Course (public course in San Jose,Ca.) 18 holes / Par 72/ 6700 yards / Bar/ Grill / Maintenance / DR / Pro Shop 120 acres which has 100 acres irrigated Weekday $37 / Weekend $51 / senior $23 (no resident discount) Sunnyvale Municipal Golf (public course in Sunnyvale, Ca.) 18 Holes / Par 70 / 6255 yards / Bar and Grill / Maintenance Yard / Pro Shop 145 acres which has 100 acres irrigated. Weekdays $35 / Weekends resident $44, non-residents $48 Santa Teresa Golf Club (public course in San Jose, Ca.) 27 holes / CH / Maintenance Yard /DR / Pro Shop 150 acres which has 120 acres irrigated. 27 holes. ATTACHMENT I 3 Weekdays $40, Fridays $46, Weekends $60, seniors $24 Resource: Gary Carls—past Golf Superintendent and Director of Shoreline Golf (public course in Mt. View, Ca.) 18 holes / 6996 yards / restaurant / Maintenance Yard / DR / Pro Shop 150 acres which has 130 acres irrigated Weekday$31 nonresident $38 / Weekend $47 non-resident $54 Senior$28 Santa Clara Golf (public course in Santa Clara, Ca) 18 holes / Par 72 / 6704 yards / Driving Range / Club House / Pro Shop 150 acres which has 100 acres irrigated $25 Weekday, non-resident $37 / Weekend $34, non-resident $50 Spring Valley Golf (public course in Milpitas, Ca.) 18 Holes / Par 72 / 6,140 yards/ DR / CH / Pro Shop / 120 acres which has 85 irrigated Weekdays $37 / Weekend $55 / Seniors $28 Pajaro Golf Club (public course in Watsonville , Ca. ) 18 hole / Par 72 / 6500 yards /DR / CH / Maintenance Yard / Pro Shop 120 acres total which has 90 acres irrigated Weekdays $45 / Weekends $55 g. Can the Palo Alto course be more compact? Yes, see design option G h. How much land would the creek levees take? 7.4 acres i. What percentage of golfers that play Palo Alto Golf Course are Palo Alto residents? Residency data for Palo Alto and neighboring Golf Courses: Palo Alto 20% Callippe 30% Santa Clara 35% huge resident discounts Sunnyvale 23% Shoreline 26% Los Lagos 60% j. What percentage of field users are Palo Alto residents? The latest Palo Alto residency verification of the four major youth soccer clubs is as follows: 1. AYSO – 95% 2. Palo Alto Soccer Club – 70% 3. Stanford Soccer Club – 78% 4. PSV Union Football Club – 52% ATTACHMENT I 4 Other major field users are as follows: 1. Palo Alto Little League –90% 2. Palo Alto Girls Softball – 88% 3. Palo Alto Babe Ruth – 52% 4. Tomahawks Lacrosse –59% 5. Palo Alto Adult Soccer League –40% 6. Palo Alto Coed Soccer League – 16% 7. Silicon Valley Soccer Association – 14% k. What percentage of Palo Altans are golfers (and may play other places)? Unknown at this time l. What kind of revenue could we derive from a double deck driving range The driving range is managed by the Brad Lozares as part of his management agreement wit the City. The City and Lozares split the revenue from the driving range, 62% City and 38% Lozares. Lozares is responsible for maintenance, day to day operations and marketing. City is responsible for capital improvements. Total revenues are approximately $340,000 annually. m. If the dimensions of the holes are altered significantly to accommodate field space, will this affect the popularity of the course? It depends; what makes a Golf Course popular has many factors, among those listed below. To the extent the factors below and others remain in the new configuration the Golf Course can be more or less popular among golfers: Length - 6,500 yards or longer Safe – holes are not too close to one another Quality playing surfaces – particularly the greens, approaches and tees Customer Service – fun, professional, convenient Pace of play Memorable holes (wow factor) Rodent and geese control n. What are the demographics of golfers? Total Annual Rounds: Junior Rounds-12% Senior Rounds-24% All Others-64% o. Did we get full input from all stakeholders? i. A community meeting was held on January 26, 2011 that included a wide range of stakeholders beyond the golfing community. The community meeting was very valuable in understanding varied interests. A summary of the feedback received from this meeting ATTACHMENT I 5 is attached to the staff report and can also be seen at the City website: www.cityofpaloalto.org/golf p. What is the cost of plan F? Costs for all four Golf Course design options can be seen in Attachment A q. Will the SFCJPA be the lead for EIR for improvements beyond the basic restoration? No, the City will need to conduct all environmental analysis for altering the Golf Course beyond what is needed as part of the flood control mitigation. r. Who would be responsible for the supplemental EIR for the clubhouse improvements? The City of Palo Alto s. How can we turn around the trend of declining rounds of play? If we invest in the Golf Course asset, as seen in design options D, F and G, the ROI analysis by the National Golf Foundation suggests Palo Alto will be able to differentiate itself from our neighbors and find a competitive advantage to turn the trend around. Changing the golfing experience to be more Bay friendly, including renaming the Palo Alto Muni to Baylands Palo Alto, and many more Baylands features including elevated tees and greens so golfers can see the bay and surrounding hills are some of the design features Richardson has developed that staff feel will generate additional golf play. t. Why is there only a $2 differential between residents and non-residents? Because non-resident play is critical to the cost recovery of the Golf Course the resident discount or put another way non-residents premium, has been minimal. u. How many people use the driving range annually? Lozares estimates 20% of the driving range patrons use the range before their round of golf. The remaining 80% of the patrons use the driving range for practice and/or instruction. Approximately 42,000 buckets of range balls are sold annually. How many unique driving range users is unknown. v. How many driving range users are residents? This information is unknown as there is one set of fees for using the driving range with no differentiation for residency. w. What is the timeline of the SFCJPA project, including decision points? SFCJPA to provide x. If Council decided not to keep the golf course, would we loose JPA mitigation money? To be determined, the question has been posed to the SFCJPA staff. ATTACHMENT J Palo Alto Golf Course Renovation & Reconfiguration Project — SFCJPA Floodway Improvements SCOPE OF WORK & PROFESSIONAL FEES (PLAN “G”) A. It is the intention of the Owner to: Finalize the design and implement the reconfiguration of the existing Palo Alto Municipal Golf Course in order to accommodate the San Francisquito Creek Flood Protection and Ecosystem Restoration Capital Project; incorporating improvement plans and reconstruction work to preserve the quality of the golf course facility within the golf course land area following the impact of the flood protection and ecosystem restoration work and to allow for approximately 10 acres of future recreation development consistent with “Plan G” as developed under the SFCJPA work to date, (Hereinafter referred to as the “Project”). B. Scope of Work Outline (Golf Course Architect’s Professional Services Inclusive of Primary Sub-consultant Services): (i) Design Development Phase • Prepare Design Development Plan at 1”=100’ scale with locations of all golf features, turf limits, path alignments and hole centerlines • Prepare construction phasing plan and schedule • Required meetings for scheduling, approvals and administration • Contract Administration & Invoicing • Prepare Probable Cost Estimate(s) • Environmental Consulting (During Design Development Phase) • Biological Resources Evaluation • Ecological Design Collaboration • Required meetings for scheduling, approvals and administration • Contract Administration & Invoicing (ii) Construction Documents & Specifications Phase • Prepare Final golf course grading and drainage plans; showing shaping, contours and feature drainage for reconfigured golf holes and areas • Green plans; showing detailed contours of new putting surfaces and drainage for all greens • Irrigation plans, including all details, specifications and requirements • Specifications and details required for construction of the above noted plans, integrated with requirements for agronomic and any special details to be provided by the Owner • Other plans and details deemed to be required by the Golf Course Architect, such as staking plans, clearing plans, grassing plans or arbor plans • A grading plan to show the finished surface and drainage for the future athletic fields area that lies within the existing golf course property • On-course Restroom Plans, Specifications • A phasing plan showing how the construction shall be sequenced, or specifications for sequencing • Environmental Consulting (During Design Development Phase) • Required meetings for scheduling, approvals and administration • Contract Administration & Invoicing • Prepare Probable Cost Estimate(s) (iii) Bidding Phase • Coordination of the bidding process in concert with the City • Coordination of a pre-bidding meeting • Written Clarifications (as needed) • Evaluation of bids received • Contract Administration & Invoicing (iv) Construction Support Phase • Coordination of a pre-construction meeting • Review of staking by the Contractor • Coordination of RFI and Shop Drawings required to facilitate the work • Periodic site visits (up to 30) to observe progress and make interpretations for the purposes of obtaining the best possible finished golf features • Support services of the Project Civil Engineer and Irrigation Consultant • Review of weekly progress reports by the Contractor • Required meetings for scheduling, approvals and administration • Contract Administration & Invoicing C. Scope of Work Outline (Optional and Optional Sub-consultant Services): (i) Project Representative (Construction Management Services During Construction) • Regular, on-site observations to ascertain progress, compliance and quality of the work performed by the Contractor • Review of weekly progress reports by the Contractor • Coordination of the site visits of the Golf Course Architect • Required meetings for scheduling, approvals and administration (10-12 months) • Contract Administration & Invoicing (iii) Stanford Medical Center (or other) Soil Importation • Civil Engineering for Stockpiling, Testing, etc. • Additional Shaping Plans • Additional Coordination, Phasing Plans • Additional Probable Cost Estimate(s) D. Professional Fees & Reimbursable Expenses Golf Course Architect: Design Development Plan $ 16,785.00* Construction Documents & Specifications 180,790.00* Bidding Phase 11,140.00 Construction Support Phase 84,320.00 Reimbursable Expenses (Travel and Other) 43,800.00 Environmental Consulting and Expenses *(Incl.) _________________________ $ 336,835.00 Optional Services: Construction Management Services and Expenses $ 137,925.00 Stanford (or other) Soil Importation Consulting And Expenses 22,200.00 _________________________ $ 160,125.00 _________________________ _________________________ $ 496,960.00 E. Notes and Conditions (i) Based on Assignment to the City of the Existing contract with the S.F.C.J,P.A. to be further defined by the Standard Form of Agreement of the American Society of Golf Course Architects (A.S.G.C.A.) as modified by City conditions and project specific conditions. (ii) The “Total Not to Exceed” amount of the fees and expenses shall be subject to change based on extended project duration, additional work requested by the City or other conditions subject to the Contract. (iii) The Scope of Work and Professional Fees herein is based on payment by S.F.C.J.P.A. to the Golf Course Architect of 50% of Phase (iii) Work under the existing S.F.C.J.P.A. contract prior to assignment to the City. (iv) The plans and specifications for the on-course restroom building is per the design direction established in the Long Range Master Planning work performed to date and based on use of the Project Civil Engineer to coordinate final plans and specifications for utilities, structural and architectural. The restroom building shall be bid and handled under the same contract for the golf course improvement work. [Rev. 7-6-12] 6/19/12 Attachment K National Golf Foundation - Summary of Changes to National Golf Foundation Draft Report from March 6, 2012 Finance Committee Meeting: 1. The base reimbursement from the SFCJPA has been assumed at $3 million. In the initial draft, NGF assumed that the cost of base Option A - $3.54 million - would be fully reimbursed to the City. For revised draft Options A and D, the additional estimated cost above $3 million has been assumed to be covered by a no-interest General Fund loan that will be paid back over five years. The amount of debt for Options F and G were increased by the ~$540,000 difference. 2. The total cost of Option G has been increased to $7.57 million to reflect the Finance Committee’s recommendation to rebuild all 18 greens, re-turf all the fairways, build an on-course restroom and rebuild the practice green area. 3. The cost of debt has been increased from 3.5% to 4.5%. 4. Lost revenues during construction have been adjusted upward to reflect a more conservative position. For instance, rounds played (all 9-hole) during time of construction for Options A, D, and F had been estimated in initial draft to fall by 15% off of recent historical play for the corresponding months. The decrease has been increased to 50%. 5. Proportionately more discounted rounds have been assumed and the average 9-hole green fee lowered by $1 during time of construction. 6. The ramp up to stabilized rounds played has been moderated from the initial draft report to reflect a more conservative position. 7. Annual growth rate in labor expense has been increased from 3% to 4.5% in all scenarios. 8. The base cost for potable water, from which adjustments were made for reduced usage during years affected by construction and also after re-opening to reflect reduced acreage, was lowered to $246,000 based on input from the City. Also, the City provided the following estimates for annual growth in water expense, which were incorporated into the pro formas: -2020: 4.5% 9. The operating and capital reserve under all options has been increased from 3% of total green fee revenues to 10%. 10. At City request, NGF performed a sensitivity analysis on the preferred Option G. The following three scenarios were tested (see pro formas for results): a. Rounds reduced to moderately lower than projected FY 12 performance, continuing downward trend b. Average green fee increasing over recent historical by just less than half the 15% projected increase in base model c. Rounds and average green fees both lower, in combination 11. The marketing budget has been increased under all scenarios to reflect the cost associated with getting golfers to return to and/or try Palo Alto GC (perhaps renamed as “Baylands Golf Club”), as well as cost associated with the re-branding of the golf course. The highest spending is projected during the second fiscal year of construction and the first year upon reopening. 12. The golf course maintenance contract is now projected to grow at 1.5% annually to roughly mirror growth in the CPI. Attachment L June 20, 2012 To: All Members of the Palo Alto City Council From: All Members, Palo Alto Golf Advisory Committee Subject: Comments Regarding Proposed Golf Course Renovation, Option G The Palo Alto Golf Advisory Committee is writing to provide our views on the proposed golf course renovation, Option G, as presented by Mr. Forrest Richardson to the Council’s Finance Committee on March 6, 2012, and recommended for full- Council approval by the Finance Committee at that meeting. To summarize our basic position, our Committee prefers Option D, because we feel it provides less risk to the City, and to the golf community, than does the higher-cost Option G. Because of the greater risk of Option G, our committee would support that option only with the following proviso added to the Council’s approval action: No money shall be spent completing the proposed sports fields whose sites are being provided by Option G, nor on any improvements appurtenant to the sports fields, until all improvements to the 18-hole golf course facility proposed in Option G are completed and operational. In making this recommendation to the Council, we note that neither our Committee, nor the local golf community generally, was able to review Option G prior to the Finance Committee’s action, because the tentative golf course routing and design were not complete and available prior to the meeting. Our Committee has three primary reservations regarding the Option G proposal, which drive our recommendation to the Council: 1) We believe the analysis conducted by the National Golf Foundation, which states that the proposed Option G has the highest potential return-on- investment of the options proposed, understates the potential marketing damage the City would sustain due to the yearlong closure of the course required by Option G. We also have concerns that the NGF’s forecasts regarding growth in rounds and potentially higher green fees from the renovated golf course are overstated, given the competition from other golf properties in the area surrounding Palo Alto Golf Course. 2) We are also concerned that an economic downturn, prior to or during the project construction, or an unexpected increase in construction costs, could result in significant pressure on the Council to approve golf course improvements less than envisioned by Option G, or to reduce the quality of the renovation work during construction, in order to divert money to complete the Option G athletic fields. As the Council is aware, Option G provides only land for the fields, not funds to complete them. Our understanding is that City staff estimates the cost to complete the three fields envisioned at approximately $3 million, with no funding source identified. 3) The additional cost of Option G, which would presumably need to be financed by a debt instrument supported by golf course revenues, in essence puts on the golf community the financial burden of improvements (the athletic fields site) that are not golf related, but are instead a general recreational benefit to the community. In fact, the attached analysis comparing costs of Option G and Option D, prepared by a member of our committee, concluded that approximately $2 million of the $3 million additional cost of Option G was solely due to the greater encroachment to the golf course from creating the athletic fields site. This analysis assumed that irrigation improvements to portions of the golf course not renovated under Option D would be required at some future date. We believe it is appropriate for the City to find another funding source for this $2 million cost, rather than asking the golf community to subsidize a non-golf-related community facility. Since the start of this project, our Committee’s has focused on maintaining or even enhancing the viability of Palo Alto Golf Course, while providing the land necessary for the flood control improvements on San Francisquito Creek. We prefer Option D because it provides the land needed for the flood control project, while also providing design enhancements that would improve the course’s market stature, at a cost that required minimal additional investment from the City, beyond what the joint powers authority for the flood control project is expected to provide, and minimal dependence on what we believe are the NGF’s speculative assumptions regarding the potential for increased annual rounds and higher green fees. Option D also provided a continued presence for the golf course in the market during the renovation project, because it envisioned continuing a full-length nine-hole course throughout the project. During his March 8 presentation, the National Golf Foundation’s representative noted that Option D had the quickest return-on- investment of the options proposed. Based on the Finance Committee’s discussion on March 8, our Committee has assessed the proposed Option G. We can support it, with the proviso presented at the start of this letter, because we believe that proviso would represent a commitment by the Council to prioritize the viability of the golf course following the renovation, which is our Committee’s goal.