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HomeMy WebLinkAbout1998-03-12 (2)ADJOURNED JOINT MEETING OF THE PALM DESERT CITY COUNCIL AND PALM DESERT REDEVELOPMENT AGENCY THURSDAY, MARCH 12, 1998 3:00 P.M. * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * I. CALL TO ORDER Mayor/Chairman Benson convened the meeting at 3:00 p.m. II. ROLL CALL Present: Excused Absence: Councilman Jim Ferguson Councilman Richard S. Kelly Mayor Pro-Tempore Robert A. Spiegel Mayor Jean M. Benson Councilman Buford A. Crites Also Present: Ramon A. Diaz, City Manager David J. Erwin, City Attorney Sheila R. Gilligan, Director of Community Affairs/City Clerk John Wohlmuth, ACM/Director of Administrative Services Carlos L. Ortega, RDA Executive Director Paul Gibson, Finance Director/City Treasurer David Yrigoyen, Redevelopment Manager Mary P. Gates, Deputy City Clerk M. ORAL COMMUNICATIONS - A None IV. NEW BUSINESS A. CONSIDERATION OF DESERT WILLOW GOLF COURSE BUDGET. Mr. Jim Seeley, Senior Vice President of Operations for Kemper Sports Management, introduced other members of his team: Gregg Lindquist, Piper Close, Steve Skinner, and Lynn Dickinson. He stated that the Council/Agency Board would not be asked to make any decisions today at all and that the new budget was not expected to be approved until mid -June. MINUTES ADJOURNED MEETING OF '1'HE PALM DESERT CITY COUNCIL AND REDEVELOPMENT AGENCY MARCH 12, 1998 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * He distributed copies of his budget presentation (on file and of record in the City Clerk's Office). He reviewed the first 12 months of operation of the Desert Willow Golf Course (February 17, 1997 to February 28, 1998), noting revenues of $3,101,000, expenses of $2,986,000, with $115,000 EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). After taking into account financing of equipment and management fee, the net result was a loss of $60,000. He noted that with regard to green fees, residents accounted for 34 % of the play at the Golf Course, with non-residents at 57%. He said the average rate for all golfers was $56.56 per round. He stated that 81 % of the revenues during the last 12 months came from green fees, with 11 % from pro shop sales, 7 % for food and beverage, and 1 % for range ball fees, although he noted that the range ball fee and food and beverage percentage would change once the permanent clubhouse is completed. He recapped the first year as follows: 43,000 rounds played; $115,000 EBITDA achieved, $69 per round operating cost; $57 average green fee ($73 average for non-residents; $40 average for residents). Mr. Seeley reviewed the current fiscal year figures to date (July 1, 1997, to February 28, 1998) and projected figures (March 1, 1998, to June 30, 1998), noting a projected loss at the end of the fiscal year of $161,000. He noted that the green fee analysis for July 1, 1997, to June 30, 1998, reflected non-resident play at 57% of total play, with residents accounting for 34 % . He recapped the current fiscal year as follows: 42,426 estimated rounds; $22,000 EBITDA, $75 per round operating cost (with the desert palette a big factor in this cost); $64 average green fee. He noted the green fee rates comparison sheet in the packet which showed rate increases being suggested for non-resident rates in this first go -around of the budget. He reviewed three scenarios for Fiscal Year 1998/99, noting that Scenario 1 projected revenues at $4,901,000, expenses at $4,878,000, EBITDA of $23,000, less $25,000 management fee, $227,000 contingency, and $169,000 perimeter maintenance expense, for a net loss of $673,000. He said this was based on suggested increases in non-resident rates, with resident rates remaining the same as they are currently. Scenario 2 took into account a lesser resident percentage of play during peak months (October - November, January - April), with a larger percentage of non-resident play, for an increase in revenues from $4,901,000 to $5,049,000, and a net loss of $525,000. Scenario 3 projected what would occur if the rate of every round was increased by $5.00, both resident and non-resident play. This would increase the revenue to $5,189,000, for a net loss of $385,000. Mr. Seeley noted that golf course maintenance was where expenses were changing most dramatically, and he reviewed the breakdown according to North Course Golf Course, North Course desert palette, South Course Golf Course, South Course desert palette, and perimeter landscape maintenance. He said a study was done at their request by the USGA (on file and of record in the City Clerk's Office) relative to the fairway turfing issue on the golf course. 2 MINUTES ADJOURNED MEETING OF THE PALM DESERT CITY COUNCIL AND REDEVELOPMENT AGENCY MARCH 12, 1998 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * He said the report estimated that 18 people would be needed to maintain the desert palette for the North Course, as opposed to the five people initially presumed. He said the South Course would have less desert palette, and it was presumed for this budget that nine people would be sufficient for the South Course, with six people for the perimeter maintenance. He noted that this would add approximately $275,000 to the expense on an annual basis. He said other recommendations of the USGA had to do with establishment of the Bermuda turf. He said the amount of money estimated to get the fairways perfect in the quickest amount of time would be approximately $227,000, and that amount appeared in the proposed budget as a continency in the months of May and June. He said it was listed as a contingency because at this point they doubted they would spend all of that money and questioned whether they would want to spend it even if it was the best thing to do with the turf in light of the RFP for the hotel. He said putting it as a contingency item, they could not spend it as the management company until the City specifically approves its use, and this would force the management company and City to jointly make a decision in late spring on what should or should not be done with respect to the fairways. He stated there were additional items not addressed in this budget which would be funded by the City relative to furniture, fixtures, and equipment for the clubhouse. He said there were also some changes they would recommend to the current temporary facilities because they would not be adequate to handle the number of people coming in. These would include moving some of the offices, making the golf shop bigger, increasing the size of the counter, increasing the parking lot, and extending an outdoor permanent counter with a char -broiler in it. He said the estimate for the changes in the food and beverage area was $26,000, with estimates for the golf shop at $11,000. He said there was also a need for increased cart storage, a larger golf cart staging area, and additional restrooms. He said the total for all of these changes would be approximately $103,000. Councilman/Member Ferguson stated that based on the numbers provided, there was a net loss of $60,000. If that is pushed forward six months and go to the current fiscal year, there was a projected loss of $142,000, which is over double the first year. The following fiscal year projected a loss of $673,000. He said he would almost have expected to lose more money in the early years, but this seemed like it would lose more money the farther out we go, and he asked why this was happening. Mr. Seeley stated that the upcoming fiscal year would be a very abnormal year because there will be 36 holes of golf, free-standing, without the benefit of any of the hotels on site yet. He said there was considerable increase in cost of maintenance of the desert palette, and the perimeter maintenance would be almost $200,000 by itself. Councilman Ferguson asked if this included the loan made by the Council at the last meeting. Mr. Seeley responded that it did include that, and the only thing it did not include was the part targeted for cart path curbing and turnoffs which would be a capital expense. 3 MINUTES ADJOURNED MEETING OF THE PALM DESERT CITY COUNCIL AND REDEVELOPMENT AGENCY MARCH 12, 1998 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * Councilman Kelly asked whether the perimeter landscape maintenance was included in the golf course budget for this current year. Mr. Seeley responded that it was recommended in this budget because he felt it made sense to be maintained out of the existing maintenance facility and by a crew already there on site. Councilman Kelly stated that he would not disagree that it was probably more efficient to do that because of the people under contract, but on the other hand, he said perhaps it was distorting the picture of what the golf course is doing when parkways are normally done as a whole different budget. He aid he wondered if there should be a separate category. Mr. Seeley stated that it was listed as a separate item for this budget. Councilman Spiegel asked Mr. Seeley when he anticipated this becoming a profitable operation. Mr. Seeley responded that he felt it would become profitable once a hotel property goes in. He said if we don't have a hotel, and some of the properties come on line that are being discussed now, the competition will be greater and Desert Willow will not have its own source of group packaging. He said he understood the Marriott was considering another golf course, and Desert Willow was getting a lot of Marriott overflow right now which would cease if they have another golf course. He said they were getting so much positive feedback that this was the best daily access golf course in the Valley, and even if the hotels were delayed, he felt there was reason to be optimistic about the ability to continue to attract golf. He said this would become what they call a "must -play" golf course. Councilman Ferguson stated that the concept of the desert palette landscaping was to have a natural desert out there, but the natural desert that was there was blowsand. He said in time the ground will firm up, the root structure will grow in, and the crust will harden so that when people drive or walk on it, it will be like driving or walking on the south Palm Desert desert area. He said it could then be left natural with no concern about it eroding. He said it is a big ticket item now, but it will not be later. He said under the Scenario 3, if you back out the $168,000 for perimeter landscaping (which he felt should not be counted as golf operations) and the $217,000 which is the contingency item for problems with the Bermuda grass, this would be a total of $385,000, and this is the exact same amount as shown as a projected loss under Scenario 3. He said on the green fee rates comparison, there were a lot of assumptions made going from $10 to $25 increase, and he asked what the projections were for 1998/99 on those increases. Mr. Seeley said they had not figured that at this time. Councilman Ferguson stated that if roughly half the play is resident and the other half non- resident, and a $5 increase across the board would give us basically a zero budget under Scenario 3, and you go back and add a $10 minimum increase on half of the non-resident play, that would be the $385,000 makeup right there depending on what the projections are. He said he felt that in fiscal year 1998/99, with no hotels, with a non-resident increase, and with MINUTES ADJOURNED MEETING OF THE PALM DESERT CITY COUNCIL AND REDEVELOPMENT AGENCY MARCH 12, 1998 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * declining maintenance on the desert palette, we might actually do better than this would indicate. Mr. Seeley stated he shared Councilman Ferguson's feelings. He said their approach to the budget on the first write was to be conservative when there is a question mark in their heads. He said they were conservative on revenues and conservative on the high side as far as maintenance costs. Councilman Spiegel expressed concern with the projected loss of half a million dollars. Mr. Seeley asked that Council keep in mind this is only the first write of the budget. Councilman Kelly stated that the Council made a decision that it would rather have a lower resident green fee and that the City was willing to subsidize that to a certain extent the same as the City subsidizes parks, soccer, etc. He said he understood this would happen because the green fees were lowered from $60.00 to $45.00. Mayor Benson asked how the budget would have done if the Council had not lowered fees for residents. Councilman Ferguson stated that there would probably have been about another half a million dollars in revenues. He asked where indemnity fit into all of this and said the Council was told there would be indemnity against loss. Mr. Ortega stated that the current agreement was that enough money would be provided to keep a three -months operating amount. Any time that amount drops below that, Kemper would make up the difference. He said that agreement was worked out before the resident rates were lowered. He said looking at 14,000 rounds played at an average resident rate of $39.00 versus the actual cost of providing that, there was approximately a $30.00 difference per round. Councilman Ferguson stated that he felt mathematically we need to go back to where we were when the indemnity was made and make offsets for all the different assumptions, then if there is a net loss above and beyond that, the indemnity would kick in. Councilman Kelly stated that he felt there would be more resident play once the second golf course is offered because the North Golf Course is a tough golf course. Mr. Seeley agreed that there will probably be an increase in resident rounds but as a percentage of all the rounds there will be a decrease. Councilman Spiegel asked if the recommendation would be that the South Course be less expensive than the North Course. 5 MINUTES ADJOURNED MEETING OF THE PALM DESERT CITY COUNCIL AND REDEVELOPMENT AGENCY MARCH 12, 1998 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * Mr. Seeley responded that he felt the South Course could be a little less than the North Course. He said he would not recommend doing that initially be reducing the fee. He said he would perhaps start with the fee the same and then maybe raise the North Course fee. Councilman Kelly stated he felt the better golfers might be willing to pay the premium to play the North Course. He added that the charity golf tournaments would probably be played on the South Course. Councilman Ferguson stated that the assumption was that the City will provide 36 holes of resident -rate golf. He asked if the City needs to provide two municipal golf courses. Councilman Kelly stated he felt the average resident will want to play the South Course. Councilman Ferguson asked if there was any reason why both the North Course and the South Course have to be available to residents at $45.00. Councilman Kelly stated that this was a decision that would have to be made by the Council because the City is furnishing golf at $45.00. Councilman Ferguson stated that if the South Course had a resident rate of $45.00, with the North Course at full fare, this might also change the financial information. Councilman Kelly noted that the Desert Willow Golf Course is bringing in a lot of people who stay in other Palm Desert hotels, condominiums, timeshares, etc. He said it is already bringing in revenue to the City that we cannot count. Mayor Benson asked whether people are asked where they are staying when they come in to play. Mr. Lindquist responded that they are not specifically asked but that they are asked how they heard about Desert Willow, and many of them come from across the street at The Villas. Mayor Benson stated that she would like to know where people are coming from. 6 MINUTES ADJOURNED MEETING OF THE PALM DESERT CITY COUNCIL AND REDEVELOPMENT AGENCY MARCH 12, 1998 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * V. ADJOURNMENT With Council concurrence, Mayor/Chairman Benson adjourned the meeting at 4:00 p.m. SHEILA R. T LLIGAN,: Y CLERK/AGENCY SECRETARY CITY OF PALM DES CALIFORNIA PALM DESERT REDEVELOPMENT AGENCY 7