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Home My WebLink About2000-01-18 City Council (22)TO: FROM: DATE: SUBJECT: City of Palo Alto City Manager’s Report HONORABLE CITY COUNCIL 6 CITY MANAGER DEPARTMENT: ADMINISTRATIVE SERVICES JANUARY 18, 2000 ,, ,CMR: 104:~ APPROVAL OF AMENDMENT NO. 2 TO THE MANAGEMENT AGREEMENT FOR GOLF PROFESSIONAL SERVICES ,AT 1875 EMBARCADERO ROAD TO EXTEND THE TERM OF THE AGREEMENT AND TO INCREASE’THE MANAGEMENT FEE PAID TO BRAD LOZARES; APPROVAL OF RELATED BUDGET AMENDMENT ORDINANCE REPORT IN BRIEF The purpose of this staff report is to obtain Council’s approval to extend the term of the management agreement for golf professional services provided by Brad Lozares at the. Palo Alto Municipal Golf Course and remove the cap on the percentage fee and increase the fixed fee. CMR: 104:00 Page 1 of 5 RECOMMENDATION Staff recommends that Council: Approve and authorize the Mayor to execute the attached amendment to the management agreement with Brad Lozares for_golf course professional services at the Palo Alto Municipal Golf Course (Golf Courge). Approve the attached Budget Amendment Ordinance (BAO) increasing the revenue in the Golf Services Functional Area of the Community Services Department by $103,900, appropriating $34,100 to the non-salary expenses in the Golf Services Functional Area in the Community Services Department and increasing the Budget Stabilization Reserve by $69,800. BACKGROUND On March 16, 1998, Council approved a 20-month management agreement for golf course professional services and a 15-year facility lease to operate a golf retail establishment with Mr. Brad Lozares (Golf Professional) (CMR: 140:98). On November 23, 1998, Council approved Amendment No. 1, amending the method of recording and accounting for cash receipts. When the City issued tax-exempt bonds to finance golf course improvements, it entered into a management agreement with the golf professional, which was structured in accordance with IRS regulations, so that his compensation is based upon services rendered rather than. as direct profit (benefit) from the publicly financed golf course improvements. The management agreement provides for two types of compensation to the golf professional, one that is fixed and one that is variable. The variable component is based on 40 percent of the gross revenue generated by the fees charged for the driving range and the rental.of golf carts and equipment. DISCUSSION Term Staff estimated that the 20-month management agreement term would allow enough time to complete the construction of the Golf Course and collect actual revenue data in order to more accurately set the fixed fee paid to the golf professional. However, construction was delayed, resulting in only a few months of actual data in which to set a fixed rate for a new management agreement. The management agreement expired on December 31, 1999. The golf professional has requested that the City extend the management. agreement for an additional 8 months to allow the City and the golf professional time to collect data for a full year without the interference of the construction project. CMR:. 104:00 Page 2 of 5 Fixed Fee Adjustment The original twenty-month agreement provided for an adjustment to the fixed fee at the end of the first eight months (January 1, 1999). The adjustment was based on the annual percentage increase in the Consumer Price Index (CPI) for San Francisco-Oakland-San Jose CSMA published by the United States Department of Labor, Bureau of Labor Statistics (BLS). The adjustment was made using the most recent twelve-month CPI figure available from the BLS as of December 10, 1998. The adjustment on January 1, 1999 increased the fixed management fee by 3 percent from $250,000 to $257,500. (Please note that the following table indicates that in 1999, the monthly payments were adjusted so a higher payment could be made in the typically slow business months September through December. Conversely, lower monthly payments were made during the remaining months. This allows the golf professional to maintain staffing throughout the year.) Staff proposes to increase the fixed fee for the eight-month extension on January 1, 2000 by using the CPI~adjustment for the most recent twelve-month CPI figure available from the BLS as of January 1, 2000. The increase would raise the fixed fee of $257,500 by 4.8 percent to $269,860. The monthly fixed fee, therefore would be $22,488 for each month during the eight-month extension. Percentage Fee Cap In addition to the fixed fee, the golf professional also receives 40 percent of the gross revenue from the driving range and the golf cart and equipment rental, minus the amount of the fixed fee. For 1999, the total gross revenue and the fixed fee paid to the professional are shown below: Month Gross Revenue Fixed Fee January $28,122.00 $19,312.50 February $27,069.18 $19,312.50 March.$42,112.04 $19,312.50 April $49,337.97 $19,312.50 May $56,745.44 $19,312.50 June $63,178.99 $19,312.50 July $64,554.00 $19,312.50 August $87,200.50 $19,312.50 September $70,972.98 $25,750.00 October $66,460.00 $25,750.00 November $52,743.69 $25,750.00 December $51,062.98 $25,750.00 Total for 1999 $659,559.77 $257,500.00 CMR: 104:00 Page 3 of 5 The agreement caps the percentage fee so that in no event shall the cumulative percentage fee paid to the golf professional for a single calendar year exceed the total fixed fee payments for the same calendar year. In 1999, this percentage fee exceeded the fixed fee by $6,323.91. $659,559.77 X 40% = $263,823.91 cumulative percentage $263,823.91 - $2_57,500.00= $6,323.91 amount percentage fee above fixed fee The gol~professional expressed Concern .that~he is not receiving full-compensation for the service he provides. -Under IRS .regulations, the cap is not required if the term of the agreement is less than thirty-six months. Under this scenario, during the term of the management agreement, the fixed fee would only be adjusted annually to equal the increase in the CPI. The term .of.~the,~ctirrent management-agreement,- if extended as proposed, would l~e twenty-eight month~i Staff,,,therefore, is recommending that the cap on the percentage fee be removed so compensation paid to the golf professional will be directly proportional to the service he provides. Staff also proposes-the amount of monthly fee ($22,488) be consistent throughout the remaining eight months of the agreement. RESOURCE IMPACT The removal of the percentage fee cap paid to the golf course professional will benefit the overall success of the golf course by providing a positive incentive for continued quality service and continue higher levels of activity. This will result in higher revenues for both the City and the golf course professional. In 1999-00 revenues are being increased by $103,900 as a result of higher activity. The non-salary expenses in the Community Services Budget are increasing by $34,100 to cover the 8-months extension and removal of the cap. The net difference of $69,800 will be returned to the Budget Stabilization Reserve with future year effects to be determined by the level of golf course activity. POLICY IMPLICATIONS This report is consistent’ with current City policies. / ENVIRONMENTAL REVIEW The amendment to. the Management Agreement is not a project under the California Environmental Quality Act (CEQA) and requires no environmental review. ATTACHMENTS Attachment A:Budget Amendment Ordinance Attachment B:Budget Amendment Ordinances Impacting General Fund Reserves Approved to Date in 1999-00 Attachment C: Amendment No. 2 to the Management Agreement CMR: 104:00 Page 4 of 5 PREPARED BY: William W. Feliman, Manager, Real Property DEPARTMENT HEAD: CITY MANAGER APPROVAL: cc: Brad Lozares Director, Administrative Services HARRISON Assistant City Manager CMR: 104:00 Page 5 of 5 ATTACHMENT A ORDINANCE NO. ORDINANCE OF THE COUNCIL OF THE CITY OF PALO ALTO AMENDING THE BUDGET .FOR THE FISCAL YEAR 1999-00 TO INCREASE THE MANAGEMENT FEE PAID TO BRADLOZARES FOR SERVICES PROVIDED AT THE PALO ALTO MUNICIPALGOLF COURSE OFFSET BY INCREASE IN REVENUE RESULTING IN AN ESTIMATED NET RETURN TO THE GENERAL FUND RESERVES OF $69,800 WHEREAS, pursuant to the provisions of Section 12 of Article III of the Charter of the City of Palo Alto, the Council on June 28, 1999 did adopt a budget for fiscal year 1999-00; and WHEREAS, on March 16, 1998, Council approved a 20-month management agreement for golf course professional services with Mro Brad Lozares; and WHEREAS, the management agreement provides for the payment of fixed and percentage~fees to the Golf Professional to compensate Mr. Lozares for the services provided at the Municipal Golf Course; and WHEREAS, due to delay in completion of Golf Course Master Plan improvements, the Golf Professional has requested that the City extend the management agreement for an additional 8-months to determine typical income figures for the Golf Course; and WHEREAS, in addition, staff is recommending that the percentage fee cap be removed so compensation paid to the professional will be directly proportional to the services provided, which results in an increase expense of $34,100; and WHEREAS, as a result of higher levels of activity since the completion of the improvements and quality professional management, golf course revenues are increased by $103,900; and WHEREAS, the net increase of $69,800 to the City’s General Fund Budget Stabilization Reserve is one-time in nature,.and it is anticipated that there will be future year revenue increases, partially offset by management fees that will vary depending on the level of golf course activity; and WHEREAS, City Council authorization is needed to amend the 1999-00 budget as hereinafter set forth. NOW, THEREFORE, the Council of the City of Palo Alto does ORDAIN as follows: SECTION i. Revenue in the Golf Services Functional Area of the community Services Department is increased by the sum of One Hundred Three Thousand Nine Hundred Dollars ($103,900). ~SECTION 2~ The sum~f Thirty Four Thousand One Huhdred Dollars ($34,100) is hereby appropriated to non-salary expenses in the Golf Services Functional Area in the Community Services Department. SECTION 3. The transactions approved in Sections 1-2 will result in a net addition to the GeneralF~ndiBudget Stabilization Reserve of $69,800. SECTION 4~ This transaction, will increase ,.the Stabilization Reserve from $19,085,339 to $19,155,139. Budget SECTION 5 As specified in Section 2.28.080(b) of the Palo Alto Municipal Code, a two-thirds vote of ’the City Council is required to adopt this ordinance. SECTION 6. The Council of the City of Palo Alto hereby finds that this is not a project under the California Environmental Quality Act and, therefore, no environmental impact assessment is necessary. SECTION 7. As provided in Section 2.04.350 of the Palo Alto Municipal Code, this ordinance shall become effective upon adoption. INTRODUCED AND PASSED: AYES: NOES: ABSTENTIONS: ABSENT: ATTEST:APPROVED: City Clerk Mayor APPROVED AS TO FORM:City Manager Senior Asst. City Attorney Director of Services Administrative Attachment B Budget Amendment Ordinances Impacting General Fund Reserves Approved To Date in 1999-00 Balance $18,877,888 Adopted Budget Addition to BSR $1,214,00O Downtown Urban Design Improvements, C1P 19608 Downtown Parking Structure Feasibility Study, CIP 19530 (BAO I) Salary and Benefit Increases Retroactive to July 1, 1999 for Management and Confidential Employees City Manager Executive Recruitment Friends of the Palo Alto Librm’y Grant Arts Council of Santa Clara County Grant Palo Alto Art Center Foundation Donation~ ~ I ~, Cost of Sound Wall for Tennis Facility at 3005 Middlefield Rd. IT Strategic Plan Citizens Options for Public Safety (COPS) Local~Law Enforcement (LLE) Block Grant Downtown Parking S~ucture Feasibility Study, CIP 19530 Golf Course Management Agreement ($120,349)($120,349) ($70,000) ....($70,000) ($432,200)’ ($26,000) ($58,ooo) ($5,407) ($10,000) ($50,O0O) ($250,100) ($135,901) ($26,192) ($308,0OO) ($34,100) $58,000 $5,4O7 $10,1300 $60,534 $135,901 $26.192 $103,900 3. I ($432,200)($432,200) ($26,000) ’$oi, $o $o ($5o,ooo) $189,566 $0 (S317,917) $o $o ($308,000) $69,80O BSR Balance After BAO’s $19,155,139 ATTACHMENT C AMENDMENT NO. 2 TO MANAGEMENT AGREEMENT BETWEEN THE CITY OF PALO ALTO AND BRAD LOZARES FOR PROFESSIONAL SERVICES AT THE PALO ALTO ~CIPAL GOLF COURSE THIS AMENDMENT No. 2 to the Management Agreement between the City of Palo Alto and Brad Lozares for Professional Services at the Palo alto Municipal Golf Course, dated March 16, .1998, hereinafter-referred to as "Agreement," is made and entered into this day of ., 2000, by and between the City of Palo Alto, a municipal corporation {"CITY") and Brad Lozares ("GOLF PROFESSIONAL"). RECITALS Ao Amendment No. 1 to the Agreement, which was entered into by the parties on November 23, 1998, amended portions of Section V of the Agreement relating to the manner of recording and accounting for cash receipts. Section III of the Agreement provides for a term of twenty months commencing on May 1, 1998 and ending on December 31, 1999. The Agreement provides for a fixed fee payment (Section IV, paragraph A) to Golf Professional as well as percentage fees (Section IV, paragraph B), with the restriction that cumulative percentage fees may not exceed the amount of the fixed fee payments in a single calendar year. D. The initial fixed fee was $250,0000, which was adjusted effective January 1, 1999, based on the annual increase in the Consumer Price Index (CPI). The CPI adjustment applied as of January 1, 1999 resulted in a fixed fee of $257,500 for 1999. CITY and GOLF PROFESSIONAL agree that due to delay in completion of Golf Course Master Plan improvements, additional time is needed to determine typical income figures for Golf Course services provided by the GOLF PROFESSIONAL, ~ As permitted by applicable federal tax laws relating to management ~greement of three 4~3) years or les_s, CITY AND GOLF PROFESSIONAL desire to amend~ the Agr~e~emegt to remove thd restriction on percentagd fees described in Recital C, to further amend th~ ~ ’ ° Agreement to extend the term and the fixed fee: NOW THEREFORE, in consideration of their mutual covenants and agreements, the parties hereto agree as follows: SECTION. 1. Section III:(TERM) is amended to read as follows: "The term of this Agreement shall be twenty:eight (28) months comencing on May 1, 1998 and ending on August 31, 2000." SECTION 2. Section IV (COMPENSATION), Subparagraph A (Fixed Fee), shall be amended to read as follows: "Fixed Fee The GOLF PROFESSIONAL shall receive a fixed fee during the term of this Agreement for GOLF PROFESSIONAL’s Golf Course and driving range management, Golf Course marshaling and starting and cart rental services. The fixed fee for the .full calendar year 1998 .would be $250,000. Because this Agreement takes effect May 1, however, the fixed fee shall be prorated to One Hundred Seventy five Thousand Dollars ($175,000) for the eight month period Mayl-December 31, 1998. The initial annual fixed fee amotmt Of $250,000 will be adjusted to be effective January 1, 1999 and January t, 2000~ respectively, based on the annual percentage increase in the Consumer Price Index (CPI), All Urban consumers (base year 198~21984=100), for San Fr~eisco-Oakland-San Jose. CSMA published by the United States Department of Labor, ~ Bureau of Labor Statistics(BLS), or any replacement index published by the BLS. The adjustment shall be made based on, the ~ost recent twelve month CPI. figure available from the BLS as of December 10, 1998 and December 10, 1~999, respectively. In no ev~ent shall the fixed fee’for ealendar~year 199~’ be less than $25,0,000.~ !n no. event shall ,the fixed fee for the eight-month extention be less than $22,488 per month. SECTION 2. Section IV (COMPENSAT’ION), subparagraph B (Percentage Fees), shall be amended to read as follows: "Percentage Fees "In addition to the fixed fee, GOLF PROFESSIONAL shall receiv~ 40% percent of the gross revenues of the driving range and of the gross revenues of the golf cart and golf club rentals. Percentage fees for each month will be calculated and paid no later than the 10th day of the following month. SECTION 3. Except as herein modified, all other provisions of the Agreement shall remain in full force and effect. IN %fITNESS WHEREOF, the parties hereto have executed this Amendment the day and year first above written. CITY OF PALO ALTO Mayor ATTEST: City Clerk City Manager APPROVED AS TO FORM! Senior Assistant City Attorney APPROVED:, Directory of Administrative Services Director of Community Services 4