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HomeMy WebLinkAboutStaff Report 201-06City of Polo Alto City Manager’s Report TO:HONORABLE CITY COUNCIL 4 FROM:CITY MANAGER DEPARTMENT: ADMINISTRATIVE SERVICES DATE: SUBJECT: MAY 1, 2006 CMR: 201:06 APPROVAL OF AMENDMENT NO. 1 TO THE MANAGEMENT AGREEMENT WITH BRAD LOZARES FOR GOLF PROFESSIONAL SERVICES AT 1875 EMBARCADERO ROAD TO EXTEND THE TERM OF THE AGREEMENT AND TO INCREASE THE MANAGEMENT FEE RECOMMENDATION Staff recommends that Council approve and authorize the City Manager to execute the attached Amendment Number 1 to the Management Agreement with Brad Lozares for golf course professional services at the Palo Alto Municipal Golf Course. BACKGROUND On March 16, 1998, the City issued tax-exempt bonds to finance golf course improvements. For the 20 plus years prior to the bonds being issued, the City and the golf professional had operated under one lease agreement for both professional services and the lease of the City owned facility. When the bonds were issued in 1998, IRS regulations required that there be two agreements, a management agreement for golf course professional services and a lease to operate a golf retail establishment. In 1998 (CMR: 104:98), Council approved a 20-month management agreement and a 15-year lease with golf professional, Brad Lozares. The original management agreement was amended three times prior to Council approval of a new restated management agreement (Agreement) on January 27, 2003 (CMR: 101:03). The term for the current agreement will expire on June 30, 2006. The lease terminates on April 30, 2013 with a 10 year option to renew. DISCUSSION The attached proposed amendment to the agreement will: 1) extend the term of the agreement for an additional eighteen months; 2) increase the fixed fee compensation by 3 percent; and, 3) reimburse the golf professional for 60 percent of the bank’s credit card merchant charges attributed to the golf cart rentals. Terna The current 41-month agreement is due to expire on June 30, 2006. The agreement must be for no more than 60 months under IRS regulations. The agreements and its amendments have intentionally been for less than 60 months, in order to allow both parties to make refinements to the agreement that reflect the current economic conditions at the golf course. Additionally, this CMR: 201:06 Page 1 of 3 purposed 18-month extension will also coincide with staff’s project to study and compare the economics of other golf course facility operations. Compensation IRS regulations require that at least 50 percent of compensation for golf professional services must be fixed or pre-set in nature. Under the terms of the original agreement, the management fee was adjusted each 12-month period to reflect the changes in the consumer price index (CPI). Under the current Agreement, the annual CPI adjustment was eliminated and a one-time 8 percent adjustment was made. There has not been any additional adjustment to the compensation for the golf professional services for the past 40 months and the CPI has averaged about 3 percent per year. The golf professional currently receives $26,854 per month as fixed fee compensation. The golf professional is requesting a one-time 3 percent increase ($806 per month or $14,502 for duration of the 18-month term). Credit Card Usage Charges for Golf Cart Fees The original agreement required the golf professional to pay for all merchant charges associated with credit card usage, including the charge collected by the credit card companies when credit cards are used to pay for golf services. On December 18, 2000, Council approved an amendment to the original agreement that allowed the golf professional to be reimbursed for the credit card merchant charges attributed to payment for rounds of play. This reimbursement was continued in the current agreement. The justification for this reimbursement was the fact that the City receives all of the revenue from rounds of play and the golf professional was paying for bank credit card merchant fees attributable to the rounds of play. The golf professional is now requesting to be reimbursed for the credit card merchant fees attributable to the City’s 60 percent share of the golf cart rentals. The City and golf professional split the revenue from the golf cart rentals 60 percent and 40 percent respectively. It is estimated that the City’s 60 percent share of credit card merchant charges would be approximately $6,000 per year. RESOURCE IMPACT The changes proposed in amendment number one to the agreement will result in additional annual City expense of approximately $21,000 for the duration of the contract. The financial terms of the agreement will be accommodated within the existing resources available to The Community Services Department. POLICY IMPLICATIONS Proposed changes recommended in this report are consistent with prior Council direction. ENVIRONMENTAL REVIEW The amendment to the Management Agreement is not a project Environmental Quality Act and does not require environmental review. under the California PREPARED BY: WILLIAM W. FELLMAN Manager, Real Property CMR: 201:06 Page 2 of 3 DEPARTMENT HEAD APPROVAL: CARL Director,Services CITY MANAGER APPROVAL: HARRISON Assistant City Manager ATTACHMENTS Attachment A: Amendment No. 1 to the Management Agreement dated January 28, 2003 CMR: 201:06 Page 3 of 3 ATTACHMENT A AMENDMENT NO. i TO MANAGEMENT AGREEMENT BETWEEN THE CITY OF PALO ALTO AND BRAD LOZARES GOLF SHOP FOR PROFESSIONAL SERVICES AT THE PALO ALTO MUNICIPAL GOLF COURSE THIS AMENDMENT NO. 1 to the Management Agreement between the City of Palo Alto and Brad Lozares Golf Shop for Professional Services at the Palo Alto Municipal Golf course, dated January 28, 2003, ("Agreement,") is made and entered into this day of April, 2006, by and between the City of Palo Alto, a municipal corporation ("CITY") and Brad Lozares Golf Shop, a sole proprietorship ("GOLF PROFESSIONAL"). RECITALS A.GOLF PROFESSIONAL has assumed responsibility for and continued the operation and management of course play for the Golf Course facility on behalf of the CITY on the terms and conditions set forth in the Agreement. The Agreement, by its terms wil! expire on June 30, 2006. B.The Agreement, (Section IV.A) provides the GOLF PROFESSIONAL with an annual fixed fee compensation of $322,251.00 payable in monthly installments. C.The Agreement (Section V.A.3.a) provides that the CITY shall reimburse the GOLF PROFESSIONAL for finance charges associated with the purchase of green fees, tournament fees and play cards paid by credit cards. D.CITY and GOLF PROFESSIONAL desire to amend the Agreement to, extend the term by eighteen months, increase the GOLF PROFESSIONAL’s fixed fee compensation amount by three percent (3%), and provide for reimbursement to the GOLF PROFESSIONAL of a portion of the finance charges associated with the payment of service charges for golf carts by credit card. AGREEHENT NOW, THEREFORE, in consideration of the terms, conditions, and provisions of this Amendment, the parties agree as follows: 060420 sm 0100445 ] SECTION i. Section III (Term) is amended to extend the term by eighteen (18) months and shall read in its entirety as follows: "ili.TERH The initial term of this Agreement shall commence on JANUARY 28, 2003 and end on JUNE 30, 2006. Commencing July I, 2006 the term of this Agreement shall be extended by eighteen (18) months to December 31, 2007." SECTION 2.Section IV (Compensation), Subparagraph A (Fixed Fee), is amended to increase the fixed fee by 3% during the eighteen month period from July I, 2006 to December 31, 2007, payable in monthly installments of $27,660.25, and shall read in its entirety as follows: "A.Fixed Fee The GOLF PROFESSIONAL shall receive a fixed fee during the term of this Agreement for GOLF PROFESSIONAL’s Golf Course and driving range management, Golf Course marshaling and starting and cart rental services. The fixed fee for the initial term of this agreement wil! be $322,251 annually, based on a calendar year. The fixed fee shall be paid in 12 equal monthly installments. During the eighteen month extension term from July i, 2006 to December 31, 2007, the GOLF PROFESSIONAL shall receive a fixed fee, payable monthly, in the amount of $27,660.25. CITY shall forward the fixed fee by the 5th working day of the CITY’s working month for the amount due for that month to the GOLF PROFESSIONAL.If not received within ten calendar days after the fifth working day of the month, a late charge of one percent of monthly payment due and unpaid plus an administrative fee of $45.00 shall be added to the payment due and unpaid, and the tota! monthly sum shall become immediately due and payable to GOLF PROFESSIONAL. The parties agree that such late charges represent a fair and reasonable estimate of the 060420 sm 0100445 2 costs that GOLF PROFESSIONAL will incur by reason of City’s late payments and that acceptance of such late charges in no event constitutes a waiver of CITY’s default with respect to such overdue payment, nor prevents GOLF PROFESSIONAL from exercising any of the other rights and remedies granted hereunder or by any provision of law." SECTION 3. Section V (Records and Accounts), subparagraph A.3.a, is amended to reimburse the GOLF PROFESSIONAL for 60% of the finance charges associated with credit card payment for golf carts and shall read in its entirety as follows: "a. GOLF PROFESSIONAL will pay for all banking fees, including all monthly service charges, armored courier pickup services and any credit and debit card service charges, excluding (i) those finance charges associated with the purchase of any and al! green fees,tournament fees and play cards (’~GFTFPC") paidby credit card and (ii) sixty percent (60%) ofthe finance charges associated with the payment of service charges for golf carts by credit card; (reimbursement of said Merchant Fees on GFTFPC sales and golf cart service charges is made monthly to the GOLF PROFESSIONAL upon receipt of settlement statements from credit card merchants." // // // // // // // // 060420 sm 0100445 3 SECTION 4.Except as herein modified, all other provisions of the Agreement,including any exhibits and subsequent amendments thereto,shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have executed this amendment the day and year first written. ATTEST:CITY OF PALO ALTO City Clerk Assistant City Manager APPROVED AS TO FORM: BRAD LOZARES GOLF SHOP Sr. Asst. City Attorney APPROVED: Director, Administrative Services Name: Title: Taxpayer Identification No. 060420 sm 0100445 4