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HomeMy WebLinkAboutStaff Report 8007 City of Palo Alto (ID # 8007) City Council Staff Report Report Type: Informational Report Meeting Date: 5/15/2017 City of Palo Alto Page 1 Summary Title: Golf Management RFP and Construction Progress Update Title: Update on the Golf Course Construction Project and Information on Intent to Release a Request for Proposal for Golf Course Management Services From: City Manager Lead Department: Community Services This is an informational report and no City Council action is necessary. The report is to inform Council on the City’s intent to issue a Request for Proposal (RFP) for golf course management services and to update Council on Golf Course construction progress. Background Currently there are four separate, but related contracts applicable to operations at the Palo Alto Golf Course (Attachment A – March 18, 2013 City Council Staff Report on Golf Course Contracts): 1. Golf Course Maintenance Services Agreement - BrightView Golf is the service provider. 2. Golf Course Management Services Agreement - Brad Lozares is the current services provider. The management services agreement provides Golf Course and driving range management, Golf Course marshaling, Golf Course revenue collection, customer service, starting time coordination, and cart rental services. 3. Golf Pro-Shop Lease - Brad Lozares is the tenant. 4. Food and Beverage Services Lease between the City and R&T Restaurant. This Lease has been assumed by Hee King Bistro Inc. to operate the Bay Café. In the spring of 2013, the first three contracts above were negotiated to expire concurrently with the fourth contract on April 30, 2018. The purpose for aligning the contract expiration dates for all golf course contracts was to allow the City to issue an RFP for a full service golf course operator. At that time, the golf course reconstruction project was anticipated to be City of Palo Alto Page 2 completed in 2016, which would have provided potential bid proposers with two years of information regarding operating expenses and revenues with the renovated course. However, due to extended delays in receiving regulatory permits, closure and reconstruction of the golf course did not commence until July 2016 with completion anticipated in November 2017 pending good weather to establish the turf. As a result of the early project delays and starting the project in July 2016 the current service contracts will be in place for five or six months before the expiration of the contracts in April 2018. Staff is exploring the feasibility and interest of early termination of the four existing service contracts and leases as we go through the RFP process. Early termination would allow the awardee of the RFP process to begin managing the Golf Course as soon as it re-opens in November 2017, allowing the awardee to develop and deliver marketing and promotion campaigns leading up to and throughout the re-opening period, and to provide consistent service rather than turning over operations only a few months after re-opening. It should be noted that staff anticipate the City’s existing golf course service contractors and leaseholders will also participate in the RFP process. If the City is unable to negotiate early termination of the existing agreements with the four service providers, the City will seek to award a new management service contract to begin April 2018. In this scenario, the first six months after reopening the Golf Course (November 2017 to April 2018) will be managed by the existing service providers. Staff has engaged the National Golf Foundation (NGF) to help prepare a scope of services in order to issue the RFP and help solicit for golf course management services. Staff is working with NGF to establish desired quality standards for operations and course maintenance along with minimum operator experience and qualifications. In addition NGF will recommend how to structure payment terms and methods of compensation, contract terms, and oversight mechanisms. Completion of Scope of Services is anticipated in May 2017 followed by solicitation for an RFP. Staff anticipates soliciting the RFP and receiving proposals from golf course management companies during summer 2017. Staff will evaluate and hold interviews with respective companies submitting preferred and well-developed proposals. Staff intends to return to Council by the end of calendar year 2017 to request approval to award a golf course management service contract. Construction Update The golf course closed in July 2016 to begin a full course renovation, practice area expansion, and driving range expansion. Despite the heavy winter rainfall, the contractor, Wadsworth Golf Construction Company, remains close to schedule. At present, they anticipate completing construction as scheduled in preparation for course re-opening in November 2017. The date is City of Palo Alto Page 3 dependent upon establishment of the turf and grow-in, which is a weather dependent variable. Work completed to date includes mass excavation and grading, followed-up with earthwork focusing on shaping and returning topsoil previously salvaged for re-use. Concurrent to the earthwork is installation of drainage and irrigation. A new pump station for potable and recycled water has been installed. The driving range was closed in March to add additional hitting bays and opened for daily use in April. Current work includes building and adding sand to golf greens, forming and shaping bunkers, and building cart paths. Work has begun on the practice areas along Embarcadero Rd and in front of the Driving Range, including an area for youth skill development. (Attachment B – Golf Construction Photos) The project is on budget and on schedule. Resource Impact The golf course operating budget for FY 2018 is proposed at $2.0M for four months of turf grow-in and eight months of golf play. FY 2019 will be adjusted for a full year of operations. The cost associated with proposals resulting from the RFP solicitation is unknown. However, should proposals exceed budget, staff will modify services to work within the budget. Should this not be possible, staff will advise Council when requesting contract approval. The estimated construction cost for this Golf Course construction Project is $12.5 million and the City plans to finance $8.4 million of the construction cost through the issuance of Certificates of Participation (COPs). The estimated finance amount represents the net need after a $3 million mitigation payment from the San Francisquito Creek Joint Powers Authority (JPA) and $1.1 million received for importing soil. The JPA has informed the City they expect to make the mitigation payment in FY 2018. At present, the actual and projected remaining construction costs are within the estimated budget. At this time, the City has not issued COPs and the project is being funded through the City’s Capital Budget. Issuance of COPs may be in the form of either tax-exempt or taxable bonds and the City will make a determination of which form of debt to issue dependent upon the negotiated payment structure of the golf management service contract. Tax-exempt bonds would apply to a simple fee for service contract. However, a substantial incentive contract structure or lease element may require taxable bonds. Once COPs are issued, the Capital Budget will be reimbursed. 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 City of Palo Alto Page 4 purposes of CEQA, adopted a resolution on February 3, 2014, certifying the final EIR for the project. Attachments:  Attachment A - CMR ID # 3576 - Staff Report on Golf Contracts  Attachment B - Golf Construction Photos City of Palo Alto (ID # 3576) City Council Staff Report Report Type: Consent Calendar Meeting Date: 3/18/2013 City of Palo Alto Page 1 Summary Title: Golf Course Contracts Title: Finance Committee Recommendation of a Five-year Contract Extension for the Palo Alto Golf Course Management Services Agreement with Brad Lozares (Lozares); Amendment to Golf Course Pro Shop Lease with Lozares to Reduce the Term of the Option to Extend the Lease From Ten Years to Five Years; and Five-Year Contract Extension for the Golf Course Maintenance Services Contract with Valley Crest Golf From: City Manager Lead Department: Community Services Recommendation The Finance Committee and staff recommend that the Council: 1. Approve and authorize the City Manager or his designee to execute the Amendment No. 6 to the Management Agreement for Golf Course professional services with Brad Lozares Golf Shop in the amount of $2,058,073 (Attachment A) and the Amendment No. 4 to Lease of the Palo Alto Golf Pro Shop premises with Brad Lozares for a term of 5 years, beginning May 1, 2013 ending April 30, 2018 (Attachment B). 2. Approve, and authorize the City Manager or his designee to execute the Amendment No. 1 to the General Services Agreement with ValleyCrest Golf Course Maintenance, Inc. in the amount of $4,072,533 and for a term of 5 years, beginning May 1, 2013 ending April 30, 2018 (Attachment C). Background There are four separate, but related, contracts applicable to the Palo Alto Golf Course: 1. Golf Course Maintenance Services Agreement (expires April 30, 2013) - ValleyCrest Golf is the service provider. (Existing Contract- Attachment D) 2. Golf Course Management Services Agreement (expires April 30, 2013) - Brad Lozares is the current services provider. The management services agreement provides Golf Course and driving range management, Golf Course marshaling, Golf Course revenue City of Palo Alto Page 2 collection, customer service, starting time coordination and cart rental services. (Existing contract- Attachment E) 3. Golf Pro Shop Lease (expires April 30, 2013, with a current 10-year extension option) - Lozares is the tenant, and has conditionally agreed to reduce the lease term extension from ten years to five years, pending Council approval of the five-year extension of the Golf Management Services Agreement (Item 1, above). 4. The Food and Beverage Services Lease between the City and R&T Restaurant (expires April 30, 2018). This Lease is not being amended at this time and is only mentioned as a reference point for the relevant golf course contracts’ expiration dates falling on April 30, 2018. One of staff’s primary goals in negotiating these contracts was to have them expire on the same date. Staff from Administrative Services, Community Services, City Attorney’s Office, and City Manager’s Office have carefully considered the pros and cons of a Request for Proposal (RFP) for both the Golf Professional management services and the Turf and Landscape maintenance services and have concluded that, on the cusp of a major proposed reconfiguration of the golf course, now is not the preferred time to conduct the RFP process for these two particular contracts. The timing of the reconfiguration construction project has not yet been finalized, and there is some uncertainty of the level of service needed during golf course construction at this time. If these contract extensions are approved, staff recommends conducting an RFP in April 2018 when all four Golf Course contracts, as outlined above, are expected to expire. Coordinating the concurrent expiration of the four contracts will provide an opportune time to attract more interest in bidding on an RFP, because it could well include the entire golf course operation. In addition, maintaining continuity with the current contractors during the reconfiguration process will enable certain services, such as the Golf Course driving range, to be maintained throughout the process. The increased ease of coordination with vendors that are already familiar with the current operation will be invaluable as the City navigates the multi- agency reconfiguration process. Staff came to this conclusion for several reasons which are summarized below: 1. San Francisquito Creek Flood Management Levee Project The San Francisquito Creek flood control project managed by the San Francisquito Creek Joint Powers Authority (SFCJPA) presents significant unknown factors, including, without limitation, City of Palo Alto Page 3 the timing of the project, impact on the golf course operation during construction, and the quality and performance of the yet to be reconfigured golf course. These unknown factors make it very difficult to prepare a clear and accurate RFP scope of services for Golf Professional management services and Golf Course maintenance services; it consequently will be difficult to evaluate submittals to determine which is most favorable to the City. The upcoming levee capital improvement work will have a direct impact on the operation of the golf course during staging and construction. The golf course may be closed for as long as 12 to 18 months to complete the Option G design work. The proposed levee work would directly affect the golf course and thus it could adversely affect the City’s ability to successfully conduct an RFP for management services to the extent interest in bidding on an RFP is dampened. The SFCJPA at this point believes that it will start the two-year construction process on the levee in April 2014. If the SFCJPA timeline is accurate, the one-year golf course construction project would also begin in April 2014. 2. National Golf Foundation Recommendation Extending the terms of the Lozares and Valley Crest contracts beyond the construction period of the golf course reconfiguration project was recommended by the National Golf Foundation (an independent consultant who performed Financial Pro Forma and Supporting Analysis for Reconfiguration Options concerning the reconfiguration project); as well, independent golf course financial consultant, Richard Thorman, and Golf Course architect, Forrest Richardson, who were all asked to provide their professional opinions. The consultants agree that the substantial disruption in business, the unknown impacts of timing and project design, and the time consuming and costly work involved to produce and conduct an RFP process without affording potential bidders access to all the information needed, for example, how a new facility will produce cash flow, could make it challenging for the City to enter into the well- informed and negotiated agreements. It was recommended by these consultants that the City wait until after the renovation is completed, and the improved facility has been up and running for a year before considering a substantive change in maintenance and operating structure. If the City renegotiates the management services agreement with Lozares for another five years, the City will be aware of the performance of the new golf course design, have all contracts expire concurrently, and be better prepared to negotiate management services agreement and/or lease terms and conditions that will best meet the City’s needs and interests. City of Palo Alto Page 4 These professional consultants further recommended that extending the golf course maintenance contract with Valley Crest Golf for another five years will also benefit the City. The independent consultants pointed out how critical it is to have the contracted Golf Superintendent responsible for maintaining the course involved and present during the construction of the new course. Having the current Superintendent, who knows and intimately understands the landscape of the golf course, with a vested interest in the outcome of the project on hand, will be a tremendous benefit to the City. 3. Lozares Pro Shop Lease and Management Agreement Mr. Lozares indicated he would exercise, and indeed did exercise, the ten-year extension option on his lease for the Pro-Shop, but also indicated he would effectively agree to revise the ten- year option to a five-year option under Amendment No. 6. If the City were to competitively bid the management services agreement and award the contract to a firm other than Lozares, that firm would need to negotiate a sublease for a period of ten years from Lozares, or the new operator would have to negotiate a separate mobile trailer outside of the Golf Shop leased premises. This is very likely to be a disincentive for any third party considering a proposal for the management services agreement and would be cumbersome at best for customer service at the golf course. Ideally, all four golf course contracts (management services agreement, Pro-Shop lease, Golf Course maintenance services, and food & beverage services concessions) would be aligned to concurrently expire. This would create an opportunity for a comprehensive RFP to manage the entire golf course operation. The current tax exempt debt represented by the Certificates of Participation, that funded the 1998 Golf Course renovations, restricts the City from entering into a long-term lease agreement for a firm to manage the entire golf course operation. This tax exempt debt is set to expire in 2018. If all of the golf course contracts expire at the same time, the City would have much more flexibility in issuing a comprehensive RFP to manage the golf course at that time. Extending the Lozares agreements will also benefit the City, because the City would have a contractor who is well-respected and trusted by the Palo Alto golf community, which may be valuable during the transition period associated with the reconfiguration and disruption during construction. One of staff’s goals is ramp up play activity as swiftly as possible after construction is completed, and it is believed the current Golf Pro is in the best position to do so. In addition, staff believes it would be more effective to issue a comprehensive golf course RFP in 2018 when the levee work has been completed and there is no potential for disputes regarding the Pro-Shop lease and management services agreement to arise. City of Palo Alto Page 5 4. Food and Beverage Service Food and Beverage service is often a central element of a golf course operation. Since the current contract for the Bay Café expires on April 30, 2018, it would be advantageous to have the other contracts expire at the same time to attract more interest in bidding on an RFP that includes the entire golf course operation. Discussion Golf Course Management Services Agreement and Pro Shop Lease The Community Services and Administrative Services Departments met with Lozares in seven separate sessions to negotiate the terms of a five-year contract extension for Golf Management Services and the Pro-Shop lease. As part of the contract extension, Lozares agreed to reduce the length of the option to extend the Pro-Shop lease from ten years to five years (expiring in 2018). Given the pending golf course reconfiguration project, which will require closing the majority of the golf course, the contract is set up in three distinct phases: Phase 1: Pre-Golf Course Construction. Time frame: May 1, 2013 until golf course reconfiguration construction begins (Estimated time frame for start of construction: April 2014). Phase I Elements & Background: Lozares will continue to perform golf management services during Phase I. Mr. Lozares enjoys an excellent reputation among the local golfing community. His outstanding customer service helps keep golfers returning to play at Palo Alto. This is especially valuable because of the uncertainty of the timing of the SFJPA project and golf reconfiguration project, which has caused some golfers to look elsewhere to book tournament events. City survey cards consistently illustrate that Lozares’s customer service ranks good to excellent. Fourteen times Lozares Golf Shop has been named as one of the top 100 golf shops in the country. He was named the Golf Professional of the Year by Professional Golf Association in 2001. Terms of Agreement: (Phase I terms are the same as the existing agreement) i. Management fee : $345,333 annual (This is the fixed amount that the City pays to Lozares) ii. Cart rental revenue: 60% for the City and 40% for Lozares iii. Driving range revenue: 62% for the City and 38% for Lozares City of Palo Alto Page 6 iv. Green fees: 100% to City v. Pro-shop rent: $2,000 per month or 4% of gross revenue whichever is higher The table below shows the estimated compensation using revenue figures from FY12 actuals and FY13 adopted budget. Phase I: No Changes to Current Calculation Contractor Compensation FY2012 Actuals FY2013 Budget 38% of Driving Range Revenue $135,126 $148,200 40% of Cart/Club Rental Revenue $120,490 $148,000 Fixed Fee $345,333 $345,333 TOTAL Estimated $600,949 $641,533 Phase II: During Construction. Time frame: First day of golf course reconfiguration construction until the reopening of the golf course (Estimated time frame: April 2014 through April 2015). Phase II Elements & Background: During the closure of the golf course or during reconfiguration construction Lozares will continue to work on future tournament bookings, implementation and marketing of the renovated Palo Alto Golf Course, provide management and full operation and equipment for the Driving Range, support the Palo Alto Golf Course web site, respond to golf inquiries, provide professional services for golf instruction, and broadcast e-mail blasts weekly on the weekly progress of the course renovation. Terms of Agreement: i. Management fee : $30,500 annual ii. Range revenue: 15% for the City and 85% for Lozares iii. Pro-shop rent - $1,500 per month or 4% of gross revenue whichever is higher. During the slow golf activity months of November, December and January Lozares will only be required to pay 4% of gross revenue. iv. There will be no Green fee or cart revenue due to construction work City of Palo Alto Page 7 During this time is it expected that the main source of revenue will be from activity on the driving range, which is not a part of the reconfiguration project. The contractor will retain some staff to maintain operations at the range, which includes helping customers, processing payments, providing golf ball clean up services, and range maintenance. The increased share of range revenue to the contractor acts as an incentive to encourage activity greater than the National Golf Foundation’s revenue projections. The table below includes a sensitivity analysis which shows the potential compensation to the contractor and additional revenue to the City based on range activity. Phase II: Increased Share of Range Revenue, Reduced Fixed Fee NGF Estimate in Construction Year (FY14) 35% of FY12 Activity 50% of FY12 Activity 70% of FY12 Activity Range Revenue Estimate $82,400 $124,458 $177,797 $248,916 Contractor Compensation 85% of Range Revenue $70,040 $105,789 $151,127 $211,578 Fixed Annual Fee $30,500 $30,500 $30,500 $30,500 Total Estimated $100,540 $136,289 $181,627 $242,078 Additional City Revenue $0 $6,309 $14,310 $24,977 Phase III: Post Construction. Time frame: Reopening of the reconfigured golf course (Estimated time frame: April 2015 through April 30, 2018). Phase III Elements & Background: In addition to ensuring the City is able to cover all operational costs at the Golf Course (including old and new debt service) and generating a surplus, an important goal of the City’s negotiating team was to create an agreement that creates a stronger tie between overall golf play activity that benefits the City (productivity) and provides compensation for the contractor. A primary element of this proposal is the inclusion of variable compensation based for Green Fees and Play Cards. The inclusion of this new City of Palo Alto Page 8 revenue stream is tied to a reduction in other variable compensation rates for both Driving Range and Cart Rentals. Terms of Agreement: i. Management fee : $300,000 annual ii. Range revenue: 80% for the City and 20% for Lozares iii. Cart rental revenue: 80% for the City and 20% Lozares iv. Green fee revenue: 95% for the City and 5% for Lozares v. Pro-shop rent: $3,000 per month or 5% of gross revenue whichever is higher vi. credit card fees to be split between City and Brad according to the agreed breakdown split of all revenue sources vii. On-site club rentals and pull cart revenues will be considered as part of the merchandise revenue from the Pro Shop, which the City receives 5% of the gross merchandise revenue or $3,000 per month- whichever is greater. A comparison of the above terms and those in the Phase I category above provides a clear picture of how the Pro contract will change after the new course opens. Financial Implications: The table below is based on the revenue and expense projections modeled by the National Golf Foundation consultant and presented to Council on July 23, 2012 (Attachment F). Staff has used NGF’s revenue forecasts and calculated the expected compensation to the Golf Pro based on the new contractual terms. Compared to the current contract (Phase I contract), staff estimates savings to the City of at least $50,000 annually. Phase III: Added Golf Fee to Variable Compensation, Reduced Fixed Fee NGF Revenue Projections First Year of New Course (NGF FY15) Second Year of New Course (NGF FY16) Last Year of Contract (NGF FY17) Green Fees $2,341,500 $2,510,600 $2,680,900 Driving Range $353,400 $377,400 $401,900 Cart/Club Rentals $286,100 $307,300 $353,900 Contractor Compensation 5% of Green Fee Revenue $117,075 $125,530 $134,045 City of Palo Alto Page 9 20% of Driving Range Revenue $70,680 $75,480 $80,380 20% of Cart/Club Rental Revenue $57,220 $61,460 $70,780 Fixed Fee $300,000 $300,000 $300,000 TOTAL Estimated $544,975 $562,470 $585,205 The golf course management services contract cost is predicated on the assumption that the contract phases will have the following durations: Phase I – one year; Phase II – one year; and Phase III-- three years. The contract cost also includes a 10% contingency. The scheduling of the golf course reconfiguration and the duration of the phases cannot be determined at this time. Staff has presented a contract costs based on our best estimate. Depending on how the reconfiguration schedule changes, staff may need to return to Council with a Budget Amendment Ordinance. IRS Requirements Because the Golf Course has been previously funded by publicly financed bonds, the City must adhere to IRS tax regulations that concern the compensation structure for Golf Management contracts. The variable compensation (based on revenue) portion must not exceed the amount that is provided by the fixed fee. The requirements do allow for a two-year period during closure or renovations for the compensation to be developed outside of the traditional structure, which the City has utilized in the Phase II component. The Administrative Services Department consulted with bond counsel and has confirmed that the planned agreement meets the requirements of the Internal Revenue Code of 1986, as amended. Golf Maintenance Agreement The Community Services and Administrative Services Departments met with Valley Crest Golf numerous times to negotiate the terms of a five-year contract extension for the Golf Course Maintenance at the Palo Alto Golf Course. Since Valley Crest Golf has very successfully maintained the golf course for the past two and one-half years, significant improvements have taken place. Sustaining Valley Crest’s excellent maintenance service throughout the completion of the golf course reconfiguration, and the period of time after the new course opens and a new level of business stabilizes, will be valuable to the City. Valley Crest staff has intimate knowledge of the difficult irrigation system and how to keep it functioning until replacement, water management specific to this unique environment, drainage, growing conditions, sensitive wildlife habitat, and wetland areas. Valley Crest has established good working relationships throughout the City, which will all be beneficial during the reconfiguration project. Its staff has participated in all the meetings with the SFCJPA and the planning process for the reconfiguration of the golf course. It has provided agronomic and environmental expertise when needed. City of Palo Alto Page 10 Given the pending golf course reconfiguration project, which will require closing the majority of the golf course for approximately one year, the contract is set up in three phases: Phase I: Pre-golf course construction. Time frame: May 1, 2013 until golf course reconfiguration construction begins (Estimated to be April 2014). Phase I Elements & Background: Valley Crest will continue to perform the same golf maintenance services during Phase I as they did in the pervious contract. City staff has received numerous customer compliments regarding the service Valley Crest provides. Terms of Agreement: (Phase I terms are the same as the existing agreement) i. Annual fee of $750,000 Total anticipated costs for Phase I = $750,000 Financial Implications: The last two years of the previous Golf Course Maintenance contract also had an annual fee of $750,000. Phase II: During Construction. Time frame: First day of golf course reconfiguration construction until the reopening of the golf course. Anticipated duration of Phase II is one year. Phase II Elements & Background: During the closure of the golf course, Valley Crest will continue maintaining the putting green and associated irrigation, driving range, landscaping around the parking lot/Pro-Shop, and general site safety and aesthetics. The Valley Crest Golf Superintendent will also be on- site daily to monitor, serve as a consultant on the reconfiguration project, and document the irrigation construction which will improve response times to future irrigation issues. Valley Crest will also be responsible for caring for the newly established natural turf after it is ready for mowing, which is referred to as the grow-in process (prior to the opening of the new course). The grow-in period requires frequent fertilizing and adding other City of Palo Alto Page 11 amendments, along with higher maintenance to ensure that the new turf is properly established. Terms of Agreement: I. Monthly fee $18,158 for first 7 months of phase II. ii. Five month grow-in period: $415,000 (lump sum) Total anticipated costs for Phase II = $542,106 Phase III: Post Construction. Time frame: Reopening of the reconfigured golf course through April 30, 2018. Phase III Elements & Background: One of the main goals of the City’s negotiating team was to ensure that the City controlled maintenance costs while at the same time made improvements in the level of service to reflect the investment in the new and improved golf course. For several years Canada geese and the feces they produce have been the number one complaint about the Palo Alto Golf Course. The most effective technique to address the goose loitering problem has been the use of specially trained herding dogs. At a cost of approximately $20,000 per year, the City has contracted with a private company that brings trained dogs to the course to encourage the geese to leave or migrate. In this new contract, Valley Crest will be required to have its own trained dog on-site. The second most common complaint at the golf course has been ground squirrels and the holes and tunnels they produce. The new contract will provide for on-going rodent control consistent with the City’s Integrated Pest Management (IPM) Policy. In addition, Valley Crest will also be purchasing new maintenance equipment, some specifically specified by the City which will provide improved quality course conditions. Valley Crest will also be responsible for maintaining lower weed thresholds at the golf course. Terms of Agreement: I. Annual fee: $796,262 (Initial yearly/monthly pricing shall be fixed for the first 18 months thereafter CPI (Consumer Price Index for all Urban Consumers – San Jose/Sunnyvale/Santa Clara) will be applied on a yearly basis. CPI approximately 1.34%. City of Palo Alto Page 12 Year 1= 796,262 Year 2= 801,597 Year 3= 812,338 Total anticipated costs for Phase III= $2,410,197. Total costs for all three phases of Valley Crest Golf maintenance contract is $3,702,303 plus 10% contingency = $4,072,533 The golf course maintenance contract cost is predicated on the assumption that the contract phases will have the following durations: Phase I – one year, Phase II – one year, and Phase III-- three years. It also includes a 10% contingency. The scheduling of the golf course reconfiguration and the duration of the phases is uncertain. Staff has presented a contract costs based on our best estimate. Depending on how the reconfiguration schedule changes staff may need to return to Council with a Budget Amendment Ordinance. Finance Committee On March 5, 2013, the Finance Committee reviewed the golf course contracts. The minutes from the meeting are in Attachment G. The Finance Committee approved a motion unanimously (4-0) to recommend that City Council approve, and authorize the City Manager, or his designee, to execute, the appropriate amendment to the General Services Agreement for Golf Course management services with Brad Lozares in the amount of $2,058,073 and the appropriate amendment to lease of the Palo Alto Golf Pro Shop premises with Brad Lozares for a term of 5 years, beginning May 1, 2013 ending April 30, 2018; as well, approve, and authorize the City Manager, or his designee to execute, the appropriate amendment to the General Services Agreement with ValleyCrest Golf in the amount of $4,072,533 and for a term of 5 years, beginning May 1, 2013 ending April 30, 2018. The Committee appreciated the concept of extending the contracts to 2018 in order to afford the City an opportunity to conduct an RFP that could include the entire golf course operation. The Committee also liked that the Golf Management Agreement with Lozares would have lower costs for the City and would now provide more incentive for Lozares to provide a high quality golf experience and help increase the number of rounds played at the course. There was a discussion on the maintenance costs in Phase III. It seemed counterintuitive that the maintenance costs would increase in Phase III of the new contract, considering the new course will have approximately 35 fewer acres of managed turf. Staff explained that, while City of Palo Alto Page 13 there is a reduction in managed turf, there are a few factors that would require additional labor, that would include: higher level of service commensurate with a higher quality new golf course (on-site geese herding dog, lower thresholds for weeds, etc.); and the current course is very flat, straight and simple, while the new course will be have a lot of undulations and interest that will require more maintenance. The Committee pointed out that the City would have had more leverage and possibly negotiated a better deal if it had gone out to bid. Staff pointed out that NGF had anticipated higher costs for contract maintenance contract (FY15 $825,000, FY16 $837,000, and FY17 $862,000), while staff was able to negotiate with Valley Crest below this amount (FY 15 $796,262, FY16 $801,597, and FY17 $812,338). Resource Impact The Fiscal Year 2013 Adopted Budget shows an overall net income to the City for the Golf Course Operations of $271,745. For Phase I of the Lozares contract, this is estimated to remain the same as the terms of the contract will not change. As well, the maintenance and professional contracts discussed in this report have been formulated to account for reduced activity during construction periods. For the construction period of the course, there will be no green fee or cart rental revenue. It is also anticipated that there will be a decrease in range revenue. The National Golf Foundation projected a 77% decrease in Range revenue; however, through the inclusion of revenue incentives in the Lozares contract, the City is hopeful that the contractor will be able to diminish the impact on range activity. Looking ahead to the reopening of the course, City Staff were able to negotiate contracts below National Golf Foundations expenditure projections. Attachment H provides an update to the original NGF projections for the new course with the negotiated contract terms. The estimated annual savings to the City as a result of contract negotiations is approximately $50,538 to $107,895, which would result in a total of $661,127 over the first seven years of the new golf course. It is important to note that the SFCJPA creek flood protection project and City Golf Course construction start dates and timelines have not been finalized at this time. Currently, the Office of Management and Budget is projecting budget figures for a closure of the course in spring of 2014. City of Palo Alto Page 14 In addition, the speedy completion of construction is vital to minimizing the impact on the general fund operating budget. NGF projected that the new course would generate approximately $251,708 gross revenues each month during the first year. The potential loss of this revenue with fixed maintenance and operational costs in place will cause the impact on the general fund to grow with each additional month of closure. If the course reconfiguration timeline is changed, staff will submit a Budget Amendment Ordinance to Council to account for the impact of any changes may have to the operating budget. Policy Implications The project is consistent with Policy C-26 of the Comprehensive Plan, which encourages maintaining and enhancing existing park facilities. Attachments: Attachment A - Golf Management Contract Lozares 2013-2018 (PDF) Attachment B - Lease Amendment No 4 Final Brad Lozares Golf Shop (DOCX) Attachment C - Golf Maintenance Valley Crest 2013-2018 (PDF) Attachment D - Golf Valley Crest Contract and Staff Report (PDF) Attachment E - Golf Course Contract Management Services Dec 2010- Lozares (PDF) Attachment F - Golf National Golf Foundation Report April 2012 (PDF) Attachment G - Finance Committee Minutes 03-05-13 Excerpt Item 2 Lozarez Lease (DOC) Attachment H - Update to the National Golf Foundations Expenditure Projections (PDF)