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HomeMy WebLinkAboutID-2966 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 G O L F CO U R S E A RC H I T E C T www.golfgroupltd.com Drawn Januar y 2012 (Rev. 2-2012) Nor th 0 100 200 300 400 feet EXIST. PRACTICERANGE 11 PLAYGROUND TRAILCONNECTION GOLFCLUBHOUSE& BANQUETCENTER BAYLANDSATLHLETICCENTER 1 TRAILCONNECTION SAN FRANCISQUITOCREEK NATURALIZEDAREA PICNICRAMADAS SHORTGAME AREA 9 18 10 EXIST. PRACTICERANGE 11 PLAYGROUND TRAILCONNECTION GOLFCLUBHOUSE& BANQUETCENTER BAYLANDSATLHLETICCENTER 1 TRAILCONNECTION SAN FRANCISQUITOCREEK NATURALIZEDAREA PICNICRAMADAS SHORTGAME AREA 9 18 10 P A L O A L T O G O L F C O U R S E S c h e m a t i c S i t e P l a n f o r P l a n “ G ” A t h l e t i c F i e l d s 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 forReconfiguration Options A, D, F, G ForPalo Alto Municipal Golf Course Prepared For: Cityof Palo Alto Rob deGeus,DivisionManager Recreation &Golf Services 1305 Middlefield Road Palo Alto, CA 94301 Prepared By: 1150 SouthU.S.HighwayOne, Suite 401 Jupiter,FL 33477 (561)744-6006 April, 2012 Financial Pro Formas andSupporting Analysis for Reconfiguration Options A, D, F, G Palo AltoMunicipal Golf Course Table of Contents INTRODUCTION.......................................................................................................................1 PALO ALTO MUNICIPAL GOLF COURSE RECONFIGURATIONOPTIONS..........................2 Goals andObjectives..........................................................................................................2 Option A..............................................................................................................................3 AdditionalWork.............................................................................................................................4 Option D..............................................................................................................................4 AdditionalWork.............................................................................................................................5 Option F..............................................................................................................................5 AdditionalWork.............................................................................................................................6 OptionG.............................................................................................................................7 AdditionalWork.............................................................................................................................8 Defermentof CertainImprovements...................................................................................9 MARKETOVERVIEW..............................................................................................................10 Demographics Summary....................................................................................................10 Golf MarketOverview.........................................................................................................11 NationalTrends inGolf DemandandSupply..............................................................................11 Local and RegionalGolf SupplyandDemandIndicators............................................................13 Competitive Golf Market.....................................................................................................15 SummaryInformation– PrimaryCompetitors.............................................................................16 Summaryof Findings – PrimaryCompetitors .............................................................................18 Palo Alto Golf CourseMarketPositioning Assessment......................................................19 FINANCIAL PERFORMANCE MODELS FORPALO ALTO GOLFCOURSE.........................20 Recent HistoricalPalo AltoGCPerformance.....................................................................20 Projections Basedon“Option A”........................................................................................22 KeyAssumptions.........................................................................................................................22 ProFormaEstimatefor ‘Option A’Scenario–FY2012 –FY2021..............................................26 Projections Basedon“Option D”........................................................................................29 KeyAssumptions.........................................................................................................................29 ProFormaEstimatefor ‘Option D’ Scenario –FY2012 –FY2021..............................................32 Projections Basedon“Option F”........................................................................................35 KeyAssumptions.........................................................................................................................35 ProFormaEstimatefor ‘Option F’ Scenario –FY2012 –FY2021..............................................36 Projections Basedon“Option G”........................................................................................39 KeyAssumptions.........................................................................................................................39 ProFormaEstimatefor ‘Option G’ Scenario– FY2012 –FY2021.............................................42 FinancialProjectionsSummary..........................................................................................45 Summaryof Options....................................................................................................................45 SummaryResults........................................................................................................................46 Justifications for Revenue Projections........................................................................................47 Other Considerations Regarding ImprovementOptions.............................................................48 Option“G”SensitivityAnalysis...........................................................................................49 Option“G” SensitivityAnalysis - Summaryfor 2017...................................................................49 OptionG SensitivitySpreadsheets..............................................................................................50 OTHERISSUES ANDCONSIDERATIONS..............................................................................56 Market Position /Re-Branding Opportunity........................................................................56 Economics of PotentialLong-Term/ AdditionalImprovements...........................................58 CartStorage Building..................................................................................................................58 Expanded Meeting Space...........................................................................................................59 RangePerformanceCenter ........................................................................................................59 Management Structure.......................................................................................................60 Long RangeConcerns.......................................................................................................61 PotentialEconomicDevelopmentOfTheAirport& Golf “Baylands Gateway” Area............64 Private Funding Possibilities..............................................................................................65 APPENDICES...........................................................................................................................66 AppendixA – Comparative SupplyRatios – PaloAlto GC& KeyMunicipal Competitors...67 AppendixB – Comparative Scoring of Reconfiguration Options.........................................68 AppendixC–Water &Power Use Discussion &Assumptions...........................................71 AppendixD– ReviewOf Probable Cost Estimates............................................................73 AppendixE – PotentialLong-Term MasterPlan Improvements..........................................75 National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –1 Introduction NationalGolf FoundationConsulting,Inc. was retained bythe Cityof PaloAlto infurtheranceof the City’s due diligencerelative to theSan FrancisquitoCreek Flood ControlProject,which will involve the reconfiguration of sixormoreholes atthe Palo AltoGolf Course. NGF’s objective was to help theCityidentifythe expectedfinancialimpactfromtheimprovementsrelatedtothe reconfiguration work under PlanOptionsA,D, F,and G. Specifically, NGFhas crafted10-year cashflowproformasthatprojectthe estimatednet financialimpactof theproposed improvements, allowing the Cityto evaluate eachof thefour reconfiguration options under considerationfroman objective standpoint.Ouranalysis includes expected impactonrounds played,feestructure,revenue generation, operating expenses,and capitalspending/debt.The proformasalso provide an estimateforlostrevenues during thetime thatthecourse is impacted and/or closed. Other aspectsof theNGF reviewinclude: A marketoverviewof thePalo Alto area,with an emphasis onareademographics andkeygolf demand and supplyindicators. A competitive review, including aqualitative assessment ofthe impactthatthe potentialreconfigurations would have on Palo Alto Golf Course’smarket/competitive position. A reviewof Forrest Richardson’s work regarding the potentialimplicationsfromthe renovation options onfacilitybranding andmarketing. NGF willalso offeritsopinion aboutthe long-termimplications and potentialfinancial impactof improvementsassociated with thelonger rangemaster plan, including clubhouse expansion, cartstorage,event areas,rangeperformancecenter,range enlargement, entry/parking, andtheyouthtraining area. NGF willevaluate relevant options available to the Cityof Palo Altoforthecontinued operation of Palo AltoGolf Course, including (butnotlimitedto)continuing on anas- is basis oroutsourcing allmanagementandmaintenance toafull-service managementcompany.Viable options willbe identified, andadiscussionof the costs, benefits, andfinancialimplications of eachoperating scenario presented. Thestudyeffortwas managedbyNGF Directorof Consulting Services Richard B.Singerand Senior ProjectDirector Ed Getherall.Activities conducted incompletionofthis reportincluded: fieldresearch;statisticalandfinancialanalysis; meetingswithkeyCitystafffromthe Recreation & Golf Services, Administration, CommunityServices, andFinance Departments;meetingswith the HeadGolf Professional, Golf Course Superintendent, andValleyCrest Area Director;atour of thegolf course;and,interviews with areagolfers. Following is theconsultants’reportsummarizing keyfindings andrecommendations. Throughoutthisreport, we mayrefertoshortenednamesfor:the Cityof Palo Alto (“City”),the Palo Alto MunicipalGolf Course (“Palo AltoGolfCourse”,“PaloAltoGC”or “PAGC”),and NationalGolf FoundationConsulting,Inc.(“NGFConsulting”or“NGF”). National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –2 Palo Alto Municipal Golf Course Reconfiguration Options NGF Consulting was provided fourcoursereconfiguration options prepared byForrest Richardson, ASGCA.These optionswere identified bythetitles“Option A,”Option D,”“Option F” and“OptionG,”and each have uniquecharacteristics.The optionsrepresentfourpossible scenariosforadjusting the coursetoaccommodate theSFCJPAfloodmitigation project. OptionsA,D, FandGwere culledfrom seven proposed alternatives (Options B,C,and E were eliminated priortoourreview) as themost viable and potentiallyopportuneforthe City. Theprocessfordeveloping options has beenthorough, with extensive inputfromgolfers, staff, concessionaires andthepublic at large. NGF Consulting hasreviewed notes and summaries fromthesemeetingsto better understandthegoals and objectives desiredbythose who will use and operatethefacilityfollowing reconfiguration. GOALS ANDOBJECTIVES Among thegoalsand objectives setforthtoguidethe design processforreconfiguration options, inadditiontothefundamentalgoaltoaccommodatetheflood project,included: Establish amorenatural,aesthetic landscapethatincorporatesa“Baylands”theme Improve treecare andvarietyvia a themeto useappropriatetree selection Find ways to eliminategeese and burrowing animalsfromruining thecourse Improve bunkers(condition, strategyand aesthetics) Improve overallcourse conditioning (drainage,irrigation,turf,etc.) Adjustyardagesothecourse isshorterfor beginners,women and seniors Create a“wowfactor”toremain competitive with otherregionalfacilities Add interesttothecourse strategy(dog-legs,differentiation ofholes, etc.) Find ways to offer player development opportunities (shortgame area,range, etc.) Additionally, therewas astrong desiretoaddresslong range issuesthatface theagingfacility beyond those onthegolf courseitself.The Citycommissioned its own scope of work toaddress these issuesconcurrently with the coursereconfiguration planning.Theselong rangeareas included thefollowing: Clubhouse planning Entry, parking andsignage Practice areas Cartstorage andstaging On-courserestrooms Branding and image Trailconnectionsfromthe Baylands and existing trails National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –3 Theobjective of the additionallong-rangeplanning was to look beyond thegolf coursetoensure thatreconfiguration options would not precludeimprovementstotheareason theabove list. Specificgoals andobjectives included thefollowing: Find ways to bring non-golferstothefacilities (group events,restaurant,etc.) Expand the clubhousetoseat200so largergroups can beaccommodated Develop areas to hold multiple outings/eventssimultaneously Improve the arrivalexperience, entryaesthetics,trailconnections andsecurity Develop a cartstorage area/facility Make overallimprovementstotheclubhouse andgrounds(exterior andinterior) Improve and expand thepracticerange Create newplayer developmentand practice opportunities Planforupgrading the on-courserestroomfacility Develop a newbrand and imageconsistent with the reconfigurationgoalsand design A commonthreadamong thelong rangeplanning componentswas a strong designtoreturnthe facilities, withgolf courseapproaching its 60th year andtheclubhouse its30th, toa“Point of Pride” statuswithin the community.Along with this primaryobjective comethebenefits of leveraging thefacilityforeconomic development,tourism and asa hometoannualandspecial events. Secondarily, thecommunityhas astrong desire toseethegolf course bemore compatible with theBaylands environment.Thisgoalisechoed byMr. Richardson inhis reconfiguration options,each of which adds morenaturalized areas tothegolf course.In addition, long range designconcepts associatedwith theclubhouse,entryand imagegohand- in-hand with thisgoal. OPTION A Option Arepresentstheminimumreconfiguration in ordertofacilitatetheSan Francisquito Creek realignmentasrequiredbythe SFCJPA.This option shiftsholes laterallyfromwest to east,retaining muchofthe samerouting ofthe existing course.Golf holes aremoved awayfrom the levee on aminimalbasis.Improvementsareprimarilyrestrictedtotheholesmoved, with the remaining holes largelyunchanged. Bunker work and naturalization enhancements aremade throughoutthe courseinordertoprovide amoreconsistentgolf experience and landscape. Thehighlightsof changes in thisoption include: 6.5golf holesrelocated 5 newgreens constructed Par 72 6,900/ 6,500/ 5,200 yards Allbunkersreconstructed and/or new 38.5 acrestransformedto naturalized areas (non-managedturf) Revised Hole No. 18 (naturalized hazard) AdjustedHole No.12 AdjustedHole Nos.13 and 14 National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –4 The totalprojected cost forthisoptionis$3,537,622,includingall professionalfees, project managementand contingency. Additional Work Additional(“alternate”)items within thegolf course itself maybe undertaken bythe City concurrentlywith the development ofOption A.These optionalitemsinclude: Sand capping of newturfareas(newfairways to be constructed) Use (spreading) of imported soilfromthe Stanford University MedicalCenterProject Reconstruction of allgreens (13additionaltothose covered) Re-turfing of allexistingfairways (23.5 acresadditional) Replacement ofthebalance of theexisting irrigation system Reconstruction andfeatures atthe existing practicegreenarea Construction of anewon-courserestroomfacility Projected Costfor AdditionalItems: $3,250,500 Among the additional(alternate) work,Mr. Richardson and NGFrecognize thatthefull replacement ofthe existing irrigationsystemwillbecome aneventualnecessity. Our understanding isthattheexisting system,installed in 1998,presentsregular issuesdueto deteriorating pipefittings. Nowentering its 14th year of service, thesystem isonthe decline due tothe highsalts inherentwithin the soils. Even if the balance ofthe systemremains in commissionfor anothersixyears (20 years isareasonable longevityforirrigation systems) thereexistsgood probabilitythat emergencyrepairs andcostsmayescalate. Forthis reason, we have studied this additionalcost($857,500)as an alternative scopetobe consideredfor Option A. OPTION D Option Drepresents anenhanced reconfiguration versionfromOption A.This optionfacilitates the SanFrancisquitoCreek realignment asrequired bythe SFCJPA.Theprimarydifference fromOptionA isthatOption Drealignsholes withmorevariety, departingfromthe common parallelrouting ofthe existing course.Golf holesaremoved awayfromthe levee, butgo beyond Option Atoform newviews and variation. Bunkerwork and naturalization enhancements are madethroughoutthecourse in ordertoprovide amoreconsistentgolf experience and landscape.Thesearemore prevalent thanthat affordedthroughOptionA. Thehighlightsof changes in thisoption include: 8.5golf holesrelocated 8 newgreens constructed Par 72 6,900/ 6,400/ 5,000 yards Allbunkersreconstructed and/or new 43 acrestransformedtonaturalized areas(non-managedturf) NewIsland GreenHoleNo. 13(elevated teeandBayview) NewDouble Green Nos.3 and 15 NewHole No. 5 (elevatedgreenand BayView) NewHole No. 7 (splitfairway) National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –5 NewHole No. 18 (par-5and naturalized hazard) NewHole No. 4 NewHole No. 17 NewHole No. 16 Futurespace affordedfor anewpracticegreen/shortgamearea The totalprojected cost forthisoptionis$4,118,748,includingall professionalfees, project managementand contingency. Additional Work Additional(“alternate”)items within thegolf course itself maybe undertaken bythe City concurrentlywith the development ofOption D.These optionalitemsinclude: Sand capping of newturfareas(newfairways to be constructed) Use (spreading) of imported soilfromthe Stanford University MedicalCenterProject Reconstruction of allgreens (10additionaltothose covered) Re-turfing of allexistingfairways (21.5 acresadditional) Replacement ofthebalance of theexisting irrigation system Reconstruction andfeatures atthe existing practicegreenarea Construction of anewon-courserestroomfacility Futuredevelopment of anewpracticegreen/shortgamearea Projected Costfor AdditionalItems: $3,096,250 As with Option A, we recognize thatthefullreplacementof theexisting irrigation systemwill become aneventualnecessity.The samecomments applytoOption DasnotedforOption A. Wehave studiedtheadditionalcost($740,000), which is lowerforOptionDasmoreof the existing systemis covered within areas impactedbythe reconfiguration, as an alternative scope to beconsideredforOption D. OPTION F Option Frepresents anopportunitytoremove landfromgolf courseuseand transformittouse forathleticfield(s).Thisoption was added tothereconfiguration scopeofthegolf course architect basedon previous studieswith thesame objective. ForOption F, ageneralconstraint placed on the planning work was toretain yardage (6,800 yards)anda par of 72. Safetyfrom the newtrailsystem andwithin adjoining holes was tobemaintained with no compromiseto standardguidelines. Option Ffacilitatesthe San FrancisquitoCreek realignment asrequiredbytheSFCJPA.The option is primarilydistinguished bytheremovalof approximately2.5 acresfromthegolf course parcel.Thisland areaisshown as athleticfielduse, accommodating afullNCAA sized soccer field orcombinationoffields andfieldtypes of thesame proportion andarea.This area would have limited roomforparking expansion. Option Frealigns holeswith more varietythaninOption A. Aswith Option D,thereconfiguration departsfromthecommon parallelrouting of theexisting course.Golf holes aremoved away fromthe levee toformnewviews and variation. Bunker work andnaturalization enhancements aremadethroughoutthecoursein ordertoprovide amoreconsistentgolf experience and National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –6 landscape. Asaresultof the“domino effect”of moving holes tomakeroomfortheathleticfield area,theseenhancements are asprevalent asthat affordedthroughOption D. Thehighlightsof changes in thisoption include: 12.5golf holesrelocated 12 newgreens constructed Par 72 6,700/ 6,300/ 5,000 yards Allbunkersreconstructed and/or new 43.4 acrestransformedto naturalized areas (non-managedturf) NewIsland GreenHoleNo. 13(elevated teeandBayview) NewDouble Green Nos.3 and 15 NewHole No. 5 (elevatedgreenand BayView) NewHole No. 7 (splitfairway) Revised Hole No. 18 (naturalized hazard) NewHole No. 4 NewHole No. 17 NewHole No. 16 NewHole No. 3 NewHole No. 3 NewHole No. 15 Newpracticegreen/shortgameareadeveloped along with reconfiguration Temporarypreparation ofthe athleticfieldarea(notfield development or improvement) The totalprojected cost forthisoptionis$5,855,454,includingall professionalfees, project managementand contingency. Additional Work Additional(“alternate”)items within thegolf course itself maybe undertaken bythe City concurrentlywith the development ofOption F.These optionalitemsinclude: Sand capping of newturfareas(newfairways to be constructed) Use (spreading) of imported soilfromthe Stanford University MedicalCenterProject Reconstruction of allgreens (6additionaltothose covered) Re-turfing of allexistingfairways (21.5 acresadditional) Replacement ofthebalance of theexisting irrigation system Reconstruction andfeatures atthe existing practicegreenarea Construction of anewon-courserestroomfacility Projected Costfor AdditionalItems: $2,530,000 As with OptionsA andD,we recognize thatthefullreplacement ofthe existing irrigation system willbecome an eventualnecessity.ThesamecommentsapplytoOptionF as notedforprevious National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –7 options.Wehave studied theadditionalcost($425,000), which is lowerforOption F(thanfor A or D)asmore ofthe existing systemis coveredwithin areasimpactedbythe reconfiguration, as an alternative scopeto be consideredforOptionF. OPTION G OptionGrepresents aplan toremove more landfromgolf courseuse,transformingthis landto useformultiple athleticfield and non-golf recreation purposes.This optionwas added tothe reconfiguration scopeofthegolf course architectbased onthe direction oftheCityto investigate whethertheviabilityof thegolf coursecould be preserved while opening more area (thanwith OptionF)for non-golf recreation. Theconstraintplaced ontheplanning work wasto retain aregulation layout with a par of 70or 71. Safetyfromthenewtrailsystem and within adjoining holes was to bemaintained with no compromisetostandardguidelines. NGF Consulting was inthe veryearlystages of our consulting workforthe Citywhen OptionG was put intomotion. Among theforemostquestions we were askedwas whethera significantly shorter courseand/or asignificantlylower par would be advisable fortheCityof Palo Alto.Our conclusion was thatthePalo Alto market,especiallyin the City’s situation as asingle-course owner, is bestserved in this locale bya regulation18-holegolf course witha parof 72 being preferred.Thisconclusion is basedon severalfactors, including thefollowing: A strong historyof thisgolf course producing annualrounds inexcess of 80,000 Statedpreferencesbythe currentcustomer basetomaintain lengthand par Viabilityto hostgroupgolf events“demanding”afull-lengthcourseexperience Competitiveness toareacourses Long termviabilityto hostregionalevents (qualifying, largertournaments,etc.) Regionalofferingsof shortercourses Plan options thataccommodatemoreflexible (shorter)yardagesflexibilityas part of thereconfiguration work NGF Consulting sharedthis conclusion with the Cityand thegolf coursearchitect, recommending thatOption Gshould,if possible,preserve aregulation length of about 6,500 yards (back tees) andapar of 72preferred.If pressed tochoosebetweena reduction in par(to 71) or areduction in yardagelower than 6,500,we opined that it would bebetterto preserve yardage at 6,500 andallowpar to dropto71.(Note:A par71coursemeasuring 6,500yards is perceived as more difficult, andcanbemarketedsuch,thana coursemeasuring thesame yardage but holding apar of 72.Thisis becausethe ratio of partoyardage ismore challenging.) OptionGalsofacilitatesthe San Francisquito Creek realignment asrequired bythe SFCJPA. Theoption involves the removalof approximately10.5 acresfromthegolf course parcel.This land area isshown as athleticfield use(threefullsized NCAA soccerfields orcombination of fieldsandfieldtypes of the sameproportionandarea), andadditionallyshows areasfor asmall playground, wetlands park andpicnic space, andtrails connecting tothe San Francisquito Creek levee trails,Baylands and neighborhood. OptionGrealigns holeswith more varietythaninOption A. Aswith Option Dand F,the reconfiguration departsfromthe common parallelrouting ofthe existing course.Golf holesare moved awayfromthe levee toformnewviews and variation. Bunker work and naturalization National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –8 enhancements aremadethroughoutthecourse inorderto provide a moreconsistentgolf experience and landscape. Aswith OptionF,butto an evengreaterextent,virtuallyallareas of the existing course would bereconstructed,enhanced and improved. Thehighlightsof changes in thisoption include: 18golf holesrelocated 18 newgreens constructed Par 71 6,600/ 6,100/ 5,000 yards Allbunkersreconstructed and/or new 43 acrestransformedtonaturalized areas(non-managedturf) IrrigatedTurf Reducedfrom 135acresto 92acres NewIsland GreenHoleNo. 12(elevated teeandBayview) NewDouble Green Nos.3 and 15 NewHole No. 5 (elevatedgreenand BayView) NewHole No. 7 (splitfairway) NewHole No. 18 (par-5,naturalized hazard) NewHole No. 4 NewHole No. 14 NewHole No. 10 NewHole No. 17 NewHole No. 16 NewHole No. 3 NewHole No. 3 NewHole No. 15 Newpracticegreen/shortgameareadeveloped along with reconfiguration Fullirrigation systemreplacement(allareas ofthe18-holegolf course) Reconstruction andfeatures atthe existing practicegreenarea Construction of anewon-courserestroomfacility Temporarypreparation ofthefield/recreation area(notfield development or improvement) The totalprojected cost forthisoptionis$7,573,262,includingall professionalfees, project managementand contingency. Additional Work Additional(“alternate”)items within thegolf course itself maybe undertaken bythe City concurrentlywith the development ofOptionG.These optionalitemsinclude: Sand capping of newturfareas(newfairways to be constructed) Use (spreading) of imported soilfromthe Stanford University MedicalCenterProject Reconstruction of allgreens (3additionaltothose covered) Re-turfing of allexistingfairways (21.5 acresadditional) Replacement ofthebalance of theexisting irrigation system National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –9 Projected Costfor AdditionalItems: $1,675,236 Unlike other options,Option G includesfullirrigation replacement.This isbecause thereis no viable methodof leaving onlythreegolf holes withoutreplacement.Variables include pumping pressure,controlzonesand other logisticsthat had tobe considered. DEFERMENT OFCERTAINIMPROVEMENTS Other additionalwork listed undereach option above has notbeen incorporatedtothepro formas preparedbyNGFConsulting duetothecomplexityof attaching incrementalrounds, revenues and expensestothese improvements.However, both NGF andMr. Richardson believe thatdeferring some or allofthe alternative (optional) improvements, including long- range work tothe clubhouse building,grounds,entry, practiceareas,etc.,willlikelyhave a negative affect onrevenues and constrain somewhat the City’s abilityto “re-brand” PaloAlto GC. Over theyears,NGFConsulting has witnessedthe implications ofroundsandrevenues ongolf facilities that have deferred maintenance and/orcapitalimprovements.Eventually, golf course conditions and/orthe overallgolf experiencefallto a levelwhere rounds,pricing and,as a result,revenues are constrained,asis themunicipality’s abilityto effectivelymarketthegolf course as anything otherthana“value” provider.Golf consumersbegin tomigrateawayfrom facilities that are not well maintainedwhen thereare otherproximatefacilities offering better conditions and/or equalor even slightlyhigherprice points. Among the optional/alternative improvementsassociated with Palo AltoGolf Course, wefindthe mostpressing are: Course conditions, especiallygreens,drainage and turf condition Yardageflexibility(to attract beginners,youth, women andseniors) Geese andburrowing animalintrusion and damage On-courserestroomreplacement Clubhouse condition andavailable space Most of the above arewellcorrected ormitigatedthoughthereconfiguration options.However, replacement ofthe irrigation system,asan example, is notfullyaffordedwithin thebasework of OptionsA,Dand F. Especiallyin the caseof A and D,this alternate costmaybe prudentto examine closer asconditions cannotdramaticallyimprove course-wide without aplan toreplace the system.Ifthesystemis allowed to runfor along period withoutreplacement,revenue is bound todropincrementallyas turf conditionsdecline. Intermsof substantive clubhouse improvements,such asexpanding themeeting space, improvements are not likelyto payfor themselves underthe current operating structurewherebyonly7% of food& beveragerevenue accruestotheCity. Yardageflexibilityis accommodated inmost ofthe options,butmoreso as more work is covered.OptionsD, Fand Gadequatelyallowformoreflexibilityand willtherefore have the potentialtoattractmoreplayer types.Thegeeseand burrowing animalissues, according tothe golf course architect,will be positivelymitigated byallreconfigurationoptions. Yet,plan options with more area impactedwilllikelyresult inmoreappropriatehabitatandareasforthese animals touseratherthan theturf areascurrentlyintendedforgolfers. National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –10 Market Overview Below, NGF Consultingprovides a summaryof key“external”factorsthatcharacterize thetrade area in which the PaloAltoGolf Course operates.Weincludebasic demographic variables that have the potentialtoaffectthe economicperformance of thegolffacility, as wellas an analysis of supplyand demand indicatorsin thepublicgolf market. DEMOGRAPHICSSUMMARY Utilizing researchmaterials provided byApplied GeographicSolutions,Inc.(a supplierof demographicresearch based on U.S.Censusresults),NGFConsulting has examined relevant characteristicsof thelocalpopulation.Inthefollowing tables, NGF Consulting indicatesthe population,median age,and median household incometrendsforSan Mateo andSantaClara counties,as wellas the3-,10-, and15-milemarketrings surrounding thegolf courseandthe totalUnitedStates. Palo Alto Golf Course 3mi 10mi 15mi San Mateo County Santa Clara County U.S. SummaryDemographics Population1990 Census 94,021 697,234 1,482,687 649,622 1,496,702 248,710,012 Population2000 Census 100,652 765,828 1,662,257 707,161 1,682,585 281,421,906 CAGR1990-2000 0.68%0.94% 1.15%0.85% 1.18%1.24% Population2010 Census 104,099 806,139 1,750,080 718,376 1,781,728 308,699,447 CAGR2000-2010 0.34%0.51% 0.52%0.16% 0.57%0.93% Population2016 Projected 105,110 817,407 1,775,178 725,980 1,805,397 325,288,086 CAGR2010-2016 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=CompoundAnnual GrowthRate Fromthedatacollectedforthis study, NGFConsulting hasmadethefollowing observations regarding the demographics of Palo Alto andsurrounding areas: The10-mile and 15-milemarketsaroundPalo Alto GCaredense,with 2010 estimates of about 806,000 and 1.775million residents,respectively, in these two submarkets.The10-mile markethasaddedmorethan 40,000 net newresidents since 2006,while the 15-mile marketgrewbynearly88,000 people.Population growth is projectedto beverymoderatethrough2016. TheMedian Ages inthesubjectmarket areasaregenerallysimilar tothenational median age of36.9years,though SanMateo Countyoverallis significantlyhigher at 39.4 years.Ingeneral,the propensityto playgolf withgreaterfrequencyincreases with age,making relativelyolder marketsmore attractive togolf facilityoperators,all otherfactorsbeing equal. Median Household Incomes intheareaaremuch higherthanthe nationalmedian. For instance,the10-mile marketexhibits incomesnearly80% higherthanthe nationalmedian incomeof $53,908.Ingeneral, higher incomeresidentsare more likelyto participate ingolf,andtheyplaymorefrequentlythan lower income National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –11 residents.Thesehighfigures aremitigatedconsiderablybythe veryhighcost of living in theBayArea. GOLFMARKET OVERVIEW Belowwe provide an overviewof recent andemerging nationaltrends withrespecttogolf participation andmunicipalgolf, as wellas a summaryofgolf demandandsupplyindicators in the localmarketsfor Palo AltoGolf Course. NGFConsulting utilizes predictive models as benchmarksforestimating potentialmarketstrength.Themethodologyfordetermining the relative strength ofthesubjectmarket isdescribed in thefollowing section. National Trendsin GolfDemand and Supply Participation Golf participationin theU.S. hasgrownfrom3.5% ofthe populationin the early1960sto about 9.2%of thepopulationtoday. NGF estimatesthatthe numberofgolfersfellslightlyin 2011 to 26.1million; it was encouraging news thatthenumberofgolfersgained in2010-11held steady vs. previous years while the numberof lostgolfers droppedsignificantly. For researchpurposes, agolferis definedasa person age6 or above who plays at leastoneround ofgolf inagiven year. All U.S. Golfers (in millions) 1985 1990 1995 2000 2005 2010 Allgolfers age 6+ 19.5 27.4 24.7 28.8 30.0 26.1 Source: National Golf Foundation Thenumber ofroundsofgolf alsofell2.3%during thepastyear,from486million in 2009to 475 million in 2010 (mostrecent year NGF has published),corroborating the decline in the number of golfers.Inthe PacificRegion,which includes California,thestatisticsare somewhat more favorable: Regional Profile Participation Rate Numberof 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 ParticipationintheU.S., 2011edition, National Golf Foundation Considering theseverityof therecession anditseffects onboth discretionaryincome andtime, golf has helduprather well. Multiple NGF studiesof golferssince 2008would attributethe gradualdecline ingolfersandrounds primarilyto the impact of lower jobsecurityand concern over personalfinances,not waning appealforthegame. Over thepast 50years,golf demandgrewatabout 4% per year while facilitysupplygrewat about 2% per year.However, since 1990,thesituation hasreversed –demand hasgrown at only0.5% peryear while facilitysupplyhasgrown at1.4% per year.Withthe increasein supply, National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –12 we are seeing amarkedincrease in competition,and thesupplyisgreaterthanthedemandin somemarkets. In additiontoincreasedcompetition, otherfactorshave contributedtoa decline in the numberof rounds per coursenationallyfrom 2002to2011.In theNGF’smostrecentsurveyof coregolfers conducted inSeptember2011, wefoundthatfearfulfinancialoutlooks,weak consumer confidence,and negativegolferattitudeshave also played a role.The combination of thesehas causedmanygolffacilities tobecome distressed,particularlythosethathave a high debtload because of higherconstruction costs andthe perceived need to build high-end courses. Thenumber ofgolf course closingsquadrupledfrom anannualaverage of24 coursesperyear in the 1993-2001timeperiod tomorethan100 courses in2005.In2006,therewas negative net growthin golffacilitiesforthefirsttimeinsix decades,with 146 18-holeequivalents closingand 119.5 opening.In2007,there were113 openingsand121.5closures,and in 2008, 72golf courseopenings and106closures.In 2009,49.5openingsminus 139.5closures equatedto anetloss of90 18-hole equivalents.Closures continue tobedisproportionately public, stand-alone 9-holefacilities or shortcourses (executive or par-3length)with a value price point. Netgrowth insupplyhas been negative nowforfourconsecutive years, with the largest drop of90 courses in 2009.However, U.S.openingsaveraged 200+ (net)for20 years, and total18-holeequivalent supplyis up5%since 2000,indicating aslowmarketcorrection is underway. In October 2011, NGF projected2011netgrowth of aboutnegative 106.5 (openings minus closings), andprojected actualclosuresfor2011 would be closerto150. NGF estimatesthatnationalrounds played experienced an overalldropfrom 2000to2010 of -9.5%.Bythe endof 2011,rounds hadfurther declined 2.5%in theU.S.,butrounds inthe PacificRegionhad increased 1.2% andCalifornia was up 2.3%. Onthe positive side, thegrowth ingolf coursedevelopment has slowed considerablynationally and in themajorityof localmarkets, atrendthatshould help ease someof thecompetitive pressure. Anotherpositive trend istheaging of America.BabyBoomers are rapidlyapproaching retirementage whengolf activityflourishes.The babyboomersrepresentnot onlythelargest single demographicin the US, buttheyalso approach retirementage with more disposable incomethan anypreviousgeneration. National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –13 Local and Regional GolfSupplyand Demand Indicators Thefollowing table summarizes somekeygolf supplyand demandmeasuresforthelocal marketsbased onNGFresearch andgolf demand predictive models. Palo Alto Golf Course 3mi 10mi 15mi 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 GolfingHouseholdIndex 101 104 103 105 106 100 Rounds Played Index 140 142 141 143 146 100 Golf SupplySummary TotalGolf 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 TotalGolf 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 SupplyIndicators Households per 18Holes: Total 19,132 25,655 29,805 16,754 19,127 7,733 Households per 18Holes: Public 19,132 45,390 50,073 43,282 32,214 10,856 Households per 18Holes: Private NA 59,007 73,636 27,336 47,082 26,879 Households SupplyIndex: Total 242 325 378 212 242 100 Households SupplyIndex: Public 171 405 447 387 288 100 Households SupplyIndex: Private 0 221 275 102 176 100 Golf CourseConstruction Activity 2001-2010 Totalholes addedpast 10 years 0 0 18 0 72 24,318 Public holes added past10 years 0 0 0 0 54 17,469 Private holes addedpast10 years 0 0 18 0 18 6,849 PercentTotalHoles 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 PrivateHoles Added NA 0.00%11.80%0.00%7.70%8.90% National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –14 Golf participationrates inthesubjectmarkets around Palo AltoGCare verysimilar to the nationalbenchmark,while rounds demandedper household areabout40% higherthanthenationalfigure.Thehighrounds demanded per householdare indicative of theyear-roundgolf climate,the highnumberofgolf courses,and a demographicprofilethatis generallyconducive to highgolf demand, particularlyas it relatestomedian household income. There arethirteentotal,including eightpublic,golffacilities (including Palo AltoGC) in the 10-milemarketarea, while there are 25totalfacilities, including 21 public, within 15 miles of Palo AltoGC. As thetablesindicates,the subjectmarkets havesignificantlymore households per 18 holes ofgolf thanthenation overall. Forexample, in the10-milemarket area surrounding Palo AltoGC, there are nearlyfourtimes asmanyhouseholds pertotal 18 holes and4.5times as manyhouseholdsperpublic 18 holes than inthe overall U.S.(Wecontrastthesesupplyratios tosome ofPalo Alto’skeycompetitors in AppendixA). There was a spate of newgolf courseconstruction in theBayArea inthe1990s and early2000s. Forthe nine-countyBayArearegion,27totalgolffacilities were added between 1997 and 2006.This included 6 private (comprising 90holes)and 21 public (360 holes)facilities. However, as with therestof thecountry, newgolf course construction hasslowed to acrawlin thesubsequent years,andtheNGFdatabase reveals no newgolf course projects currentlyin planning or under construction within 15 miles of Palo AltoGC. Palo Alto andthegreaterBayArea arehometo alargenumber ofmajorcorporate and public employers,including manyhigh-techand internet companies.These large employers areprimetargetsforsoliciting tournament/outing play, and could be akey elementto boosting playlevels and revenues atthe Baylands GC.Outingsare generallysold at the highestgreenfee,andalso expose a number ofgolfers tothe facilityforthefirsttime. Visitorstothe Palo Altoarea have thepotentialto significantlyimpactdemand atgolf courses.Thoughvisitation numbers were not available for Palo Altospecifically, it is estimatedthataboutsixteen million people visit San Franciscoalone eachyear, and the overallBayArea hasconsiderablymore visitorsthanthat. NGFresearch shows thatroughlyone-third ofallgolfers participatein the activitywhile traveling, playing .557rounds per dayoftravel. This supplementalmarketshould be atarget of marketing effortsoncethe improved Baylands Golf Club is opened. National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –15 COMPETITIVE GOLFMARKET One ofthe objectives of this effortisto identifyanyopportunitiesthatmayexistfortheimproved “Baylands Golf Club”toincreasemarketshare,fees andrevenues.Inthissection,we present an overviewof thepublic accessgolf marketin which thecurrentPalo Alto GCoperates,with a focus onkeycompetitors.Themapbelowshows the location ofthesefacilities inrelation to Palo Alto Golf Course. Inthetablesthatfollow, NGF Consulting presents summaryoperationalinformationforthegolf facilities identified asdirect competition tothe Palo AltoGolf Course. NGFConsulting identified the primarycompetitorsbased on anumberoffactors, including price point,location,NGF experience in thismarket, andinputfrombothfacilitymanagementandCitystaff. National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –16 SummaryInformation – PrimaryCompetitors Thetable belowprovides summaryinformationregarding thegolf courseswe have identified as Palo Alto GC’s primarycompetitors. Palo Alto MunicipalGolfCourse KeyCompetitors – SummaryInformation Golf Facility Location Type Year Open Par/ Slope Front Tee/ Back Tee LocationRelative to PAGC* Palo Alto Municipal Golf Course Palo Alto MU18H 1956 72 / 122 5,744/ 6,833 -- Crystal SpringsGolf Course Burlingame MU18H 1924 72 / 127 5,580/ 6,628 16 mi NW Poplar Creek Golf Course San Mateo MU18H 1933 70 / 115 4,768/ 6,042 14.5mi NW San Jose Municipal Golf Course San Jose MU18H 1968 72 / 119 4,200/ 6,700 13 mi SE Santa Clara Golf & Tennis Club Santa Clara MU18H 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 24.5mi SE Shoreline Golf Links Mountain View MU18H 1983 72 / 129 5,437/ 6,996 2.5 mi SE Spring ValleyGolf Course Milpitas DF 18H 1956 70 / 113 5,453/ 6,116 15 mi E Sunnyvale Golf Course Sunnyvale MU18H 1969 70 / 118 5,170/ 5,742 5.5 mi SE *Air milesfrom subject site,roundedtohalf-mile; actual drivingdistances will likelybegreater. Type: DF–DailyFee; MU–Municipal National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –17 Thetable belowshows summaryfacilityinformation regarding Palo Alto MunicipalGolf Course andits primarycompetitors.Reported roundsfor2007 arefromthe2008 Economic Research Associatesreportto theCity. Averagegreen/cartrevenue perroundfor San Jose and SantaTeresaare estimated basedonERA 2007 numbers. SummaryOperating Data –Palo Alto MunicipalGolf CourseandPrimaryCompetitors 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) PerPerson 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 SpringsGolf 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 ValleyGolf 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 *NGFConsultingestimate N/A–Informationnot available DNA–Does not apply/ Not offered Note: For SanJose, SantaTeresa, “afternoon” rates usedfor twilight and“twilight” forsupertwilight; for SpringValley, “midday” andafternoonusedfor twi /supertwi. 1 Non-resident seniors pay$33 at PaloAlto, $28at Shoreline; senior discounts at Poplar Creekarefor residents only. 2 SantaClaraoffers senior monthlyticket; Sunnyvaleoffers senior discount card. 3 Rounds listedareforregulation18-holecourseonly. National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –18 SummaryofFindings – PrimaryCompetitors Based on datareportedto NGFConsulting byareagolf operators, Palo Alto Golf Course is positionedquite similarlyto itschiefmunicipalcompetitors.Thereported averagegreenfeerevenue perroundamong thesubjectmunicipalfacilities in 2011 generallyfellbetween $28 and $32, while average cartrevenue perroundwas most commonlybetween $4.50 and $5.70. Postedgreenfees havebeengenerallyflat inthismarketforthelastseveralyears, with onlyperiodic marginalincreases aimed at costrecoveryat somecourses. Non-residentgreenfeesfallwithin a relativelynarrowrangeamong Palo Alto GC and itsmunicipalcompetitors,butNGFdid notethat Palo Altois atthe lowend ofthe non-residentpricing spectrum,particularlyon weekends.Webelieve thatan improved andre-branded Palo Altofacilityshould be ableto absorb$5to$10 increasesfornon-residentrounds,depending onthereconfiguration option chosen and varying byfeecategory. Of themunicipalgolf courses profiled(leased SantaTeresa excluded),allbut San Jose Municipaloffered afee discountforresidents (Sunnyvale restrictedthe discount to weekends). Most people NGF spoketo considerthe cityof Mountain View’s Shoreline Golf Links Courseto bePalo AltoGC’s mostdirectcompetitor.Shoreline’s reputationin terms of maintenancestandards hasreportedlytakenahit in recentyears,andthegolf course appearedtobe inonlyfair conditionduring NGF’s visit.Shoreline has dropped about one-thirdof itsrounds sincethemid 2000s andwas the least active facilityamong thekeycompetitorsin 2011,with areported 50,000rounds.Due to its location, Shoreline probablysuffersmorethanmost BayAreagolf courseswith the Canadian Geese problem.Therewere also a largenumber of cootsonthe course during ourvisit. As was the casewith nearlyeverygolfmarket NGF examined nationally, average annualrounds played atmanyBayAreagolf courses droppedby25%ormore between the late1990s/2000 andthemiddle part ofthe 2000s.Based onrounds reportedto NGF aspartof this studyeffort,rounds played among the direct competitive set have continued todecline sincethe 2006-07timeperiod,though variations in themostrecent years are atleast partlyattributable toweather variations. Even with thefalling activitylevels, roundsplayed per18 holesamong the subject municipalgolf coursesremain among the highestwe’ve observed anywhere in the U.S. Santa ClaraGolf &Tennis andSanJose Municipal, at±80,000rounds in recent years, arecurrentlythemostactive among the competitive set. Because of heightenedcompetitionandtoday’s economicrealities,fee discounting (e.g.,through internalyield management, useof internet wholesalers suchas golfnow.com),even among high-end dailyfeecourses,is nowcommonin theBay Areagolf market.As aresult,the linescan become blurredbetween “rack”ratesand what themajorityof customersareactuallypayingfor aroundofgolf.Thisdisparity is notcommon among the municipalgolf courseswe surveyed. National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –19 PALO ALTOGOLF COURSE MARKET POSITIONING ASSESSMENT NGF hasattemptedtoprovide a qualitative, or subjective,reviewof howPalo Alto GC, under both itscurrent configuration andthe alternatereconfiguration options being considered, stacks up against itskeycompetitorsasidentified above.The objective of thisrelative assessment isto provide somejustificationfor assuming anincrease inmarket share(andsustainablegreen fees)for Palo AltoGC, especiallywith themore intensive renovation options. NGF Consulting has scoredthekeycompetitorsto theplan options(A, D,F andG)for Palo Alto GC.A baseline score isalso providedfortheexisting Palo Altogolf courseandfacility. This scoring hasbeen accomplished bylooking attheamenities,coursequalityandreputation associated with eachcompetitivefacility. Reliance has beenmade onavailable reviews, NGF data,discussions with BayAreagolf writers/course reviewers and ourvisitstothesubject courses. Torank thereconfiguration plansfor PaloAlso we relied ontheschematicplanning work developed as of this date,together with ourratingsforthe planoptions.Scores are expressed as A+, A,A-, B+,B,etc.through D-. Because ofthe options(alternate) work tobe considered, no overall“average”grade is provided. Rather, categories ofcomparisons areprovided. Such scorings are both subjective and objective, combining impressionswithfacts aboutthefacilities, and in thiscase, proposed plans. Because ofthesubjective componentofthis review, personal opinion and disagreement with someoftherelative scoring should beexpected.Assuch,the scoring should beusedas amethodforthereadertoform opinions incombination with the otherreporting coveredwithin this report. ComparisonofPalo Alto GCto KeyCompetitors 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(OptionD) C- C+ A- B+ Palo Alto(OptionF) C- B A A- Palo Alto(OptionG) C- B+ A+ A SanJose Golf Course D A- A- B- SantaClaraGolf &Tennis B A- A- C+ ShorelineGolf Links B+ B+ C C- SunnyvaleGolf Course C- D- D- C+ Crystal Springs Golf Course A- B+ B+ B Poplar Creek Golf Course A- D B- B SantaTeresaGolf Club B- B B- B- Spring Valley B- B- C+ C+ *As observedJanuary-February 2012 National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –20 Financial Performance Models for Palo Alto Golf Course As part ofthis studyeffort,NGFConsulting hasprepared ananalysis to showwhat the potential economic performance of Palo AltoMunicipalGolf Course could beconsidering the reconfiguration options presentedin thisreport.Inthissection,we estimate thefacility’s economic performance based on aset of assumptions thatmayormaynot becomereality.We feelthattheseestimatesrepresentthe besteffortto createa“fairestimateof performance”for thisfacilitybased on ourunderstanding ofthegolffacilityoperation, itsplace in themarket and the changesproposed inthevarious renovation options. ThePalo Alto Municipal GCperformancehasbeen projectedunderthe assumption thatthe operation iscontinued‘as-is’with threeseparatecontractsformaintenance, pro shopand food/beverage.The basic contractterms inplacein FY2012 areassumedto continuethrough FY2021.TheNGFhas also assumed a“standard”setof externalassumptionsforregional economic performance,consumerdiscretionaryincome,and weather, with neithersevere declines nor increases inanyof thesemeasuresthrough 2021. RECENT HISTORICAL PALO ALTOGC PERFORMANCE In ordertoputtheproforma projections incontext, we have summarized thefive-year performancehistoryof Palo Alto GCin thetable below. Palo Alto MunicipalGolfCourse HistoricalRevenue Performance(2008-2011) Revenues FY2008 FY2009 FY2010 FY2011 GreenFees $2,169,230 $2,073,809 $1,958,234 $1,859,473 CartFees 345,656 313,224 339,090 302,815 Driving Range 346,447 365,908 399,773 343,878 MonthlyPlayCards 161,368 161,544 135,848 154,933 Tournament/LeagueFees 2,227 2,651 1,921 2,190 Class Program /Other Fees 0 0 0 11,844 TotalGolf CourseRevenues $3,024,928 $2,917,136 $2,834,866 $2,675,133 OtherRevenue 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 &BConcession Payments FixedLease $0 $43,811 $0 $0 Variable Portion $58,730 $0 $52,680 $55,076 UtilityPayment $25,920 $19,440 $28,080 $25,920 TotalF &BConcession Payments $84,650 $63,251 $80,760 $80,996 Pro Shop Concession Payments FixedLease $0 $0 $0 $0 Merchandise(4%) $28,738 $29,482 $27,389 $26,536 TotalPro Shop Concession Payments $28,738 $29,482 $27,389 $26,536 TotalGrossMargin to City $3,138,316 $3,009,869 $2,943,015 $2,782,665 RoundsPlayed 77,989 75,511 69,791 67,381 National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –21 Palo Alto MunicipalGolfCourse HistoricalExpense andNetIncomePerformance (2008-2011) Expenses FY2008 FY2009 FY2010 FY2011 Salaries & Benefits $951,786 $929,335 $721,596 $259,455 RangeFees 138,579 152,745 142,267 130,152 CartFees 131,789 127,836 121,630 117,529 ClubFees 6,473 6,198 5,424 5,576 FixedLozares ManagementFee 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 DirectCharges 36,998 39,255 38,882 45,263 IndirectCharges 108,641 132,072 110,343 102,571 TotalCityOperating 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 Incomefrom Sale of Property $35,230 D/SIncome $33,629 $32,855 $32,200 $0 TotalNon-Operating 33,629 32,855 32,200 35,230 TotalIncome(Incl.Non-operating)$968,717 $643,511 $1,016,658 $861,810 Debt Service $559,795 $555,686 $560,674 $559,539 PaymenttoGeneralFund $94,849 $94,849 $47,684 $94,849 CostPlan Charges $337,590 $318,969 $332,155 $41,455 TotalDebt /OtherCharges $992,234 $969,504 $940,513 $695,843 Net Income or(Loss)($23,517)($325,993)$76,145 $165,967 Source: Cityof PaloAlto Rounds played at Palo Alto GCdecreased steadilyfromFY2008to FY2011,falling bya totalof 10,608,or13.6%. During thesametime,bothgolf revenues andnet incomefrom operations declined by11.6%. Despite thesignificantdecline in rounds andrevenues, net income afterdebt service, generalfundpaymentsand costplan chargesimproved bynearly$500,000 between FY2009 and FY2011 due toareductionin operating expenses andasignificant decrease incostplan charges associated withthe conversion toprivatizedgolf course maintenance. National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –22 PROJECTIONSBASEDON “OPTION A” NGF Consulting has created acashflowmodelforthe continued operation of Palo Alto MunicipalGolf Course(to bere-branded as“Baylands Golf Club)underthe assumption ofthe “Option A”improvements.Theseimprovementsassumethebasicminimum upgrades needed to improve thefacilitywithin the SFCJPAfloodmitigation project,with no substantialchangeto the character ofthegolf course.The NGFrevenue estimatehas beencombined with the presentoperating structureto provide afullestimate of Baylands GCperformanceforthenext 10 years, assuming successfulcompletion ofthe“Option A” upgrades.TheNGFhas projected growth to over$2.8million in totalgrossfacilityrevenue to theCity(from allsources)by2016. KeyAssumptions TheBase assumptions in preparing theprojectedfinancialperformanceestimates covers severalcategories, including rounds activity, greenfees, averagerevenues (carts,range, concessions,etc.),totalrevenue, expenses, capitaland debt. Under allscenarios, we have assumeduse ofmorecomplimentaryand discountrounds intheinitialyears afterreopeningfor the purposesofgaining back lostcustomers,stimulatingtrial, andgeneralpromotions. Rounds Performance Theroundsactivityperformanceassumptionsinclude: Rounds in FY2012 assume a3%reductionfromFY2011 totalroundsbased on actualperformanceinthefirst 6monthsof FY2012 asreported bystaff. Rounds in FY2013 assume ‘as-is’operationon 18 holesforthefirst 9months,then operation ononly9 holesforthe last 3months. During thelastthreemonths a reduction of 50%off historicalroundsforthe corresponding month isassumed.All roundsfrom April-June 2013 areassumedto be9-hole rounds. Rounds in FY2014 assume operation on9holesforthefirst6months,then operation with an upgraded 18 holesfor January-June 2014.Allroundsfrom July- December2013 are assumedto be9-holerounds with a reduction of 50% off historicaltotalsforthecorresponding month. Rounds projectionsassume increasesto astabilized levelof 68,200by2017. Theoveralldistribution ofrounds bycategoryis shown in the table below: National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –23 Palo Alto MunicipalGolfCourse(Baylands GC) Projected Activityfor Option A(2012-2021) As-Is 9-Mos.18-H/ 3Mos.9-H 6-Mos.18-H/ 6Mos.9-H Operateon 18-holeswith modest upgrade to thegolf coursedesign 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 EarlyBird 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-ResidentSenior Card 4,000 2,600 1,500 3,750 4,000 4,200 Sub-TotalWeekday 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 9Hole 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-TotalWeekend 19,100 20,400 19,300 17,000 18,700 19,700 ComplimentaryPlay 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 Theaveragegreenfeesperround bycategoryare shown in thetablethatfollows. Key assumptions driving thisestimate include: There is nochangein averagefeesforFY2012 over FY2011. Theonlyadjustmentin FY2013 isforthe 9-holerate,which has been adjusted downward to reflectthevariousforms of discounting expectedto bepresent when thefacilityis operating on only9 holes inthefinal3monthsof FY2013and thefirst6 monthsof FY2014.NGFhas assumed 9-holegreenfeewillgo as lowas $12.00 per round in somediscountcategories(e.g.,lateafternoon replayrate). Upon re-opening on 18holes (assumedJanuary1, 2014),averagefees ineach categoryareincreasedapproximately5% over FY2012 (rounded). For FY2015through FY2021, NGF hasassumed1% annualincreases inallfee categories. Average Cartfeeand driving rangerevenue perround in FY2012 isbasedonthe actuals in FY2011. For FY2013, average cart/rangerevenue perroundisreduced by20% (from 2011)toreflecttheoperation on only9 holes thelast3months. For National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –24 FY2014, average cartand rangerevenue isreduced by30%(fromFY2011)toreflect 6 months on9holes. ByFY2015, average cartand rangerevenue isrestored atthe 2011 leveland then increased by1%peryear through 2021. Averagemerchandisesales in FY2012 arebasedon theactualin FY2011.Average sales arereducedby20% (from2011)in FY2013 toreflect9 holes-onlythe last 3 months, and30% in FY2014 toreflect6monthson 9 holes.ByFY2015,average sales arerestoredtothe2011 level with 1% increases through2021. Averagefood andbarsales in FY2012 arebasedon theactualin FY2011.Average sales arereducedby20% (from2011)in FY2013 toreflect9 holes-onlythe last 3 months, and30% in FY2014 toreflect6monthson 9-holes.ByFY2015, average sales arerestoredtothe2011 level with 1% increases through2021. Theaveragegreenfeesbycategoryand ancillaryrevenue perroundareshown in thetable below(assume1% annualincreasesforFY2018-2021 asnoted): Palo Alto MunicipalGolfCourse(Baylands GC) Projected Average Green FeesforOption A(2012-2021) As-Is 9-Mos. 18-H/3 Mos.9-H 6-Mos. 18-H/6 Mos.9-H Operateon 18-holeswith modest upgradeto thegolf coursedesign 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 EarlyBird $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-ResidentSenior 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 9Hole $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 Foodper 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 GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –25 Other Revenue Assumptions Totalgreenfeerevenue includes alldiscount(10-play) cards andmonthlypasses. Ancillaryrevenue per round (carts,merchandise,range,food,bar, other) isderived fromtotalrounds, including complimentaryrounds. Concession revenue tothe Cityof Palo Altoassumesthesamecurrentcontract basics through FY2021,with nominimumsafter April 2013.The Cityisassumed to collect:(1)7%of allF& B revenue;and(2)4%of merchandise sales. Expense Assumptions Labor expenses areforCityoversight only.These include allocationsforcontract oversight, Parks andRecreation Director,Division manager,etc.The estimateis intended toinclude bothsalaryand benefitsallocation and isincreasedby4.5% per year throughFY2021. Commissions paidtotheproshop vendorinclude 38%of driving rangegross revenue and 40%ofgross cartrevenue (aspercontract). Theproshopmanagementfee isfixed at $28,775 permonthforthefullduration of the NGF projection. Reimbursementsformerchantfees(mostlycreditcardfees)areassumedto be 1.4%of totalfacilityrevenue. Contractmaintenanceexpense totheCityof Palo Alto assumes: $62,500 permonthfor FY2012. $62,500 permonthforthefirst 9months,then$37,500 permonthsforthe last 3months of FY2013. $37,500 permonthforthefirst 6months,then$66,667 permonthsforthe last 6months of FY2014. $66,667 permonthin FY2015,growing at1.5% annuallythrough2021. Other expensessuch asrepairs,maintenance,supplies, clubfees,materials and otherindirectexpensesare allbasedon actualfiguresforFY2011 with 20% reduction inFY2013 and30%reduction in FY2014,returning toFY2011 levels in FY2015 plus 1.5% increases assumedthrough FY2021. Advertising andpublishing expense is reduced by50% during constructionand operation on9 holes,totaling 15%reduction in FY2013. Uponre-opening thegolf coursethis expense isassumedtoincreaseto$45,000to accountfor enhanced marketing ofthe upgradedfacilityand re-themeas “Baylands GC.”Advertising and publishing expense is then reducedin subsequent yearstoa“standard”of around $17,000 per year. Water expense hasbeenhighlyvariable and NGFprojectionsarebasedon the4- year average(2008-2011),with assumptions of reductions in useasdescribed previously: 25%reduction during construction 28%reduction uponre-opening Annualincreases are assumed at 20%for 2013,15%for2014,9%for 2015, 3%for2016,2%for 2017 and 4.5%for FY2018through FY2021. National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –26 Other directcharges(including electric) arebased on actualfiguresforFY2011 with 20%reduction inFY2013 and 30%reductionin FY2014. Aslightreductionexpected upon re-opening thegolfcourse inFY2015 (as described bythearchitect).Annual increase of 1.5%is assumedfrom FY2015through FY2021. Debt Service andOtherNon-Operating Expense Assumptions Non-operating revenue attributedto debtservice is assumedto continue at6%of debt service payment aslong aspaymentscontinue (throughFY2019). Debt service paymentswere provided bythe Cityof Palo Alto. ThepaymenttotheGeneralFund($94,849) expires after FY2012. There is anewpaymentof ± $107,000totheGeneralFundfrom FY2015–FY2019 forrepaymentof aloanforthe difference between theestimatedcapitalcostfor Option Aandthe expected reimbursementfromthe SFCJPA. TheCostPlan Chargesare basedon actual2011 chargeswith historical3%growth throughtheend of FY2021. TheNGFhas addeda new“Operating & CapitalReserve” line totheproforma beginning in FY2015, setat10%ofgreenfeerevenue. Option Aalso assumesthatthefullirrigationreplacementwillbe completed in FY2020 (orby2020)atacostof $750,000(real2012 dollars). Pro Forma Estimate for ‘Option A’ Scenario – FY2012– FY2021 Utilizing theabove assumptionsand activity/revenue estimates, NGF Consulting has prepareda proformaforthenext 10years of operation,including FY2012(alreadyunderway).Thetable shows thattherenovated Baylands Golf Clubcould produce netincometo theCityin therange of $690,000to $950,000(before debt,cost plan and reserve) throughthetermof thecurrent debt program.AftertheCityis no longerresponsible for debt payments(beginning in FY2020), thefacilityis expected toproducenetincometothe City, afterallexpenses and charges, inthe range of±$620,000,althougha one-timeexpense of $750,000is projectedfor 2020toupgrade the irrigation system.Asthis is aprojection, allfigures after FY2012have been roundedtothe nearest$100forsimplicity. National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –27 Palo Alto Golf CourseRevenue / 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 ConcessionPayments FoodandBeverage 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 UtilityPayment $25,920 $25,900 $26,400 $26,400 $26,900 $26,900 $27,400 $27,400 $27,900 $27,900 $28,500 Total fromF &B Concession $80,996 $79,300 $64,000 $54,900 $78,700 $80,800 $84,800 $85,400 $86,500 $87,100 $88,200 ProShop 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 FromProShop 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 toCity $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 OperatingExpenses 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 ManagementFee 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 WaterExpense 361,870 246,000 277,400 207,000 195,000 200,900 204,900 214,100 223,700 233,800 244,300 National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –28 Palo Alto Golf CourseRevenue / 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 DirectCharges (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 CityOperating 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 IncomeFromOperations (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 Incomefrom Sale ofProperty 35,230 D/SIncome $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 DebtService $559,539 $499,000 $428,200 $429,000 $428,200 $430,800 $432,200 $432,300 $431,200 $0 $0 PaymenttoGeneral Fund $94,849 $94,800 $0 $0 $107,600 $107,600 $107,600 $107,600 $107,600 $0 $0 NewDebtService $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 CostPlan 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 /OtherCharges $695,843 $636,500 $472,200 $474,300 $779,300 $795,500 $812,600 $816,400 $819,100 $1,034,200 $288,100 Net Incomeor (Loss)$168,090 $104,200 ($139,000)($407,700)($84,600)$22,600 $150,600 $140,300 $131,900 ($117,200)$621,500 National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –29 PROJECTIONSBASEDON “OPTIOND” TheNGFcashflowmodelforoperation under“Option D”assumes amore significant upgrade tothefacilitywith a“more dramatictransformation” asdescribed bythegolf course architect. TheNGFrevenue estimate hasbeencombinedwith thepresent operating structuretoprovide a fullestimate of BaylandsGCperformanceforthenext 10 years,assumingsuccessful completion ofthe“Option D” upgrades.TheNGFhas projectedgrowthtoover $3.0million in totalgrossrevenue (fromallsources)totheCityby2016. KeyAssumptions TheBase assumptions in preparing theprojectedfinancialperformancematchthosepresented in the projectionforOption A,exceptthefollowing changes noted below: Rounds Performance Theroundsactivityperformanceassumptionsinclude: Rounds in FY2013 assume ‘as-is’operationon 18 holesforthefirst 9months,then operation ononly9 holesforthe last 3months. During thelastthreemonths a reduction of 50%off historicalroundsforthe corresponding month isassumed.All roundsfrom April-June 2013 areassumedto be9-hole rounds. Rounds in FY2014 assume operation on9holesforthefirst7months,then operation with an upgraded 18 holesfor February-June 2014. AllroundsfromJuly 2013 through January2014 areassumedto be9-hole rounds with areduction of 50% offhistoricaltotalsforthe corresponding months. Rounds in FY2015throughFY2021 assumeincreases toastabilized levelof 73,300 by2017. Theoveralldistribution ofrounds bycategoryis shown in the table below: National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –30 Palo Alto MunicipalGolfCourse(Baylands GC) Projected Activityfor OptionD(2012-2021) As-Is 9-Mos.18- H/3Mos. 9-H 5-Mos.18- H/7Mos. 9-H Operateon 18-holeswith upgraded golf design and moreappealing 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 EarlyBird 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-ResidentSenior Card 4,000 2,600 1,200 3,950 4,200 4,400 Sub-TotalWeekday 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 9Hole 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-TotalWeekend 19,100 20,400 17,800 18,800 19,900 20,900 ComplimentaryPlay 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 Theaveragegreenfeesperround bycategoryare shown in thetablethatfollows. Key assumptions driving thisestimate include: Theonlyadjustmentin FY2013 isforthe 9-holerate,which has been adjusted downward to reflectthevariousforms of discounting expectedto bepresent when thefacilityis operating on only9 holes inthefinal3monthsof FY2013and thefirst7 monthsof FY2014. Upon re-opening on 18holes (assumedJanuary1, 2014),averagefees ineach categoryareincreasedapproximately10% over FY2012 (rounded). Average Cartfeeand driving rangerevenue perround in FY2012 isbasedonthe actuals in FY2011. For FY2013, average cart/rangerevenue perroundisreduced by20% (from 2011)toreflecttheoperation on only9 holes thelast3months. For FY2014, average cartand rangerevenue isreduced by30%(fromFY2011)toreflect 7 months on9holes. ByFY2015, average cartand rangerevenue isrestored atthe 2011 leveland then increased by1%peryear through 2021. National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –31 Averagemerchandisesales in FY2012 arebasedon theactualin FY2011.Average sales arereducedby20% (from2011)in FY2013 toreflect9 holes-onlythe last 3 months, and30% in FY2014 toreflect7monthson 9 holes.ByFY2015,average sales arerestoredtothe2011 level with 1% increases through2021. Averagefood andbarsales in FY2012 arebasedon theactualin FY2011.Average sales arereducedby20% (from2011)in FY2013 toreflect9 holes-onlythe last 3 months, and30% in FY2014 toreflect7monthson 9 holes.ByFY2015,average sales arerestoredtothe2011 level with 1% increases through2021. Theaveragegreenfeesbycategoryand ancillaryrevenue perroundareshown in thetable below(assume1% annualincreasesforFY2018-2021 asnoted): Palo Alto MunicipalGolfCourse(Baylands GC) Projected Average Green FeesforOptionD(2012-2021) As-Is 9-Mos. 18-H/3 Mos.9-H 5-Mos. 18-H/7 Mos.9-H Operateon 18-holeswith 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 EarlyBird $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-ResidentSenior 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 9Hole $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 GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –32 Expense Assumptions Contractmaintenanceexpense totheCityof Palo Alto assumes: $62,500 permonthfor FY2012. $62,500 permonthforthefirst 9months,then$37,500 permonthsforthe last 3months of FY2013. $37,500 permonthforthefirst 7months,then$71,000 permonthsforthe last 5months of FY2014. $71,000 permonthin FY2015,growing at1.5% annuallythrough2021. Other expensessuch asrepairs,maintenance,supplies, clubfees,materials and otherindirectexpensesare allbasedon actualfiguresforFY2011 with 20% reduction inFY2013 and30%reduction in FY2014,returning toFY2011 levels in FY2015 plus 1.5% increases assumedthrough FY2021. Water expense hasbeenhighlyvariable and NGFprojectionsarebasedon the4- year average(2008-2011),with assumptions of reductions in useasdescribed previously: 25%reduction during construction 32%reduction uponre-opening Annualincreases are assumed at 20%for 2013,15%for2014,9%for 2015, 3%for2016,2%for 2017 and 4.5%for FY2018through FY2021. Other directcharges(including electric) arebased on actual2011totals,based on actualfiguresforFY2011 with 20%reductioninFY2013 and 30%reduction in FY2014. Aslightreduction expected uponre-opening thegolf course inFY2015 (as described bythearchitect). Annualincrease of 1.5% is assumedfrom FY2015 throughFY2021. Debt Service andOtherNon-Operating Expense Assumptions There is anewpaymentof ± $223,700totheGeneralFundfrom FY2015–FY2019 forrepaymentof aloanforthe difference between theestimatedcapitalcostfor Option Dandthe expected reimbursementfromthe SFCJPA. Option Dalso assumesthatthefullirrigationreplacementwillbe completed in FY2020 (orby2020)atacostof $500,000(real2012 dollars). Pro Forma Estimate for ‘Option D’ Scenario – FY2012– FY2021 Utilizing theabove assumptionsand activity/revenue estimates, NGF Consulting has prepareda proformaforthenextfive years of operation,including FY2012(alreadyunderway).Thetable shows that with amorecomprehensive renovation,the Baylands GCcould producenetincome tothe Cityintherange of $930,000to $1.27million (beforedebt, costplan andreserve)through theterm ofthecurrentdebt program.AftertheCityis no longerresponsiblefor debt payments (beginning inFY2020),thefacilityis expectedtoproduce net incometothe Cityin therangeof $915,000 per year,althoughthere is aone-timeexpense of $500,000forirrigation in 2020. National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –33 Palo Alto Golf CourseRevenue / Expense -OptionD 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 ConcessionPayments FoodandBeverage 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 UtilityPayment $25,920 $25,900 $26,400 $26,400 $26,900 $26,900 $27,400 $27,400 $27,900 $27,900 $28,500 Total fromF &B Concession $80,996 $79,300 $64,000 $51,800 $81,100 $84,800 $89,100 $89,700 $90,800 $91,500 $92,700 ProShop 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 FromProShop 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 toCity $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 OperatingExpenses 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 ManagementFee 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 WaterExpense 361,870 246,000 277,400 204,000 161,000 165,800 169,100 176,700 184,700 193,000 201,700 National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –34 Palo Alto Golf CourseRevenue / Expense -OptionD Revenues FY2011 Actual FY2012 Projected FY2013 Projected FY2014 Projected FY2015 Projected FY2016 Projected FY2017 Projected FY2018 Projected FY2019 Projected FY2020 Projected FY2021 Projected Other DirectCharges (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 CityOperating 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 IncomeFromOperations (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 Incomefrom Sale ofProperty 35,230 D/SIncome $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 DebtService $559,539 $499,000 $428,200 $429,000 $428,200 $430,800 $423,200 $432,300 $431,200 $0 $0 PaymenttoGeneral 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 CostPlan 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 /OtherCharges $695,843 $636,500 $472,200 $474,300 $919,100 $938,800 $948,600 $961,800 $964,700 $814,000 $318,200 Net Incomeor (Loss)$168,090 $104,200 ($139,000)($501,400)$13,300 $165,800 $319,900 $304,900 $300,200 $421,100 $913,800 National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –35 PROJECTIONSBASEDON “OPTIONF” TheNGFcashflowmodelforoperation under“Option F”assumes amoresignificant upgradeto thefacility, with a two-thirds completerenovationthe additionof a soccerfield and a comparable “dramatictransformation” asproposedinOptionD.The NGF estimateshows the Baylands GC revenue performance underOption Foverthe next 10 years would be comparabletoOption D. KeyAssumptions TheBase assumptions in preparing theprojectedfinancialperformancematchthosepresented in the projectionforOption D,exceptthefollowing changes noted below: Rounds and Average Fee Performance Theroundsactivityandaveragefee performance assumptions arethesame asproposed in “Option D,” except: Rounds in FY2014 assume operation on9holesforthefirst9months,then operation with an upgraded 18 holesfor April- June 2014.AllroundsfromJuly2013 throughMarch 2014 areassumedtobe 9-hole rounds with totalsreducedby50%for each corresponding month. Palo Alto MunicipalGolfCourse(Baylands GC) Projected Activityfor OptionF(2012-2021) As-Is 9-Mos.18- H/3Mos. 9-H 3-Mos.18- H/9Mos. 9-H Operateon 18-holeswith nearly completerenovation 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 EarlyBird 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-ResidentSenior Card 4,000 2,600 800 3,950 4,200 4,400 Sub-TotalWeekday 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-TotalWeekend 19,100 20,400 17,000 18,800 19,900 20,900 ComplimentaryPlay 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 Averagegreen andancillaryfees in“OptionF”areidenticaltothose presentedfor “Option D.” National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –36 Expense Assumptions Contractmaintenanceexpense totheCityof Palo Alto assumes: $62,500 permonthfor FY2012 $62,500 permonthforthefirst 9months,then$37,500 permonthsforthe last 3months of FY2013 $37,500 permonthforthefirst 9months,then$66,667 permonthsforthe last 3months of FY2014 $66,667 permonthin FY2015,growing at1.5% annuallythrough2021. Other expensessuch asrepairs,maintenance,supplies, clubfees,materials and otherindirectexpensesare allbasedon actualfiguresforFY2011 with 20% reduction inFY2013 and40%reduction in FY2014,returning toFY2011 levels in FY2015 plus 1.5% increases assumedthrough FY2021. Water expense hasbeenhighlyvariable and NGFprojectionsarebasedon the4- year average(2008-2011),with assumptions of reductions in useasdescribed previously: 20%reduction during construction 32%reduction uponre-opening Annualincreases are assumed at 20%for 2013,15%for2014,9%for 2015, 3%for2016,2%for 2017 and 4.5%for FY2018through FY2021 Other directcharges(including electric) arebased on actual2011totals,based on actualfiguresforFY2011 with 20%reductioninFY2013 and 40%reduction in FY2014. Aslightreduction expected uponre-opening thegolf course inFY2015 (as described bythearchitect). Annualincrease of 1.5% is assumedfrom FY2015 throughFY2021. Debt Service andOtherNon-Operating Expense Assumptions TheNGFhas assumedthatthe $2,855,400in additionalcost neededto complete Option F,over and above theamount estimatedto bereimbursed bytheSFCJPA, willbe fundedvia the issuance of a newdebtprogram(revenue orGeneral Obligation Bond), with termsof 4.5% interestfor20 years, with paymentsbeginning in FY2015. Option Falso assumesthatthefullirrigationreplacementwillbe completed in FY2020 (orby2020)atacostof $250,000(real2012 dollars). Pro Forma Estimate for ‘Option F’ Scenario – FY2012– FY2021 Based onthe inputs described above,the proforma estimateforfutureperformanceunder “Option F”shows that with thismore comprehensive renovation, theBaylands GCcould produce net incometothe Cityin therangeof $960,000to $1.34million (beforeexisting and newdebt, cost planandreserve)throughtheterm ofthe currentdebtprogram. Afterthe Cityis no longerresponsibleforits older(1999 issue) debt payments,beginning in FY2020,thefacility is expected toproduce net incometothe Cityinthe rangeof $720,000per year,althoughthere is a one-timeexpense of $250,000for irrigation in2020. National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –37 Palo Alto Golf CourseRevenue / Expense -OptionF 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 ConcessionPayments FoodandBeverage 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 UtilityPayment $25,920 $25,900 $26,400 $26,400 $26,900 $26,900 $27,400 $27,400 $27,900 $27,900 $28,500 Total fromF &B Concession $80,996 $79,300 $64,000 $49,300 $81,100 $84,800 $89,100 $89,700 $90,800 $91,500 $92,700 ProShop 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 FromProShop 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 toCity $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 OperatingExpenses 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 ManagementFee 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 WaterExpense 361,870 246,000 280,400 217,600 182,400 187,900 191,700 200,300 209,300 218,700 228,500 National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –38 Palo Alto Golf CourseRevenue / Expense -OptionF Revenues FY2011 Actual FY2012 Projected FY2013 Projected FY2014 Projected FY2015 Projected FY2016 Projected FY2017 Projected FY2018 Projected FY2019 Projected FY2020 Projected FY2021 Projected Other DirectCharges (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 CityOperating 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 IncomeFromOperations (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 Incomefrom Sale ofProperty 35,230 D/SIncome $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 DebtService $559,539 $499,000 $428,200 $429,000 $428,200 $430,800 $423,200 $432,300 $431,200 $0 $0 PaymenttoGeneral 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 NewDebtService $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 CostPlan 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 /OtherCharges $695,843 $636,500 $472,200 $474,300 $914,900 $934,600 $944,400 $957,600 $960,500 $783,500 $537,700 Net Incomeor (Loss)$168,090 $104,200 ($142,000)($673,200)$49,100 $201,800 $356,300 $341,100 $336,300 $483,300 $725,800 NOTE:OptionFwould likelyinclude additional revenue fromsoccerfieldsofapproximately$78,000per field peryear. National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –39 PROJECTIONSBASEDON “OPTION G” TheNGFprojectionmodelfor“OptionG”represents asignificantchangefromother options presented.Thisoption would involve a completerenovation ofthe Palo Alto MunicipalGolf Course (tobere-branded as“Baylands Golf Club).The project would involve afullclosureof thegolf coursefrom April2013throughMarch 2014,re-opening asabrand newgolf coursewith the highestqualitygolf featurescommanding higherfeesthan anyotheroption presented.The fullgolf course irrigationsystem would be replaced andthreenewsoccerfields would be added tothe site.Subsequentto theinitialdraftreport,the CityFinance Committee recommendedthat this optioninclude rebuilding of all18greens,re-turfing of allfairways, construction of anon- courserestroom,andrebuilding thepracticegreen area.Thesechangesshouldfurtherenhance the product’smarketabilityand thegolferexperience. TheNGFrevenue estimate hasbeencombinedwith thepresent operating structuretoprovide a fullestimate of BaylandsGCperformanceforthenext 10 years,assumingsuccessful completion ofthe proposed “OptionG” upgrades.TheNGFhas projectedgrowth to almost$3.2 million in totalgrossrevenues (from allsources)to theCityby2016. KeyAssumptions TheBase assumptions in preparing theprojectedfinancialperformanceestimates covers severalcategories, including rounds activity, greenfees, averagerevenues (carts,range, concessions,etc.),totalrevenue, expenses, capitaland debt. Rounds Performance Theroundsactivityperformanceassumptionsinclude: Rounds in FY2012 assume a3%reductionfromFY2011 totalroundsbased on actualperformanceinthefirst 6monthsof FY2012. Rounds in FY2013 assume ‘as-is’operationon 18 holesforthefirst 9months.The golf coursethen closesentirelyforthenext 12months(April2013 –March2014),re- opening asanupgradednewfacilityon April1,2014. Upon re-opening,roundsareassumedtogrowto67,900 in FY2015, stabilizing at 75,700rounds by2017. Theoveralldistribution ofrounds bycategoryis shown in the table below: National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –40 Palo Alto MunicipalGolfCourse(Baylands GC) Projected Activityfor OptionG(2012-2021) As-Is 9-Mos.18- H/3Mos. closed 3-Mos.18- H/9Mos. Closed Operateon 18-holeswith 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 EarlyBird 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-ResidentSenior Card 4,000 3,000 1,000 4,000 4,300 4,500 Sub-TotalWeekday 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 9Hole 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-TotalWeekend 19,100 14,200 4,700 19,000 20,050 21,100 ComplimentaryPlay 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 Theaveragegreenfeesperround bycategoryare shown in thetablethatfollows. Key assumptions driving thisestimate include: There is nochangein averagefeesforFY2012 over FY2011. Upon re-opening on 18holes (assumed April1,2014),averagefees in each categoryareincreasedapproximately15% over FY2012 (rounded). For FY2015through FY2021, NGF hasassumed1% annualincreases inallfee categories. Allother ancillaryrevenue centersmirrorestimates madeinOptionsDandF. Theaveragegreenfeesbycategoryand ancillaryrevenue perroundareshown in thetable below(assume1% annualincreasesforFY2018-2021 asnoted): National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –41 Palo Alto MunicipalGolfCourse(Baylands GC) Projected Average Green FeesforOptionG(2012-2021) As-Is 9-Mos.18- H/3Mos. closed 3-Mos.18- H/9Mos. Closed Operateon 18-holeswith 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 EarlyBird $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-ResidentSenior 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 9Hole $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 Totalgreenfeerevenue includes alldiscount(10-play) cards andmonthlypasses. Ancillaryrevenue per round (carts,merchandise,range,food,bar, other) isderived fromtotalrounds, including complimentaryrounds. Concession revenue tothe Cityof Palo Altoassumesthesamecurrentcontract basics through FY2021,with nominimumsafter April 2013.The Cityisassumed to collect:(1)7%of allfood and beveragerevenue; and(2) 4% ofmerchandise sales. Expense Assumptions Labor expenses areforCityoversight only.These include allocationsforcontract oversight, Parks andRecreation Director,Division manager,etc.The estimateis intended toinclude bothsalaryand benefitsallocation and isincreasedby4.5% per year throughFY2021. Commissions paidtotheproshop vendorinclude 38%of driving rangegross revenue and 40%ofgross cartrevenue (aspercontract). Theproshopmanagementfee isfixed at $28,775 permonth while thegolf course is open. Nomanagementfees areassumedforApril2013 throughMarch 2014. Reimbursementsformerchantfees(mostlycreditcardfees)areassumedto be 1.4%of totalfacilityrevenue. National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –42 Contractmaintenanceexpense totheCityof Palo Alto assumes: $62,500 permonthfor FY2012 $62,500 permonthforthefirst 9monthsof FY2013 No contractmaintenanceexpenseforApril2013through March 2014 $68,750 permonth(fixed) uponre-opening in April2014 (3monthsin FY2014),then$68,750permonthin FY2015,growing at 1.5%annually through2021 Other expensessuch asrepairs,maintenance,supplies, clubfees,materials and otherindirectexpensesare allbasedon actualfiguresforFY2011 with 20% reduction inFY2013 and70%reduction in FY2014,returning toFY2011 levels in FY2015 plus 1.5% increases assumedthrough FY2021. Advertising andpublishing expense is reduced by50% during constructionand operation on9 holes,totaling 15%reduction in FY2013. Uponre-opening thegolf coursethis expense isassumedtoincrease$45,000 toaccountforenhanced marketing ofthe upgradedfacilityand re-themeas “Baylands GC.”Advertising and publishing expense is then reducedin subsequent yearstoa“standard”of around $17,000 per year. Water expense hasbeenhighlyvariable and NGFprojectionsarebasedon the4- year average(2008-2011),with assumptions of reductions in useasdescribed previously: 60%reduction during construction 32%reduction uponre-opening Annualincreases are assumed at 20%for 2013,15%for2014,9%for 2015, 3%for2016,2%for 2017 and 4.5%for FY2018through FY2021 Other directcharges(including electric) arebased on actual2011totals,based on actualfiguresforFY2011 with 20%reductioninFY2013 and 70%reduction in FY2014. Aslightreduction expected uponre-opening thegolf course inFY2015 (as described bythearchitect). Annualincrease of 1.5% is assumedfrom FY2015 throughFY2021. Debt Service andOtherNon-Operating Expense Assumptions TheNGFhas assumedthatthe $4,570,000in additionalcost neededto complete OptionG, over andabove theamountreimbursedbythe SFCJPA,willbe funded via the issuanceof a newdebt program(revenue orGeneralObligation Bond),with terms of 4.5%interestfor 20years, with payments beginning in FY2015. Pro Forma Estimate for ‘Option G’ Scenario – FY2012– FY2021 Based onthe inputs described above,the proforma estimateforfutureperformanceunder “OptionG”shows thatwiththis completerenovation,the Baylands GCcould produce net incometothe Cityintherange of $1.07to $1.42million (beforeexisting and newdebt,costplan and reserve) throughthetermof thecurrent debtprogramthatendsin 2019. Afterthe Cityis no longerresponsibleforitsolder(1999 issue) debtpayments,thefacilityisexpected toproduce net incometothe City, afterallexpenses and other charges,intherangeof $740,000 per year. National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –43 Palo Alto Golf CourseRevenue / Expense -OptionG 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 ConcessionPayments FoodandBeverage 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 UtilityPayment $25,920 $25,900 $26,400 $26,400 $26,900 $26,900 $27,400 $27,400 $27,900 $27,900 $28,500 Total fromF &B Concession $80,996 $79,300 $58,000 $39,600 $83,500 $87,300 $91,800 $92,400 $93,600 $94,200 $95,500 ProShop 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 FromProShop 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 toCity $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 OperatingExpenses 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 ManagementFee 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 WaterExpense 361,870 246,000 250,900 133,000 183,000 188,500 192,300 201,000 210,000 219,500 229,400 National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –44 Palo Alto Golf CourseRevenue / Expense -OptionG Revenues FY2011 Actual FY2012 Projected FY2013 Projected FY2014 Projected FY2015 Projected FY2016 Projected FY2017 Projected FY2018 Projected FY2019 Projected FY2020 Projected FY2021 Projected Other DirectCharges (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 CityOperating 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 IncomeFromOperations (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 Incomefrom Sale ofProperty 35,230 D/SIncome $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 DebtService $559,539 $499,000 $428,200 $429,000 $428,200 $430,800 $423,200 $432,300 $431,200 $0 $0 PaymenttoGeneral Fund $94,849 $94,800 $0 $0 $0 $0 $0 $0 $0 $0 $0 NewDebtService $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 CostPlan 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 /OtherCharges $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 Incomeor (Loss)$168,090 $104,200 ($123,500)($459,400)$34,400 $198,200 $362,700 $348,600 $345,100 $743,300 $736,900 NOTE:OptionG would likelyinclude additional revenue fromsoccerfieldsestimated byCityatapproximately$78,000per fieldper year ($234,000 for 3fields). National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –45 FINANCIAL PROJECTIONS SUMMARY SummaryofOptions Comparative tablefor options in 2015and 2020are shown below: Summaryin 2015 Summaryin FY2015 ModestUpgrade 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 GREENFEE 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 fromF & B Concession $78,700 $81,100 $81,100 $83,500 Total FromPro 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 CityOperating 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/OtherCharges $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 $78,000Soccer revenue Potential for additional $234,000 Soccer revenue National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –46 Summaryin 2020 Summaryin FY2020 ModestUpgrade 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 GREENFEE 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 fromF & B Concession $87,100 $91,500 $91,500 $94,200 Total FromPro 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 CityOperating 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/OtherCharges $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 $78,000Soccer revenue Potential for additional $234,000 Soccer revenue SummaryResults Theresults ofthe NGF Consultingfinancialprojectionsfor Palo AltoGolf Course,basedonthe various reconfiguration options andtheanalysis and assumptions presented in thisreport, show thatthefacilitywillgenerate,tovarying degreesbased ontherenovation option, improved rounds andrevenue performancecomparedtothe base“as is” scenario.In relationto estimating lostroundsand revenues during construction, NGF has assumedfor alloptions under which thefacilitywillremain openfor9-holeplaythattheCitywillstill be ableto provide a qualitygolf experiencethat isminimallydisruptive tothegolfer. National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –47 Keyobservations regarding projected“BaylandsGolf Club at PaloAlto”financialperformance: NGF hasestimatedthattotalrevenuestothe Citywilldecrease byvarying amounts during constructionforthefour options evaluated.Forinstance, underOption A,the totaltwo-year cumulative reduction ingrossrevenue totheCityis nearly$1.5million. This isbased onestimated FY 2012grossrevenues. However, becauseof expense reductions(e.g.,range and cart payments,contractmaintenance, water, indirect charges)during thetimeof construction,netincomefrom operations(before debt, othercosts)is estimatedto decrease by±$1.08million over thetwo-year period, based on actualestimated FY 2012netoperatingincome. OptionG, which involves a 12-month closure of all18 holes,naturallyresults inthe greatestreductionin revenue, with only$748,600grossincomefrom operations in FY 2014,when the course is closedfor9months.Thetwo-year cumulative loss in grossrevenue totheCity, using FY2012 as abase, is estimated atnearly$2.7 million, while the loss innet income is estimateat±$1.1million. Rounds played, afteryears of decline,areprojected toreboundunderallofthe reconfiguration options,with options Dand Fatstabilized totalroundsat73,300, representing a 5,100round improvement overOption A.OptionG –fullrenovation – resultsin thehigheststabilized activitylevel, atnearly76,000 annualrounds. Option D, which is expectedto cost±$600,000morethan baseOption A, is projectedto producesignificantlyhighernetoperating incomethanOptionA, resulting in aquick payback of the investment. Stabilized NetOperatingIncome(beforedebt andother costssuchas capital, reserve, andcost plan) is projectedto behighestunderOptionG,with 2021 NOI projected at about$1.42million. OptionF issecond with ±$1.26million,followed closelybyOption Databout $1.23million. Afteradditionaldebt associated with improvements isconsidered,OptionG is projectedto produceoverallNetIncometothe Citythat ismoderatelylowerthanthat of OptionD. However,further down theroadwhen thedebtforOption Gis paid off,it is expected toproducethe highest NetIncomeforthe Cityof Palo Alto. Justificationsfor Revenue Projections NGF isconfident,given the inputs(e.g., expectedqualityand appealfollowing improvements) foreach option,thattherounds,fees,revenues, and expenses projected under eachscenario arereasonable andachievable. The higheststabilized rounds activity we have projected under anyscenario was less than 76,000totalrounds,alevelthat was achieved as recentlyas 2007- 08 (andwasfarexceeded in thepast)with a productthatwas inferiortowhat areconfigured and re-brandedgolf course willbring tomarket.Also, wefeelwe have been conservative in terms ofthefeeincreases thatthe improvedfacility willbe able tosustain.Likewise, we believe it ismoredifficulttoestimatetheimpact onrevenues during thetimeof construction,asthere aremanyvariables, notthe least of which aregolfer behavior and preferences. Proformas are,bytheirnature,models basedona set of assumptionsthatmayormaynot becomerealityand which aresubjecttoa number of uncontrollablefactors (e.g., weather variations, theeconomy,quality/quantityofthe competition),butNGFbelieves thatour projectionsrepresent a“reasonable” estimateof performanceforthe“Baylands”facilitybased on thefactors discussedin thisreport.Among thefactorsconsideredwhen crafting our projectionsforeachmodelare: National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –48 Expected higherqualityof the Palo AltoMunicipalGolf Course(levelof improvement depends on intensityofReconfigurationOption chosen, levelof “additional” work). Re-branding andeffective marketing of the“Baylands Golf Club at Palo Alto”,along with more proactive direct selling of largertournamentsand events. Reinventing the productshould re-energize the current customerbase,resulting in increasedfrequencyof play, and also positionthefacilitytocompetemoreeffectively fornon-residentrounds.Results of ERA’s 2008surveyrevealed that thenumberone reason Palo AltoGCwas not theprimarycourseof respondentswas “course quality/playexperience”.Maintenance conditionsthat willposition thefacilityin the mid-to-uppertierofmunicipalgolf courses inthismarket. Non-residentgreenfeesat Palo Alto, especiallyon weekends,areatthelowend of the price rangeamong the directmunicipalcompetitors.Withan improvedproduct, thereshould belittleresistancetomodest price increasesatthe“Baylands”. Maintaining a strong price/value proposition willensurethattheimproved golf course remains verycompetitive in theareamarket despite expectedmodestfeeincreases. Palo Alto MunicipalGolf Course is operating atrounds levels thatarewillbelowpeak levelsfrom 1990s andearly-to-mid2000s.Thefacilityhas achieved rounds played levels close towhat NGFConsulting is projecting underthemostfavorable option as recentlyas FY2008. TheBayArea remainsone of themostactive marketsformunicipalgolf inthe nation. Atthe peak ofthemarket, Palo Alto andseveralof itschief competitors realized annualactivitylevels approaching,oreven exceeding,100,000rounds. Thoughplaylevels maynever approachtheseextraordinarynumbers again, we believe themarket hasthe potentialtomakearecovery. NGF believes thereis alack of trulyoutstanding directcompetitorsto PaloAlto GC. Also, it islikelythat nonewgolf course inventorywillbe added tothismarketforthe foreseeablefuture. Potentialforregionaleconomic recovery, increased discretionaryincome,etc.The BayArea and Silicon Valleyhave some specific economic attributesthat act as naturaldemand driversforqualitygolf courses, including high incomes,anextremely robustcorporatepresence, andone veryhighvisitation numbers. Other ConsiderationsRegarding ImprovementOptions Asidefromthe expectedeconomic impactof thevarious baseReconfiguration Options,there remainquestionsthat willneed tobe addressedas theCityweighs thereconfiguration options, theirrespective forecastsin terms ofrounds/revenue and what additionalwork willstillbe required inthe instanceof doing lessnowand deferring certain improvementsto later.The overriding decisionto bemade isplan option(A,D, F orG)togowith and howthatfundamental decision willaffectfuturedecisions. For example,reconfigurationOptionA,while least costlyof thoseto beconsidered,precludesrouting improvementsbeyond thoseofthefewholes being shifted andplacesoverallrestrictionsonfuture improvementstothegolf asset.Largely,thegolf course would remain thesamein itsanatomyforthe long term underA, but of coursethegolf coursemaybe inmuchbetter conditionandmaybe complemented bybetter supportamenities in thefuture.Themisconnectionmaybe thecourse itself —muchnicer, but asourgrading exercise concludes, notto thelevelof theother options becauseof their improvementsto hole- orientation,varietyand excitement. National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –49 Thesuccessratefor increased revenues,betterreputation andtheabilityto betruetotheidea of atransformedgolf experience, increaseswith a more intensive re-working of thegolf course. Thedecision on which option toadoptwillneed to takeintoaccountmanyfactors,togetherwith thefinancialforecastsprepared. OPTION “G” SENSITIVITY ANALYSIS As noted, proforma projections have beenmadeundera set of assumptions thatmayormay not cometofruition. Also, projections are subjectto severaluncontrollablefactorssuchas yearlyweather variations, economic conditions,and thenature ofthecompetition.Therefore, in the interestof conservatism we have preparedasensitivityanalysis forOption G(identified by the Cityasthepreferredoption) oftwo keyvariables relatedtorevenues –rounds played and averagegreenfee.Specifically, we have run three scenariosthat presentdeviations fromthe “base”modelpresentedabove: (1)Roundsreduced tomoderatelylower than projectedFY 12 performance,continuingdownward trend;(2) Averagegreenfee increasing over currentbyjust less thanhalf the 15% projectedincreasein basemodel; and(3) Roundsand averagegreen fees both lower, incombination. Because ofthe virtuallylimitless number of combinations,other variables, such asfixedoperating expenses,remain the sameas inthebase scenario. Thesensitivityscenarios revealthatthe lower than projected(base)greenfeegrowth would result inareduction innet income of approximately47% over thebasecase. Reducedrounds result ina±$500,000reduction in net income,while the“worst case”– both roundsandgreen fee increases belowtheprojected basemodel–produces about$640,000 lower net income. Option “G” Sensitivity Analysis -Summaryfor 2017 Summaryin FY2017 Expected Case Option G Reduced Rounds Option G ReducedFees 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 GREENFEE 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 fromF & B Concession $91,800 $81,100 $91,800 $81,100 Total FromPro 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 CityOperating 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/OtherCharges $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 GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –50 Option G SensitivitySpreadsheets Palo Alto Golf CourseRevenue / Expense -OptionG(ReducedRounds 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 ConcessionPayments FoodandBeverage 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 UtilityPayment $25,920 $25,900 $26,400 $26,400 $26,900 $26,900 $27,400 $27,400 $27,900 $27,900 $28,500 Total fromF &B Concession $80,996 $79,300 $58,000 $39,600 $71,200 $75,800 $81,100 $85,700 $86,800 $87,400 $88,600 ProShop 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 FromProShop 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 toCity $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 OperatingExpenses 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 ManagementFee 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 GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –51 Palo Alto Golf CourseRevenue / Expense -OptionG(ReducedRounds Sensitivity) FY2011 Actual FY2012 Projected FY2013 Projected FY2014 Projected FY2015 Projected FY2016 Projected FY2017 Projected FY2018 Projected FY2019 Projected FY2020 Projected FY2021 Projected WaterExpense 361,870 246,000 250,900 133,000 183,000 188,500 192,300 201,000 210,000 219,500 229,400 Other DirectCharges (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 CityOperating 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 IncomeFromOperations (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 Incomefrom Sale ofProperty 35,230 D/SIncome $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 DebtService $559,539 $499,000 $428,200 $429,000 $428,200 $430,800 $423,200 $432,300 $431,200 $0 $0 PaymenttoGeneral Fund $94,849 $94,800 $0 $0 $0 $0 $0 $0 $0 $0 $0 NewDebtService $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 CostPlan 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 /OtherCharges $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 Incomeor (Loss)$168,090 $104,200 ($123,500)($459,400)($543,700)($342,800)($137,500)$39,300 $32,700 $427,900 $418,400 NOTE:OptionG would likelyinclude additional revenue fromsoccerfieldsofapproximately$78,000per field peryear ($234,000 for 3fields). National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –52 Palo Alto Golf CourseRevenue / Expense -OptionG(ReducedFeesSensitivity) 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 ConcessionPayments FoodandBeverage 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 UtilityPayment $25,920 $25,900 $26,400 $26,400 $26,900 $26,900 $27,400 $27,400 $27,900 $27,900 $28,500 Total fromF &B Concession $80,996 $79,300 $58,000 $39,600 $83,500 $87,300 $91,800 $92,400 $93,600 $94,200 $95,500 ProShop 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 FromProShop 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 toCity $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 OperatingExpenses 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 ManagementFee 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 GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –53 Palo Alto Golf CourseRevenue / Expense -OptionG(ReducedFeesSensitivity) FY2011 Actual FY2012 Projected FY2013 Projected FY2014 Projected FY2015 Projected FY2016 Projected FY2017 Projected FY2018 Projected FY2019 Projected FY2020 Projected FY2021 Projected WaterExpense 361,870 246,000 250,900 133,000 183,000 188,500 192,300 201,000 210,000 219,500 229,400 Other DirectCharges (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 CityOperating 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 IncomeFromOperations (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 Incomefrom Sale ofProperty 35,230 D/SIncome $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 DebtService $559,539 $499,000 $428,200 $429,000 $428,200 $430,800 $423,200 $432,300 $431,200 $0 $0 PaymenttoGeneral Fund $94,849 $94,800 $0 $0 $0 $0 $0 $0 $0 $0 $0 NewDebtService $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 CostPlan 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 /OtherCharges $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 Incomeor (Loss)$168,090 $104,200 ($123,500)($499,400)($115,200)$37,700 $191,300 $175,500 $170,300 $566,700 $558,500 NOTE:OptionG would likelyinclude additional revenue fromsoccerfieldsestimated byCitytobe approximately$78,000 perfieldper year ($234,000 for 3fields). National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –54 Palo Alto Golf CourseRevenue / Expense -OptionG(ReducedRounds +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 ConcessionPayments FoodandBeverage 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 UtilityPayment $25,920 $25,900 $26,400 $26,400 $26,900 $26,900 $27,400 $27,400 $27,900 $27,900 $28,500 Total fromF &B Concession $80,996 $79,300 $58,000 $39,600 $71,200 $75,800 $81,100 $85,700 $86,800 $87,400 $88,600 ProShop 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 FromProShop 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 toCity $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 OperatingExpenses 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 ManagementFee 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 GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –55 Palo Alto Golf CourseRevenue / Expense -OptionG(ReducedRounds +Fees Sensitivity) FY2011 Actual FY2012 Projected FY2013 Projected FY2014 Projected FY2015 Projected FY2016 Projected FY2017 Projected FY2018 Projected FY2019 Projected FY2020 Projected FY2021 Projected WaterExpense 361,870 246,000 250,900 133,000 183,000 188,500 192,300 201,000 210,000 219,500 229,400 Other DirectCharges (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 CityOperating 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 IncomeFromOperations (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 Incomefrom Sale ofProperty 35,230 D/SIncome $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 DebtService $559,539 $499,000 $428,200 $429,000 $428,200 $430,800 $423,200 $432,300 $431,200 $0 $0 PaymenttoGeneral Fund $94,849 $94,800 $0 $0 $0 $0 $0 $0 $0 $0 $0 NewDebtService $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 CostPlan 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 /OtherCharges $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 Incomeor (Loss)$168,090 $104,200 ($123,500)($499,400)($658,400)($470,600)($278,800)($115,100)($123,200)$270,300 $259,300 NOTE:OptionG would likelyinclude additional revenue fromsoccerfieldsestimated byCityatapproximately$78,000per fieldper year ($234,000 for 3fields). National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –56 OtherIssues and Considerations MARKET POSITION /RE-BRANDINGOPPORTUNITY NGF Consulting hasreviewed the image andbrand recommendationsmade totheCityas part of the expanded scopeof services to addresslong rangeconsiderations.Weconcludethat closer integration ofthegolf coursetothe Palo Alto Baylands Preserve,“The Baylands”, should positivelyaffecttheCity’s effortstobrandthisarea as adestinationfor Palo Altoresidentsand visitors alike.Celebratedas anopenspace andnaturepreserve area,theBaylands represents a rich andpositive locale within Palo Alto and theSilicon ValleyRegion and willbe enhanced with an improved andre-brandedgolf product. Currently, Palo AltoMunicipalGolf Course effectivelylacks abrandimage,and thefacilityis verycloselyassociatedwith thelong-timegolf concessionaire –somuchso thatthe website addressforthegolf course is bradlozaresgolfshop.com, andrecordedphone messagesmention onlythe golf shopandnotthegolf course.Webelieve thata namechange to“Baylands Golf Club at Palo Alto”represents apositive move thatwillhave the effectof repositioning thegolf course,distancing itfroma“muni”layout. Additionally, it willsignalatransformationfrom an older,“worn down” layoutto onethat hasrenewed excitementand positive change.The recommendation toretain “Palo Alto” aspart ofthe courseimageand brand is agoodwayto connect with the existing name, aswellas the Cityitself. Useof “Golf Club” in lieu of“Golf Course” isan additionalsignalthatthegolf experience is not onlysomething new, butata higherquality. Themarketing theme “Public only in price,access and pride”is an excellentmessagetoremind the customerthatthegolffacilityremains accessible, opentothe public and pricedto provide one of thebettergolfing values in the BayArea.Thismessagealsoreinforcesthe transformation, ideallya win-win forthegolf consumertoreceive highqualityat a“municipal” price point. Sample magazine ads provided as partof theMarketing andThemerecommendationshit on importantconcepts,including: Silicon ValleyLocation Tradition –Thedesign legacyof BillyBell TheTransformation(i.e.,thechanges) The“Green” EnvironmentalCommitmentof theFacility Ourbelief isthatproperimplementation(adequate budgets,qualitycontroland propermedia placement) ofthe program willhave a dramaticeffecton driving newbusiness tothe“new” golf facility. Equallyimportantwillbe the affectthatthese messages andthe newbrand willhave on existing customers,andresidents of Palo Altoandits neighboring communities who currently playgolf elsewhere.In essence,theprogramforre-branding, introducing a newimageand theme, andthemarketing program, hasthe potentialto have averypositive affectonrounds and associatedrevenues. National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –57 A commitmentonthe City’s partto becoming certifiedwith Audubon internationalas a “SanctuaryGolf Facility” is an integralpart oftheabilityto marketthecourse as a“green”aware and operatedgolffacility.Thisgoalshould be undertakenregardless of which reconfiguration option is opted bytheCityand should be workablegiven the operation and/ormarketing budgets afforded.(Note:Beginning thisprocess now, priorto anyreconfiguration work,willhelp guidethereconfigurationwork and willalso establish agreaterdegree of improvement bywhich to attainthe Audubonstatusforthefacility). Plan Option Aposesthegreatest challengeto beconsistentwith the image, brand and marketing changesrecommendedbecauseitdoes notgo as deepintothe manyareas ofthe course intermsof newfeaturesandreconstructed areas. However, thefactthatPlanOption A willdramaticallyreduce turf throughthe course-wide work tocreate native areas andnew “Baylands” themed areas should bean adequatelyappreciated change. Plan OptionsD,F and G willhave no issues aligning with anyof thethemes andmessagesrecommended. With emphasis onaquality, outstandinggolffacility, theCitymaybe ableto realize what we have referredto as a“destination”publicgolf experience.IntheBayareawe would point to such courses as Pasatiempo in Santa CruzandHarding Park in San Francisco asmeeting this definition.Thesetwo courses aregoodexamplesof coursesthat have attained a reputation throughthefollowing attributes: Legacyofthe originaldesign Transformationfrommarginaltoexcellent conditions Commitmentbythemunicipalowners toreinvest in theassets Qualityrebuilding efforts Goodmarketing ofthefinished coursesandfacilities While both oftheabove examples are classiceradesigns(PasatiempobyAlister MacKenzie, and Harding Park byWillieWatson) it isstillappropriatetoreferencetheirsuccessesrelative to what Palo Alto Golf Course could attain.Whetherundertakenunderone,largerreinvestment project,orcarried out overtime,thepotentialtransformationof Palo AltoGolf Courseis bolstered byanumber offactorsinherent inthefacility: A designlegacythatcanbe leveraged—WilliamP. andWilliamF.Bell, theformer responsiblefor designssuch as Stanford,Riviera and Bel-Air A location thatsitsattheheart of Silicon Valley A seaside setting thathasgreaterpotentialtotake advantageof itsnatural landscape —theBaylands environment, Bayandadjoining Sanfrancisquito Creek A population basethat isrobustforgolf roundsbynon-residents A location thatis in oneof thetoptourist areas inthenation Obviously, undertakingmoreintensive reconfiguration(suchas with Plan G) willtransformmore of the existing course and is likelytomeetthisgoalon a strongerbasis.So,too,mayinvesting in moreof thealternate,optionalimprovements,including manyof thelong rangeimprovements beforetheCityforconsideration. National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –58 ECONOMICS OFPOTENTIAL LONG-TERM / ADDITIONAL IMPROVEMENTS Forrest Richardson hasproposedthattheCitystudythefeasibilityof certainfacility improvementsthat are inaddition tothe baseimprovementsrecommended within ReconfigurationOptionsA, D,F,andG(pleasesee AppendixEforsummarytable of potential improvementsand estimated costs).Though NGF believes thatmanyof these improvements would improve theoverallqualityof thegolfer(and non-golf customer)experience, as wellas the imageofthefacilityin theeyes of areagolfers, itis not practicaltoassign incremental rounds played andrevenue dollarstomanyof these improvements(e.g., exterior and entry upgrades,signage/parking,rebuilding practicegreens,“alternate”golf course improvements, designatedyouth area).Practically, theseimprovements,tovarying degrees individuallyand certainlyas asumof their parts, are likelyto drawmore patronsoverall,keep them on-site longer, andincreasetheir propensitytospend while atthegolf course. Wehave confinedourbreak-even analysis to severalpotentialimprovementsthattiemore directlytorevenue: (1)The cart storagebuilding;(2) Expandedmeeting space; and(3) Range PerformanceCenter. CartStorage Building Atjust$4.54perroundin FY 2011,the averagegrosscartfeerevenue per round at Palo Alto Golf Coursesignificantlytrailsthe average of its chief competitive set(seeERA 2008 reportfor City).While the lowcartutilization is partiallya function ofthe“walkability” of thegolf course, ridership andrevenues have also likelybeen constrained bytheverylimited cart storage.Palo Alto GChas only46 carts available, some of which areoldergasoline powered cartsstoredin open storage outsidetheclubhouse(fewer than 35 cartscan bestored belowthe clubhouse).A moretypicalinventoryformostregulation length18-holegolf coursesis±70 carts.Wearetold thatfor largertournaments,additionalcartsmustbe leased andbrought infromoff-site.In summary, NGF believes it is likelythatthelimitedcartinventoryand storage space available has constrainedridership andmayhave actuallynegativelyaffected demandfor dailyfee and, especially, tournament playon occasion. As part of Forrest Richardson’s overallcapitalimprovement planfor PaloAlto GC, hehas included construction ofa newcartstorage building atan estimated costof $440,000.Inthe table below, we illustrate thenumber of yearsit willtakeforthe Cityto break even onthis investment,assuming different levels of incremental gross cartrentalrevenue perround,the currentrentpercentageof 60%,and stabilized rounds activityunderOptions DandF –73,300 rounds.Ofcourse, as noted,it ispossible that having additionalcarts willhave a positive effect on roundsplayed as well, butforpurposes of conservatism we areillustrating onlyincreasesin cartrevenue perround.Wealso assumethatallexpenses associated with thecart leaseand maintenancewillremaintheresponsibilityof thevendor,andthatthere will be noincremental Cityoperating costs associated with thenewbuilding. Palo Alto Golf Course Break-Even Analysis for Cart Storage Building AverageGrossCart RevenuePerRound Increase $0.50 $1.00 $1.50 $2.00 $2.50 IncrementalGross Revenue* $36,650 $73,300 $109,950 $146,600 $183,250 IncrementalRevenuetoCity* $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 $440,000estimatedcost andstabilizedrounds played of 73,300from Options D,F National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –59 Expanded Meeting Space Theexisting restaurant at Palo AltoGChas limited meeting spacethat has significantly constrainedmeeting andbanquetbusiness atthefacility. Notbeing ableto accommodate larger events of ±250people precludes thefacilityfromcompetingforthemost lucrative, highmargin food &beveragebusiness. Assuch, expanding the meeting/banquet space is another componentofthe long rangeimprovement plan preparedfortheCitybyMr. Richardson. Based onthe estimatedcost provided of $1.7million, and assuming theCityincurs allofthe cost oftheimprovement,theannualdebtservice on a 20-year noteat3.5% would be $120,000 (rounded).NGFhas calculated thatthe incremental annualgrossfood& beveragerevenue necessarytogenerate $120,000 in additionalrentstothe Citytomeettheannualdebtservice is morethan$1.71million. Thiscalculation is basedonthe currentrentpercentage of 7%. In its2008study, ERAnoted: “Based ontheexperience of similargolf course oriented banquet facilities andthe demographics of thearea, expanding the clubhousetoaccommodatespecial events with up to250 attendees would add $600,000 to$700,000in annualspecialevent revenue.Thisrentalincome would justifyaboutone-half ofthecostof theimprovements.”NGF concursthat achieving this levelof incrementalgross revenue would likelybe an achievable goal,butwith updatedcost estimates,this levelof revenue would justifyonlyabout 40%of the investment cost.Therefore,thebalance ofthe Cityinvestment inthe expandedfacilitywould have to bejustifiedthroughtheincrementalrounds and associatedrevenues attributabledirectly tothe expandedmeetingfacilities.Based oncurrent andprojected averagegreen+cart(City share)feerevenue perround, itwould take 2,000to3,000of theseroundstohelpfundthe expanded facilities.Of course,theequationwould changemarkedlyif gross revenues accrued tothe Cityunderan alternate operating structure. Range PerformanceCenter Inthetable below, we provide a similar break-even analysis to the oneforthe cartstorage building. Mr. Richardson’s cost estimatefortherangeperformancecenter,plus theadditional6- bayrangeexpansion (we assume both are undertakentogether), is$600,000.Inthetable below, we illustratethe numberof years itwilltakeforthe Citytobreak even onthis investment, assuming different levels of incrementalgrossdriving rangerevenue perround (gross perround was $5.15 in FY 11),therentpercentage of 62%,and stabilized rounds activityunder Options D and F –73,300rounds.Of course,itcannotbe determined what percentageof rangeactivityis afunction of numberof bays as opposedtorounds played, so we have chosen todo a sensitivityanalysis byincreasing averagerevenue perroundratherthanpertee station. Another factor driving thismethodologyis thatthe performancecenter bays willbe usedforteaching, and willlikelyhave less utilization than thealreadyexisting bays. Wealso assumethatallincrementalexpenses associated with theexpanded rangeremain the responsibilityof theconcessionaire, andthatthere willbe no incrementalCityoperating costs associated with thenewbuilding. Finally, we assumethattheCityreceives no lessonrevenue. National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –60 Palo Alto Golf Course– B/E Analysis for Range PerformanceCenter+6-BayExpansion AverageGrossRangeRevenuePer Round Increase $0.50 $0.75 $1.00 $1.25 $1.50 IncrementalGross Revenue* $36,650 $54,975 $73,300 $91,625 $109,950 IncrementalRevenuetoCity* $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 $600,000estimatedcost andstabilizedrounds played of 73,300from Options D,F MANAGEMENT STRUCTURE NGF was toldthatsomeCitystaff would like tofurtherexplore - via issuance of an RFP in advance ofthe ProShopand Maintenance agreementsexpiring inApril, 2013 -theimplications of changing theoperating structure atPalo AltoGolf Courseto amanagementcontract.We have been askedto offerouropinion asto whetherthis type of structurewould be more effective, orproducehigher net operating incometotheCity, thanthe current“hybrid” structure thatinvolves both amanagementfeeand aconcession onthegolf operations side, privatized maintenance, anda separatefood& beverage concession. As EconomicResearchAssociates(ERA) noted in their2008OperationsReviewof the Palo Alto MunicipalGolf Course,the currentagreementforgolf operationsevolved due toIRS regulationsrelatedtothetax-exemptfinancing utilized forthelate1990srenovation ofthegolf course.Specifically, at least 50% ofthecompensation within a management agreementmust befixedfeein sucha case. ERA,afterdoing thefulloperationsanalysis,concluded thatthe current pro shopdealwas “slightlyfavorable”tothe concessionaire. Afterrunning cashflowmodels under various operating scenarios,ERA concluded that CityNet Incomewas maximized with privatemaintenance(subsequentlyput inplace) and“marketrate” concession terms.However, theyalso notedthat“marketrate”, which involved lower concession rentstotheCityand an elimination ofthemanagementfee, was notpermissible by theIRS without arestructuring ofthecurrentdebt. ERA concludedthat,among the operating modelsthat were permissible within the current debtframework,thestructurethatis nowin place at Palo AltoGolf Course –no change in contractterms, but with private maintenance– producedthe highest CityNet Income.Afull-service Management Agreement producedthe second highestCityNetIncome. Withoutdoing afulloperations review, NGF doesnothave sufficient informationtocritically evaluate ERA’s analysis orto identifythe operating structurethat would be thebestfitforPalo Alto GC.Whiletherearea number of advantagestothefullservice managementcontract structure, it is alsotruethat“no onesizefitsall”.There aremanyfactorsand variables to consider when evaluating options,andit would be unfairtoboththeCityand thecurrent vendorsforaconsultanttomake arecommendation regarding theoptimalstructurewithout being retainedtodo afullfacilityanalysis. Carefullyevaluating thevalue proposition that eachof the current vendorsbrings tothetablewould be just onecomponentof such an analysis. For instance,thegolfersurveythat ERA implemented as partof their 2008studyshowed that Brad Lozares was ratedquitehigh bygolfers,indicating considerablegoodwilland “equity” builtup in thegolf shop. Similarly,NGF hasbeentold of improved maintenanceconditions (aswellas considerable cost savings) sinceValleyCrest was brought on. National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –61 Having saidthat,we dofeel confident recommendingthattheCityretainthe current structure atleastthrough thecompletion ofthe renovation project.However, delaying consideration of afundamental changeinoperatingstructure shouldnotpreclude modifyingterms.Forinstance,theCityandthe golf vendormaycome toan agreement resultinginloweringthe managementfeetoreflect reducedresponsibilitiesand concession revenues duringrenovation(especially underOptionG),while stilladhering toIRS guidelines.Not only willthe project substantiallydisrupt business,but significant unknowns include thetiming of theproject andhowthe newlyimprovedfacility willcashflow after being broughtbacktomarket and“re-branded”.Also,thefood &beverage contract doesn’t expire until2018, so some of theadvantages ofthe singleoperatormanagementstructuremay be lessened unlessan earlytermination totheagreement canbesuccessfullynegotiated with the current vendor. Finally, negotiating anewagreementduring construction, when proposers themselves willnot have fullinformation abouthowthe improvedfacilitywillcashflow, may result intheCitynot entering intothe bestdealpossible. NGF believes thatthesearejustafewof the important variables thatmake issuing an RFP at this stage lessthanoptimal.Werecommendthatthe Citywait untilafterrenovation is completedandthe improved facilityhas beenupand running fora yearormore before considering a substantive change instructure.This strategywillprovide additionalinformation thatwillput theCityin abetter positiontomake an informed decision regarding operating structure(forinstance,the Citymayfindthattheimproved “Baylands GolfClub” has significant upside revenue potential,thusmaking itrelatively more attractive tocontrolallrevenues under themanagementcontract structure). LONGRANGE CONCERNS Concernsraisedthroughthepublic process ofreviewing reconfiguration options have included thefollowing long term implications: High saltspresentin thenative soils Intrusion bygeese andburrowing animals Potentialforthe adjacentairportto negativelyaffectthegolf experience In essence,thequestionraised is:“CanthePaloAlto Golf Coursebeexpectedto becomea significantlybettergolf experience given theseissues?” NGF Consulting relies on theopinions of professionals associatedwith individualgolf facilities to addresscertainquestions. For example,inthe case of thehigh salts we look toagronomists, the coursesuperintendent and/orthegolf coursearchitect.Inthecaseofanimalintrusion, because these are oftensite specific, we look tonearbyfacilities toseehowtheyhave dealt with theissue. High Salts Soils high in salts are notuncommontogolf courses locatedalong coastalwaterways and oceans.Inthecaseof Palo Alto thesoils arenotonlyaffectedbythelocation bySan Francisco Bay, but bythepoorlydraining soiltypes.Additionally, theuse of effluent(recycled) water, which typicallyhas higher saltcontent, exacerbates thecondition.While our work hasnot included agronomicevaluation, we have endeavoredto understandthegeneralsituation by comparing outcomeswe have observed at othergolf operations. National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –62 “Linkscourses,”thoselayouts along thedunesformedcoasts ofthe British Islesand similar locales aroundthe world,arepronetosaltysoils.Yet, with their sandysoilbasis,these sites supportgoodturf because thesaltsareleachedregularlydownward bynaturalrains.This isthe hallmark of links courses, andwhytheir development onthesenatural,sandysoils were so appropriate.When soils are not sandyandporous,the build-upof saltsbecomesproblematic. This isthecaseatPaloAlto Golf Course,where management overtheyears hasbeento periodicallyirrigate withfresh water, driving saltsdownward, and toaddgypsum tothesoils. Additionally, themostrecentremodeling work added a capof sandand better soilmixto several fairways, making themmuch easiertomanageand support healthyturf.These bestpractices have resulted inreasonablyhealthyturf growth despite thesaltysoilconditions. According tostaff,while salts are high,theturf has “learned”to adapt.There is adefinite differencebetweenfairways where the sandcaphas been placedand areas where drainage is not asgood andwhere older native soils arepresent.Also, Paspalumturfvarieties have flourished atthegolf course in afewareas.These areasappeartohavemuch bettersuccess ratesof healthygrowth because thenatureof Paspalumgrass istotolerate saltstoa significantlyhigher degree. NGF Consulting posedthequestionof managing highsaltstoForrest Richardson &Associates, specificallyasking whatadditionalmeasures would be affordedthroughthe reconfiguration options toaddressthis issue.Theresponse summaryis asfollows: Management ofexisting sand capping andhealthyturf rootzone material(the uppermost layers ofrootzone) willbe managedthroughthereconfiguration,replacing thatmaterialas“topsoil”to newfairwayand turf areas;thiscostisrepresented inthe probable cost estimatespresentedtotheCityforreconfiguration options. Newsoils willbe imported as possible within thebudgets,potentiallyfromthe StanfordUniversityMedicalCenterproject(s);these additionalcosts(andrevenue potential) have beenaccounted in probable costestimates. Paspalum turfgrasswillbe usedtosod allnewareas offairways, roughsand tees (Note:Thespecific variety is yetto bedetermined). Theirrigationsystemwill provide dualwatering capabilities, able todeliver potable water toselectedareasand amixof effluent(higher saltcounts)andfresh water; this capabilityallowsflushing (leaching of saltsdownward) as is being done currently. Significantlyimproved drainage isaffordedin each reconfigurationoption,helping to prevent build-up of saltsbyquickertransportationof surfacewater awayfromturf areas andthesoilrootzone, andtherebyreducing thebuild-up of saltsthatoccurs when water is allowed to standandslowlyseep intotherootzone. Theseareprudentmeasuresthatarecommonamong golf course sites with highsaltspresent in the soil.Additionally, we understandthattheCityhas agoaltoreducesaltcountswithin its effluentwater system,agoalthatis not necessarilyaimed at improving conditions atthegolf course,butwillhave a definite value to City’sgolf operation asset. Whilethesuccessrate of overallcondition improvementcannotbeguaranteed, we can look at comparableoperationswhere high salts are effectivelymanaged.Thereare numerous examples of thisthroughout California,including the BayArea.California examples include National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –63 Monarch Bay(San Leandro), LasPositas(Livermore), Metropolitan(Oakland),Olivas Linksand Buenaventura (Ventura),andIrvine (ShadyCanyon Club). Manycourses with salt issues areturning to Paspalum turfgrassas ananswer. Some ofthe example coursescited have moved to 100% Paspalumgrass.NGFConsulting notesthatthis trendis widespread in Florida,the Caribbean, Mexico, SouthTexas, andHawaii. In Hawaii,for example, Paspalum varieties have literallytransformedthegolf landscapefroma struggling Bermudagrassregiontoone that nowpredominantlyuses Paspalumin orderto overcome high saltsfrom water, soils and theproximitytotheocean. Even in Montereywe areseeing Paspalum use. Atthe MontereyPeninsula Club,forexample, some areaslocated onthe shore thatwere never ingoodcondition, have beencompletelyre-plantedwith Paspalum and arenow in excellent condition. Ourconclusion isthatPalo Alto can enjoyagoodsuccess overthelong term atthe existinggolf coursesite.Managing salts willhave a goodresult,notonlythroughgoodmaintenance practices, but incombination with thereconfiguration work, which should maketheCity’s efforts tomanage saltsmoreproductive, less costlyand,ultimately, more impacting toa positive golf experience. Ourcautionis thattheplan options(A,D,F andG)each have anassociatedresultthat is specific totheinvestment.Plan A,for example,addressesonlya minorityof the courseturf areas(drainage,rootzone,topsoilmanagement,irrigation,etc.) andwilltherefore not produce positive results acrossthefullgolf course.Plan G, atthe otherend ofthespectrum,resolves virtuallyallareas. Animal Intrusion Managing CanadianGeese infestation isoften dependent onregulationsand restriction placed on locales.Ouradvice totheCityis tostudyavailable mitigationmeasuresandto carefullynote themeasurestaken byneighboring courses.Geese populations have been successfully managedthroughthefollowing measures: Traineddogs,suchasbordercollies Reducing standing waterand openwater(ponds,lakes, swamps) Increasing habitatsurrounding thegolf coursethat willappealtogeese populations Implementing noise,reflective or otherrepellants Sterilization agentsto stopgenerationalreturnofgeesetothegolf courseareas Among themostsuccessfuloperations in Northern California arethecourses of the Monterey Peninsula, notablyPebble Beach Companies andtheprivate clubsin thearea.Withfew exceptions, these operators have usedtrained dogstomanagegeeseawayfromtheirturf areas.An on-sitedog specificallytrainedtomanagegeese populations remainsthemost efficientmeasuretoridgeese infestationfromgolf coursesin theU.S. Notonlyis thismethod humane,butithasthe benefit of alower costthan manyothermeasures,and is less interruptive tothegolf experience.Weunderstand there is added complexityrelative tothe adjacentairportoperation andtherequirementsassociated with making surethatgeese are not diverted totheairport,but awayfromboththegolf courseandtheairport.Forthis reason,we recommendthatthe Citytakea look atjointlyworking out aplanforboththegolf andairport needs. National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –64 Withregardtotheground squirrelinfestation,we understandthatthis isbeing metwith ongoing mitigation effortsthatareallowed under stateguidelines. Also,the increaseof naturalized areas afforded byallreconfiguration optionswillhelp drive habitat awayfromturf and in-playareasof thegolf course. Airport Effects Manygolf facilities arelocated immediatelyadjacentto airports,and yet enjoyagoodreputation and highqualityof golfing experience.Weseenoundue negative associated with therelatively smallprivate plane airport, especiallygiven thattheflight pathsdo not directlyovertop thegolf course itself. Moreover, Silicon Valley appearsto beutilizing the airportforcorporateflights infavor ofthe largerregionalairportsthat posedelays and complexities due totheir scheduled, commercial flightbusiness.Thisfactmayactuallyprove beneficialto thegolf operationshould thegolf course anditsfacilities be elevated a “destination” levelof qualityandreputation.Theresultwith nominalairport useisthatmorevisitorsto Palo Alto willknowaboutthegolf course andbe able toget afirsthandviewofits offerings. Summary Based on experience and inputfrom ForrestRichardson,NGFConsulting believes thatlong- termmitigation oftheconcerns ofthis site isworkable andworththe premiumsrequiredfor maintenanceandmanagement.Inmanycases,golf courses are located on degradedland because thatland cannot beusedforotherpurposes.Wesuspectthis isthe case inPalo Alto and would find itdifficulttojustifyalternate solutions totherenovationsthatmight be considered:(a) continued operation in adeclined state;(b) abandonmentof the assetinfavorof a newlocation,given land values in the area;or(c) abandonmentoftherecreation amenity altogether,given itshighuse andthefinancialforecastspresented. POTENTIALECONOMICDEVELOPMENTOFTHE AIRPORT&GOLF “BAYLANDSGATEWAY” AREA Thegolf course“corner”and sharedentrywith the airport are considereda “gateway” to the Baylands Preserve areas. Assuch,this intersection hasgreatpotentialtobecomemorethan justagolf clubhouseandairport with nominalretailofferings. According tothe CommunityServices Department,forward and creative thinking hasbeen aimed atthepotentialforthis areatobecomeamore user-friendlyand service-oriented destination.Thusfar,thinking has included whetherthe area couldsupportamodestcollection of cafes,retailshops, and perhapseven a hotel.While noformalplans have been commissioned,the Cityhas discussedageneral,long rangeapproachto looking more in depth atthis possibility. Such development,especiallyif it included asmallhotel, would add naturaldemanddrivers in immediateproximitytothegolf course,thusresulting in increasedroundsand revenues. As an example, a 130-room business hotelina high demand localemayhave as manyas28,000 roomnightsbased onanaverage60%occupancyrate.Using amultiplierof 1.3guestsper room,this equatesto approximately36,000guests per year.Using apercentage of 10%golfers and assuming thatthegolf course couldgeteven 20%of thesegueststoplay, the resulting bump would be near1,000 additionalgolfersperyear. Also,thesegolferswould comprisenon- residentspaying the highest applicable rates, andtraveling golferstypically exhibit less price National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –65 sensitivityand would be likelyto alsospendmoneyon the practice range,pro shop, and/or restaurant. PRIVATEFUNDING POSSIBILITIES Of course,asidefromreceiving compensatorymoneyfromtheSan FrancisquitoCreek Joint Powers Authority,the Citymayhave tograpplewith howtofundadditionalmoneyrequiredif ReconfigurationOptionsD, F,orG ischosen,and/orif anywork identifiedas “additional”or “alternate”in thisreportitundertaken.One ofthemechanismsthatwould obviouslybe very preferable totheCityis raising privatemoneytofund some, or even all,of theneededmoney. Based on preliminarydiscussion held between Forrest Richardson,NGF, and theCity, the privatefunding mechanismmaytakea combination of thefollowing avenues thatthe Citywill have to explorefurther: Naming rightsforsomecomponentsofthefacility(e.g.,rangeperformancecenter, certain holes,teemarkers, designated youth area);thismaybefeasible dotothe numberof verywealthyindividuals in Palo Alto, as wellas the verystrong corporate (especiallyhigh-tech/ internet-based)presence. Grants –forexample,the FirstTee,which is very active in thearea. Lease-Back –some within theCityhave mentioned thepossibilityoffinding a design/build entitythatmightbe interested in undertaking allofthe improvements, including soccerfieldsif Option ForG ischosen,and restructuring thefinancing packagetogetthe entireproject, including someor alloptionalmasterplan improvements, doneat one time.Inthiscase,the±$3million the Cityreceives from the SFCJPA couldbe used toward paying offtheold debt anda newarrangement put in placeforthe work torebuild thegolf course. TheStanfordSoilImportis a wildcard in the equation. It could bring revenue intothe equation, but likelynotmorethan $500,000.Thismayprovide a partialfunding mechanismtohelp payfor some ofthemiscellaneous suggested work that willnot have a revenue streamattacheddirectlyto it(entryexperience, trails,signage, parking, etc.). National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –66 Appendices APPENDIX A– COMPARATIVE SUPPLY RATIOS –PALO ALTO GC&KEY MUNICIPAL COMPETITORS APPENDIX B– COMPARATIVE SCORINGOFRECONFIGURATIONOPTIONS APPENDIX C– WATER &POWERUSE DISCUSSION&ASSUMPTIONS APPENDIX D– REVIEWOF PROBABLE COSTESTIMATES APPENDIX E – POTENTIAL LONG-TERMMASTERPLANIMPROVEMENTS National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –67 APPENDIX A–COMPARATIVESUPPLYRATIOS– PALO ALTOGC&KEY MUNICIPALCOMPETITORS NGF haspresenteda comparisonof somekeygolf supplymeasuresforPalo Alto GCand its keymunicipalcompetitors, with the5-mile radiusaround eachfacilitythe basisfor comparison. Wenotethatallof thesubjectfacilities, exceptforSantaTeresa, have veryhigh household/supplyratios,which is one ofthekeyfactorsthatexplains the veryhighrounds figuresrealized per 18 holes among municipalgolf courses inthismarket. Also of note,in its2009publication “The Futureof PublicGolf in America,”NGFhypothesized thatthebestpredictorofa publicgolf course’ssuccess was thenumberofgolfersper18holes within a 10-mile radius,with 4,000identified asthekeynumberforprojectedfinancialstability. As shown in thesecondtable below, allof thesubjectcourses(again withexception of Santa Teresa)exceed this numberforthe 5-mile market. Golf FacilitySupply– 2011 (5-MileRadius) 5-mileRings TotalNo.of Golf Facilities TotalNo.of Golf Holes Households per18holes Households per18Hole Index (US=100) Palo AltoGolf Course 4 72 19,836 251 Poplar Creek Golf Course 5 81 17,942 227 SanJose MunicipalGolf Course 6 90 31,377 398 SantaClaraGolf &Tennis Club 6 90 21,027 266 SantaTeresa 6 135 7,841 99 ShorelineGolf Links 4 72 24,206 307 SunnyvaleGolf Course 8 126 19,435 246 Source: National Golf Foundation Golfersper 18 Holes(5-MileRadius) 5-mileRings Golfing Households Est.No.of Golfers1 Total18-H Equivalent Golfersper 18holes Palo AltoGolf Course 14,206 21,309 4 5,327 Poplar Creek Golf Course 14,243 21,365 4.5 4,748 SanJose MunicipalGolf Course 30,527 45,791 5 9,158 SantaClaraGolf &Tennis Club 17,855 26,783 5 5,357 SantaTeresa 12,250 18,375 7.5 2,450 ShorelineGolf Links 16,695 25,043 4 6,261 SunnyvaleGolf Course 24,118 36,177 7 5,168 TotalU.S.“Threshold” forSuccessfulPublicGolf (10-mile Ring) 4,000 1 GolfingHouseholds x1.5 Source: National Golf Foundation National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –68 APPENDIXB –COMPARATIVESCORINGOFRECONFIGURATION OPTIONS As a usefultoolinformulating proformaprojections, NGF hascomparedthe Reconfiguration Optionsusing a“scorecard approach”wherebyattributes andbenefits areassignedscores(1- 10).Thismethodallows a side-by-side comparison, providing a wayto reviewpluses and minuses associated witheach option.Webaseour scoring onseveralfactors,including the following: Details presented(plans,conceptualimages, etc.) Public commentsand historicaluseof thefacility(rounds anduse) NGF Market Analysis (localand regionaltrendsandgolf participation) Competition within themarketarea Details and othergivensregarding the changestotakeplace(golf designconsultant involved, howfaralong the proposedchangeshave been studied,budgets, etc.) Long termviabilityof thechangesandmarketacceptance Known preferencesofgolfersrelative tocourseconditioning,consistency,etc. Qualityof theconsultants involved In situations wheregolffacilities are proposedtobe reconfigured,thereare bothsubjective and objective considerations.Additionally, there isoften difficultyin verifying to what degree proposed changes willbe carried out. Fortunatelyin thecaseof thePalo Alto Golf Course,the Cityand SFCJPA have accommodateda verythorough processand detailso we areable to look attheplans, beforeand afterimages, andother documentationthatquantifythechanges associated with theoptions. Scoring is onefactorconsidered in estimating potentialchanges inthefinancialperformanceof thegolffacility. For example, agolf course with significantlymorepracticeopportunities, especiallywhen such use is in demand,willpotentiallybring in newuse and associated revenue. Inthecaseof asignificanttransformation of agolf coursefrom an averageorbelow average experienceto one with newholes, views and overalllandscape improvement,it islikely thatan increase in use and/orrevenue willbe realized. And, where we cansee potentialto marketthefacilitybeyond theimmediate area,itis possible torealize an added price-per-round fornon-resident use.Inthis latter example we often citetheabilityofgolf coursessuch as TorreyPines toadopt agreenfee structurethatholds lowratesforresidents ofthe area while chargingmarketratesthat are veryhighfor playersfrom out ofstate.Inthe case ofTorrey Pines, thegap between resident ratesand visitorratesareamongthe widest inthegolf business.Thoughthistype ofgap willnot berealisticforPalo Alto,we doexpect that, depending onthereconfiguration option chose, non-residents willeffectivelybe “subsidizing” to some degree ahighquality, butstillaffordable,golf experiencefor cityresidents. Thefollowing ratingsusea 1-10 scalewhere 1 isthe lowest and 10 isthehighest.Thisranking includes somefinancialconsiderations,butis ancillaryto theproformafinancialanalysis for each option.Therankings hereareusedtoformsome oftheforecastswithin the proforma analyses. Scoring is based onthe basereconfiguration work foreach option (i.e.,less all optional/alternate work listed). Asummarytable ofrankings is presentedfollowing thecategory descriptions. National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –69 Thefollowing arecategories usedtoformthescoring: Yardage & Par –Accommodation of yardage(regulation length)for acourse andpar thatwillbe viable and competitive within themarket andregion Interruption ofPlay During Reconfiguration –Abilityof theplantoretainsome holes (9-hole play) andpractice during reconfigurationwork Consistency of Bunkers& Hazards –Overall impact ofthe planrelative tobunker consistency, aestheticsand other hazards Consistency ofGreens –Overall result ofgreensqualityand consistency Drainage Improvement –Overall positive impacton drainage;eliminating wet conditions Irrigation Improvement –Overallpositive impact on irrigationcontrol,consistency and associatedturfquality Pace-of-Play – Degreeto which the plan accommodatespositive pace-of-playand long range abilitytomanageforgoodpace Improved VisualImpact–Overalllandscape enhancements(added naturalizes areas andvisualimpact) Improved Views –Accommodation ofmoreviews totheBayandterritorialvistas ImprovedGolfExperience Impact-Overallplan benefitstostrategy, excitementof holes, variation of direction, orientationtowind, etc.) Competitivenesswith Area Courses–Abilityof the coursetocompetewith courses in the immediatearea Competitivenesswith RegionalCourses –Abilityof the coursetocompetewith coursesin theregion Likelihood for Destination Visits –Abilityof thecourseto attract specificvisits expresslyto playthe course Ability to Leverage“Green”Marketing –Consistencyof theplan with a“green” environmentalmessage(Baylands tie-in,morenaturalized areas,naturallandscape, etc.) ConsistencywithLong Range Planning –Integration of theplan withfutureplanning (clubhouse,practice,etc.) TurfReduction(irrigation) –Reduction ofmanaged turf acreagefor lesswateruse and reducedpumping TurfReduction(managed care) –Reductionof managedturf in relation tothe ability to shiftmaintenance emphasisfromout-of-playareastogolffeatures andareas moreappreciated bythegolfer National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –70 Comparative Scoring of ReconfigurationOptions Option A Option D Option F Option G Yardage & Par 8 8 8 6 Interruptionof Play during Reconfiguration 5 4 3 1 Consistency ofBunkers & Hazards 7 8 9 10 Consistency ofGreens 3 5 6 8 Drainage Improvement 4 6 8 9 Irrigation Improvement 3 6 7 10 Pace-of-Play 5 10 7 7 Improved VisualImpact 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 RegionalCourses 2 6 7 8 Likelihood for Destination Visits 1 5 7 7 Ability toLeverage“Green” Marketing 5 7 8 9 Consistency with LongRangePlanning 7 9 9 9 TurfReduction(irrigation) 4 6 8 9 TurfReduction(managedcare) 4 7 8 9 National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –71 APPENDIXC –WATER&POWER USE DISCUSSION & ASSUMPTIONS NGF Consulting was notcharged with afullwateror power useanalysis. However,forecasting costsassociatedwith each reconfiguration optionrequiresreasonable estimatesontheaffects of amore efficientirrigation systemcombined with lessturf acreage. Ourconclusions onwater andpower use are based onthefollowing assumptions, derived from CityStaff andthegolf course architect/designteam: Currentirrigation (managed)turf acreage:135 Newirrigation areas efficiencyover/above the existing system:+10% Currentirrigation inefficiencydue toleaks andbreaks(loss):-5% Currentpower inefficiency: -10% Newpower efficiencyrealized withfullcourse better watering times/durations:+15% Annualcostforirrigationrepair duetoage andcondition: $30,000 Using the data andassumptions, NGF Consulting has developed thefollowing forecastfor water and power usedifferences with eachreconfiguration option. Option A Totalirrigatedturffollowing reconfiguration: 96.5acres Water usereduction based on newirrigatedacreage: 28% Approximate areaof reconfigured coursewith newirrigation system:35acres Percentageof irrigated Area with NewIrrigation: 36% Water usereduction of newusage basedon efficiencies of newsystem area: 3.6% (10%efficiencyx36%=3.6%) Water efficiencyof newusagegained duetofewer leaks/breaks: 2%(5%efficiencyx 36%= 2%) Power efficiencyrealized with better watering times/duration:+5% Conclusions ReducedWaterCostEst.(effluent)$- 0- ReducedWaterCostEst.(potable)$72,800(28%x$260,000) ReducedWaterCostEst.(potable efficiencies)$5,645([3.6%+2%] x$100,800) Reduced Power Cost Est.(efficienciesrealized) $1,200(5%x$24,000) TotalEst. Reduction inWater & Power Cost $79,645/ annual Option D Totalirrigatedturffollowing reconfiguration: 92 acres Water usereduction based on newirrigatedacreage: 32% Approximate areaof reconfigured coursewith newirrigation system:40acres Percentageof irrigated Area with NewIrrigation: 43% Water usereduction of newusage basedon efficiencies of newsystem area: 4.3% (10%efficiencyx43%=4.3%) Water efficiencyof newusagegained duetofewer leaks/breaks: 2%(5%efficiencyx 43%= 2%) National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –72 Power efficiencyrealized with better watering times/duration:+10% Conclusions ReducedWaterCostEst.(effluent)$-0- ReducedWaterCostEst.(potable)$83,200(32%x$260,000) ReducedWaterCostEst.(potable efficiencies)$7,258([4.3%+2%] x$115,200) Reduced Power Cost Est.(efficienciesrealized) $2,400(10%x$24,000) TotalEst. Reduction inWater & Power Cost $92,858/ annual Option F Totalirrigatedturffollowing reconfiguration: 91.5acres Water usereduction based on newirrigatedacreage: 32% Approximate areaof reconfigured coursewith newirrigation system:58acres Percentageof irrigated Area with NewIrrigation: 63% Water usereduction of newusage basedon efficiencies of newsystem area: 6% (10%efficiencyx63%=6.3%) Water efficiencyof newusagegained duetofewer leaks/breaks: 3%(5%efficiencyx 63%= 3%) Power efficiencyrealized with better watering times/duration:+12.5% Conclusions ReducedWaterCostEst.(effluent)$- 0- ReducedWaterCostEst.(potable)$83,200(32%x$260,000) ReducedWaterCostEst.(potable efficiencies)$10,711([6.3%+3%] x$115,200) Reduced Power Cost Est.(efficienciesrealized)$ 3,000 (12.5% x$24,000) TotalEst. Reduction inWater & Power Cost $96,911/ annual OptionG Totalirrigatedturffollowing reconfiguration: 92acres Water usereduction based on newirrigatedacreage: 32% Approximate areaof reconfigured coursewith newirrigation system:92acres Percentageof irrigated Area with NewIrrigation: 100% Water usereduction of newusage basedon efficiencies of newsystem area: 10% (10%efficiencyx100%= 10%) Water efficiencyof newusagegained duetofewer leaks/breaks: 5%(5%efficiencyx 100%= 5%) Power efficiencyrealized with better watering times/duration:+15% Conclusions ReducedWaterCostEst.(effluent)$- 0- ReducedWaterCostEst.(potable)$83,200(32%x$260,000) ReducedWaterCostEst.(potable efficiencies)$23,040([15%+ 5%]x$115,200) Reduced Power Cost Est.(efficienciesrealized) $3,600(15%x$24,000) TotalEst. Reduction inWater & Power Cost $109,840/ annual National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –73 APPENDIXD –REVIEWOF PROBABLE COSTESTIMATES NGF Consulting hasreviewed the probable costestimates provided tothe Cityfor reconfigurationOptionsA, D,F,andG.In orderto objectivelyevaluate proposed budgets we look fora baseline of comparison.Thebestresources aresimilar public sectorgolf course projectsinvolving reconfiguration.All golf courseprojectsareunique, as arethe conditionsof the site,construction costs,availabilityof construction materials(sand, proximityof sodgrowing, etc.),andterrain.Additionally, in a situation where theproposedmodifications tothecourseare underway, as in this case, we look toother projects bythe samegolf course architect. Thebestcomparisonsare three projectsbyForrest Richardson,ASGCA: Buenaventura Golf Course (Cityof Ventura,California) PeacockGapGolf Course (San Rafael, California – privatelyowned) Olivas Links(Cityof Ventura, California) TheBuenaventura project was undertakentorebuild an existing 18-holefacilityoriginally designed byWilliam P. andWilliamF.Bell.Thescope was to largelyretain hole corridors throughexisting maturetrees,buttore-turf allof thegolf course.Theproject involved approximately88 acresof fullre-turfing,greensrebuilding (19),newponds (3) andcomplete rebuilding of allfeatures(bunkers,teesandfairways).This projecthad astatedbudgetof $4.5 million which also included site work foranewmaintenance area,a newmaintenancebuilding and improvementstotheentryand parking areas.The work was completed in 2005 andwas funded bytheCityof Venturathrough acapitalbond program. NGF was told thatthegolf course specific work totaled approximately$3.6million and themarketconditionsatthattimewere very similar tocurrentconditions. ThePeacock Gapproject was a completere-build of an 18-holegolf course (also anoriginal design ofWilliamF.Bell), associatedre-routing work forsafetyreasons,anewpond, new drainage,fullnewirrigation system, andallnewfeaturesincluding anewpracticerange.The totalacreage involved was approximately94 acres and included similar naturalized area development as has been proposedfor Palo Alto.The project was carriedout overtwo phases beginning in 2004for areportedinvestmentof $5.1million. Of note isthattopsoilmanagement was verysimilar tothat covered in the PaloAlto Probable CostEstimates. TheOlivas Linksprojectis most similar toPalo Alto among thesethree examples.This course was originallydesignedbyWilliam P.andWilliam F. Belland alsoborders ariver at itsestuary termination point.Thecourse was pronetoflooding and hadverypoor soilconditions asaresult of effluentirrigation and inherentsaltsbywayof its seaside locale.Also apartof thecapital bond programof theCityof Ventura,this 2006-07work was contracted at$5 million in termsof directgolf course improvements.These includedfullre-building using on-site soils. Paspalum grass was usedforfairways, with Bentgrassonthegreens.Ourestimation of thetiming of this work was that itfellduring themostaggressive contracting time inthepast10-15years.The work appearsto have been publicallybid with six qualified bids,eachveryclose tothelowest bid atthe $5million point.TheCityspentadditionalfundstorelocateandreplace their maintenancefacilityover and above thegolf course construction contract. Thoughthere are variables that could affectcost,such astheultimatetiming of theproject and a change inregionaleconomic conditions, NGF’sgeneralassessmentgiven ourexchangeswith Forrest Richardson onthis matter isthatthe probable costestimatespreparedfortheCity (Options A,D,F andG)appearto coverthescope of thework shownforthe options,andare National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –74 conservative in approach. According torepresentatives of theGolf CourseBuilders Association of America(GCBAA) theBayArea represents one of themostcostlyworking locales in NorthernCalifornia based on available labor, housing andthegeneralcost offuel, operations and logistics.Wenotethatthe architect,recognizing thisreality, hasincluded a significant degree of projectmanagementand contingencyin estimatespreparedforthe City-important componentsthatwe often see omitted atthis stage of planning. National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –75 APPENDIXE –POTENTIAL LONG-TERM MASTERPLAN IMPROVEMENTS Thetables belowsummarize some ofthe long-term and/oroptionalimprovementsthathave been presented byForrest Richardsontothe Cityof Palo Altoforconsideration. ClubhouseImprovements Exterior Condition &Upgrades - Estimate:$250,000 Aestheticimprovement to facings, color, materials Replace, upgrade landscaping ExpandMeeting 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 grillas potentialrestaurant 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 ShopUpgrades - Estimate:$100,000 Expand office/storage Free-up 1,000 s.f. retailspace CreateCartStorage Building- Estimate:$440,000 Currentlystorage for 15 carts; balance kept outdoors and leased temporarily as needed for groups Newbuilding for 70 carts Arrival& EntryImprovements NewEntry, SignageandParking- Estimate: $400,000 Newentry Newsignage Resurfaced parking w/ Landscaping &Lighting (expand to 300 spaces) NewEntry, SignageandParking- Estimate: $200,000 Newtrailconnections (to Baylands, etc.) Bike racks, signage, etc. Practice Facility Improvements RangePerformanceCenter - Estimate:$500,000 Newbuilding &hitting bays for Instruction Smallmeeting spaces and offices RangeExpansion- Estimate:$100,000 (6) Additionalhitting bays(adjusted netting to north) RebuildExistingPracticeGreen- Estimate: $180,000 Newgreen complex as short game area CreateDesignated Youth Area- Estimate:$200,000 Along Embarcadero (2 Acres) RangePerformanceCenter - Estimate:$500,000 Newbuilding &hitting bays for Instruction Smallmeeting spaces and offices National GolfFoundation Consulting,Inc. – Cityof Palo AltoReport –76 Other“Alternate” Improvements On-courseRestroom Replacement- Estimate:$95,000 Newstructure and demo existing Replace Balance of IrrigationSystem (Varies w/ Plan Option)Complete newsystem &control RebuildAll Greens onCourse(Varies w/PlanOption)Rebuild allgreens to USGAspecs Resodall Fairways onCourse(Varies w/ Plan Option)Newand consistent turf variety throughout NewEvent PracticeGreen/Area- Estimate:$80,000 Separate event green and area (Plan Donly) SandPlateNewFairways (Varies w/PlanOption)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.  EMBARCADERO ROAD EMBARCADERO ROAD EMBARCADERO EMBARCADERO WAY GENG ROAD 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 OF PALO ALTOINCORPORATE D CAL I FORN IA P a l o A l t o T h e C i t y o f APR I L 1 6 1 89 4 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 ƒ 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. ƒ 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. ƒ 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. ƒ 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. ƒ 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. ƒ 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. ƒ 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. ƒ Approximately 20 percent of Palo Alto Muni golfers reside within the City, with the majority of others residing in other South Bay communities. ƒ 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. ƒ 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. ƒ The majority of golfers rated golf course conditions as “fair” or “poor.” ƒ 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. ƒ 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. ƒ 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 ƒ 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. ƒ 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 ƒ 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 ƒ 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. ƒ 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. ƒ 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 ƒ 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. ƒ 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. ƒ 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. ƒ 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.