okay the october th two thousand and fourteen meeting of the santa barbara city council finance county will now come to order are there any members of the public wishing to speak on topics not on today's agenda seeing none let go to the first item chair francisco and council members we are here today to talk about the municipal golf course we have come to you several times over the last few years just to let you know that we are having increasing financial challenges so we're back with an update on that i want to introduce myself whom you already know nancy rapp parks and recreation director but i also want to introduce  sewell who is our new business analyst and parks and recreation fifty percent of marks time is spent on the golf course which has been a tremendous asset for us and fifty percent of his time is spent with managing the department's overall budget so it's been a significant enhancement for us so the city's municipal golf course we have one municipal golf course and it has served the community of santa barbara for fifty six years it is an enterprise fund and the structure is such that we have city employees providing the golf course maintenance and we have two concessionaires one is a food and beverage concessionaire mulligan's and the other is the pro shop director of golf concession which is the entity that actually runs the day to day operation of the golf course for the  golfers in our presentation today we've got some slides to show you golf trends we're going to talk both about national and then local trends we're going to share with you a fiscal overview with some projections talk about what our response to date has been to the financial challenges talk about beginning the discussion of options for consideration and then next steps so nationally and regionally we are experiencing what other golf courses are experiencing so there continues to be a decline in golf as a sport this has been going on for several years several reasons number one fewer people are interested in golf so fewer new golfers existing players are playing less frequently for a couple of reasons one being financial the other being this is probably the larger reason the amount of time that it takes to play golf in today's busy world we also the golf industry experienced an over expansion of golf courses in communities we have certainly felt the impact here locally of the addition of new golf courses to this community as compared to what we had for many years and more recently we've seen the recession impacts and and one of the things that we certainly have been experiencing here is that with the recession impacts fewer people choosing to spend money on recreation in general the golf specifically we have had more competition for those who are playing so the golf industry has been talking a lot about the a lot of the promotional and feed discounting that's been going on throughout the industry in an effort to capture the revenue but it's a downward slope and so we've been very aware of that and the projections nationally are that it will be flat potentially grow one to two  percent but again that's national for santa barber golf club our local market has certainly gotten a lot more competitive and higher end courses have been reducing their price point to capture more of the players thus they're a growing competition for our golfers ventura recently renovated two of their municipal golf courses so a lot of people that used to travel up to santa barbara are playing down in ventura and we had two major construction projects out at the golf course in two thousand and ten and that because of that we saw real decline in play that we have yet to fully recover from and we have seen a decline in our play recently particularly since may we think partly due to the dry conditions of the golf course although the golf course looks pretty good so we're not really understanding all the reasons why play is down for the last few months when last year we were seeing  increase over the previous year month on month and this chart really shows you the decline in play over years so you can see that in  we reached our peak of a hundred and fourteen thousand rounds and when you go all the way over to the right hand side you see the last five years we've been relatively stable and we have been between a low of fifty nine thousand rounds which was the year that we had the construction impact and we have climbed up to about an average of sixty two thousand rounds but up until that point we were seeing an average decline of five percent a year and that's pretty much when we've done the math that's pretty much where we were you can see and we did put some little plugs in there you can see that in one thousand nine hundred and ninety one is when we had the major drought and you can see the decline in play it was about a twenty seven percent decline in play and rounds grew up but never back to the previous level and then in about the middle of the chart you can see when glen annie opened and then we have continued to see more of a decline which as they become priced more equal to what we are which is what they've been doing we've been seeing declines in our play and i'm going to ask mark if he would give you an overview talking about the general overview of golf and what you've seen with the trends at our particular golf course haven't been looking too healthy over that time period what we've been looking to do therefore is model what we think is going to happen over the next few years and look at some different scenarios with regards to the round volume pretty much at a golf course the majority of your costs are fixed there's not really a lot that you can do if you know that you're going to have ten fewer players coming today to reduce your costs or anything like that so in the modeling that we've done we've taken the assumption that most if not all of those costs are fixed with the volume of play okay and so therefore the chart you're seeing with the bars representing the expenses where we think our expenses are going to go based on the current operating structure of the golf course and the needs for that golf course that we think there will be over the next few years in particularly with regards to capital maintenance and so therefore what you see is the four different color lines are where do we project the revenues are likely to be based on round volume so you can see we've taken a range of two percent which seems to be the top end of people's projections out there where the golf industry might be white line there what if we see no change in play and if you refer back to the previous slide you can see that really towards the where we are now we kind of that could be a fair assumption to say what if it stays around there so that's where we've modeled our white line and again you can see that for three years fy sixteen seventeen and eighteen there's still a bit of the bar peeking up over the revenue which means that we would be running at a loss we then take a view of if we say ok what if we see a five percent drop that we would be applying a one dollar fee increase to an average round that's tended to be on average the approach that we would have taken so you can see therefore there's a different range of outcomes depending on what you think the markets going to do and in particular what do you think our course is likely to do in terms of our expense line this is just a little bit of analysis that breaks it down a little bit more you can see that  turquoise bars at the bottom here represent how much the course spends on labor and that's predicted to grow quite reasonably over the next few years key driver behind that being the cost of benefits and  increases that we're expecting which really kick in from fy seventeen that's where we get a big change so there's no assumption any extra headcount or anything like that it's all about what's the cost of employment in the supplies line here you've got quite a lot of different things capital investments because that just simply hasn't been the confidence that there would be the money to fund it all properly now clearly at some point that strategy starts to actually damage the golf course in any number of different ways that you can imagine within our modeling it would have been too easy for us they've just said you know what we won't invest in back into this golf course however it would but then more and more pressure on our top line and more and more pressure on our standing in comparison to our competitors so we've we've taken a view of what we think the golf course needs and applied that to the projection and so here's a very brief history of terms of where we are with the reserves the reserves being the the product of your revenue and your expenses so we are in the end of so in end of june two thousand and twelve we were required to buy our policies have five hundred and ninety one thousand dollars of available reserves and we missed that and you can see we're at four hundred and thirty five thousand there so we were the books being very close to being closed on fy fourteen or estimating that our reserve balance is going to decline further to two hundred and seventy six thousand which is a further decline of thirty eight thousand dollars now that may seem not not too much of a suggest to you that we're going to grow revenue double digit every year and still use reserves as a sustainable business model so here's the projection then taking that all into account of what do we think is going to happen to those reserves as we go forward and so you can see the bars here are representing what the policy reserves are much like the general fund tends to grow if the operating budget increases so does the reserve policy it's based on that similar principle and so the challenge gets harder every year however we don't money and we need some more from somewhere to be able to keep going okay so there's the same four scenarios in terms of round volume and what the impact would be on the reserves and the golf course has been below policy reserves for the last eight years so it's been a growing concern so we did want to let you know what have we been doing and a lot of this you are already aware of so i'm just going to revisit we have over the years been doing strategic pricing from no fee increases at all to our model which is generally a dollar a year to sometimes up to a three dollar fee increase we have increased our marketing and promotions significantly we have become a lot more savvy about our business and what we do with councils support we have refinanced our debt twice over the last five years we have reduced our staffing and this is primarily both administrative and maintenance staff by fifteen percent we've reduced down  full time positions to a total now of eleven point five fte comparatively what we know from other studies is our staffing level for golf course maintenance is about on par with others it's just the cost of that maintenance is different we have scaled back where we could on capital equipment replacement and major maintenance clearly that's not sustainable and as mark mentioned we have very little elasticity in further reducing those expenses without impacting course conditions which we've also had conversations about and we did a study we commissioned a study in two thousand and thirteen that knowing that we were heading towards this that we hired a golf consultant to come in and do provide some information to us on golf trends how we compared to other similar golf courses in the in the region and in the state primarily and if we were going to look at an alternative model what would it look like  both operationally and financially it was a good study and we decided at that point that we weren't quite there to pull the trigger we were feeling a little bit better about you know things look like they were stabilizing so we put it on hold however we are currently in the process of updating that report with the last two years of information that report had information through tw twelve so we are updating that and expect to have it by the end of this month and i think that we and council will find that a very valuable tool as we go forward i am going to as part of this report share information that was part of that two thousand and thirteen report but will have updated financial information as we go forward so we've tried to identify what some of the options might be that that we would be taking to council for direction one and we'll talk more about each one of these we could restructure the golf fund  we could supplement the golf budget with the general fund subsidy and we could look at an alternate operating model one would be simply leaving everything else as is an outsourcing golf course maintenance to another model of golf course management is a long term facility lease with a private operator and three some form of a management agreement so i will talk about each one of these so we could restructure the golf fund debt i will say i don't think it will get us where we need to get  beyond a couple of years but just to review what the current situation with the golf fund debt we have a municipal ceo p which was used for the renovation of the clubhouse back i think in the late s and and that has a payment currently of a hundred and eighty thousand on an annual basis to the golf course and it's paid off  eighteen then we have the general fund loan which was used for our construction costs related to golf course safety improvement plan the majority of that was funded out of golf course capital reserves and the balance was funded with a general fund loan and the balance of that is five hundred thousand sorry that was the original that's right we haven't made any payments on that and so last the last debt refinancing we worked it out so that the consistent payment for the golf course would be approximately a hundred and eighty to one hundred and eighty five thousand with the payments through fiscal year eighteen going towards paying off the clubhouse co p and the payments be beyond two thousand and eighteen through at fiscal year twenty two would go to to repay the general fund loan additionally last year we did an equipment loan from the fleet replacement fund this was to replace all the major turf equipment on the golf course we had delayed replacement of that equipment to the point that we really needed to have major replacement of that equipment so that meant that we  incurred a debt of sixty thousand dollars for five years so we have that through two thousand and eighteen so if we double that together we have two hundred and sixty two thousand dollars of debt through fiscal year eighteen and one hundred and eighty five beyond that to fiscal year twenty two so since we have capital and equipment replacement needs that continue it you know we could talk some debt restructuring but it's not really going to be a long term answer option number two is supplementing the golf fund with general fund subsidy i will say that last year there was a report that was done by the national golf foundation that found that war municipal golf courses were in fact being supplemented with general fund support to offset losses in revenue it was a trend reversing what had been the previous trend where golf courses were in some communities seen as a way to generate additional revenue to the general fund and so we don't find ourselves alone and considering this so in this chart the red the red bar is showing what happens if our revenue is a five percent decline year over year so similar to what the earlier chart showed we would see our general fund subsidy go from three hundred and sixty seven see those changes the yellow line is the five percent decline in fiscal year fifteen then flat white is if nothing changes in terms of play and you could barely see it in sixteen but the green is the two percent growth so all of those just show that the the subsidy would increase significantly in out years yes sorry bob some reo finance writer i'm sure you would explore apply this but it's just in a cumulative number that's growing every year it's gonna be in the range of three hundred five hundred thousand dollars of a subsidy the total dollars that would be subsidized by the general fund is represented by those each of those lines so by two thousand twenty for example the red line would suggest that the general fund would have have to given the gulf fund over two five million dollars but an annual number is different than that so it's just make sure that's clear on this ch were were roughly about five hundred zero a year when comparing city operating costs to other courses but we have the living wage ordinance which might decrease that so i'm saying and we'll see updated numbers but probably somewhere between three hundred and fifty and five hundred thousand a year if we were to go this route  have made a commitment we feel that we would not have job loss to existing city golf course maintenance staff we would make room for them within the city organization primarily parks and recreation but maybe also other departments that have the grounds maintenance worker title it would require the city to manage three contracts we currently have two  and i will tell you that that i would think is probably one of the biggest liabilities that the city has had in managing the golf course through the recession and challenging fiscal times each one of those concessionaires is concerned about their own bottom line and most of our competition has one and using all three of those components to manage their business and choose where their loss leaders will be for promotions and marketing and it is a disadvantage for us to not have that and we have really felt that over the last year's when we've been struggling to find ways to respond quickly with competitive edge in the community so for that reason it's really not recommended by staff as a model but it could be considered the facility lease is a less common model in municipalities it's largely considered for those courses which needs extent which need extensive capital investment and in that case they are doing a long term lease with some guaranteed revenue back to the city it is a model that has the least financial risk to the city but it is also the model that has the least amount of city control for pricing quality etc the management agreement is by far the more common model for municipal courses it is a contract with a private company to manage the course for a set fee and then the contract has revenue and performance incentives on top of that the contracts can be structured in a number of ways more common is the full management agreement which is all three entities the golf course maintenance food and beverage and the pro shop but it can also the next model which is more common is the maintenance and the pro shop and then having a separate concession with the restaurant but again for the previous reasons that i mentioned if we have the opportunity to go with the full agreement where you have one entity making those decisions  the services the the one of the biggest aspects of having a management agreement is that most of these companies are they would be providing the services in a consolidated way by professional golf course management and and that would be one of the big takeaways that the city would get the city does retain the financial risk it's still our operating budget our revenue  we are we have more control over the pricing and the operation of the course because the management company is managing according to the contract that we would put into place and and work with over year so next steps we have met with the golf staff and and i have met with them several times over the years as we have known that this conversation was starting to come up publicly and my commitment to them is that i would meet with them first which i did a couple weeks ago and let them know we were going to start this discussion we also have informed  seiu of the discussions that are taking place we are updating the two thousand and thirteen study as i mentioned and look to have that by the end of the month and we will be going to city council for direction on november  th if we were to consider an alternate operating model this is why the timing is so critical right now our two concession contracts and on june two thousand and sixteen it takes in talking to golf course consultants and other cities that have been through this process we really need to allow twelve months for the rfp the contract negotiation and the transition between what we have in place and what we will be going to that means that we need a council decision on how to proceed no later than may or june of two thousand and fifteen so in that six months seven months between now and then we would anticipate that we would have stakeholder input through april of two thousand and fifteen including seiu the golfcourse advisory committee parks and recreation commission and bring recommendations to the finance committee we're we're talking about this now and i will just say that our our concessionaires are also looking for some direction for what's going to happen as it has an impact on their businesses so in summary the golf fund is continuing to have fiscal challenges and we are concerned for long term sustainability because of the golf trends the local market competition our revenue and expense projections we've identified at least five possible options there may be others and talked about why if we were going to pursue an alternate model why it's important to take action now so with that i'm happy to have either mark or i answer any questions for you and also it would be helpful if  because we are in the process of developing the report that we would take to city council if there's additional information if you could additional information that you think would be helpful let us know and if we aren't already planning to include that we will make sure it's included okay questions from the committee mister hart the restructuring the debt question the the six percent interest rates stood out  seems like an anomaly from a past interest rate environments so is that where the biggest savings come from the three percent loan from the for the equipment i think is kind of close to where interest rates are compared to well in general because we have a very successful businessman mario medina and mulligans have basically grown that food and beverage concession from what it was when the golf course operated in the early days which was a simple get a drink in a burger or a hot dog to now being a full restaurant that is well known in the community and i would say a good portion of their business is the non golfing community and so and he's a very savvy businessman so he is actually doing very well in that location and would have interest in staying is that revenue part of what we're talking about we do councilmember hart to be clear that revenue is part of what we're talking about meaning well in the sense of is it's all part of the enterprise fund it's revenue that goes to the enterprise fund it doesn't grow the general fund it so it's basically helping to subsidize the declining traditional golf revenue problem we get a concession right now we get a concession fee which is part of our golf revenue but it's fairly small the majority i think it's like close to ninety percent or more of our revenue as greens fee revenue and as much smaller proportion is the concession revenue if in fact we change to a model with a full management agreement then all of the revenues would come in and be part of the golf course operating revenues but just for my context understanding it's a relatively small percentage again so it's not like that you could have explosive growth and the success even you know he was even more successful to have that make a big dent in the curve on some rough numbers the in much recent year the green sphere evany was about one point seven million and the revenue that is generated from the restaurant from the city's point of view was about a hundred and forty thousand okay and then the other concession for the pro shop is about one hundred and fifty hundred and sixty thousand dollars so the two concessions combined or about three hundred thousand there are they're about and the green fee revenue is about one six one point seven getting us towards our two million okay and i have no questions either thank you very much for the presentation oh please go ahead going forward i first of all it's it's clear that the general already  the general fund has been called upon to to help keep the golf course together keep the club going and all that kind of thing and so you know it's not like we're considering whether the general fund should should support it it is it has been supporting it for quite some time and so and obviously as as not we're not seeing turnarounds then it's  definitely a reckoning is and we mean we've experienced other reckonings recently with the recession and we managed to at least sort of hang on by our fingernails with this one and the contracts the concession contracts are coming due so this clearly is is a key point in in examining the whole thing going forward i am very interested  music even visiting a golf and what the models that staff would think are the good models to be looking at but where are the other cities or other jurisdictions i imagine there are counties or regions or other entities that that have these courses but i sure would appreciate getting as good of a feel for that as we can both physically and obviously with the with the numbers as well now and you know making sure of course that the course is being well maintained and you know you know all that kind of good stuff prices aren't through the roof that's obviously a key area  council so what we would envision for next steps would be we would be a council on november th and what we would really be looking for out of that is you know if council is seriously wanting to look at alternate operating models then we would initiate that process of review and input from the golfcourse advisory committee the parks and recreation commission series of public meetings outreach to golfers all of  that the information that we will be bringing to you updating of the two thousand and thirteen study will include the information that you mentioned councilmember white so you will have the financial comparison of how those operations and i and i would also say that probably for us the closest model of the full management agreement would be the city of ventura and there are two courses which were recently renovated and operating very effectively under contract so that that's probably the closest model but all of that information will be included changing the relationship of an enterprise fund to recreation enterprise fund to the general fund just as a principal i don't have any problem with that philosophically obviously it made sense to have it be an enterprise fund when it was a edible thing because the money stayed there and got reinvested the whole premise i think of a public golf course is to have low cost recreation available to its residents so i would be concerned about you know privatizing this in a way that basically undermines that premise you know if the point is to make you know to hand this off to a private business that's gonna make money so that we don't have to subsidize it the price of golf is gonna go up and i don't know that that i think that's just an absolute question policy question for the council do we want to have golf available for local residents at a lower cost than would be available from the private sector and given that there's a lot of private sector golf courses out there charging private sector prices i don't know how that adds any value to a city residents as compared to subsidizing golf we have to decide if that form of recreation is  worthy of subsidy just like any other form of recreation for city residents i don't see it any differently just because it's golf we don't apply the same standards to any of the other stand any of the other recreation programs obviously we try and raise as much revenue as we can but there isn't and there aren't enterprise funds for lavanya's pool for you know the tennis courts or all of the other things so to me that is really kind of the same thing and should be looked at in that context you know how much are we spending for other recreation programs and how many residents are using them and why you know what's the dollar cost per unit of fun and so that's a lot of information and i don't know that i don't know if you were prepared to get into that but to me it's just completely important contextually to understand that you know what are we subsidizing what are we not subsidizing um and then in terms of just you know doing the outsourcing of the golf course maintenance that's the same that's another value choice you know we could guess we can get a cheaper buying a private sector employer and pay people substandard wages we have a floor with the living wage ordinance but as you said that kind of mitigates against that but i don't know that that that seem conflict with other values  so we have to look at that carefully as well so this is an interesting dilemma and i'm glad you bringing it early but it isn't really early in the context of the time that's necessary to make these two so as much information as you can have about these contexts maybe even if if it's helpful to you to have more time to have those contextual conversations here in the finance committee where maybe have more time you know i'm certainly interested in knowing a lot about that i can do that offline too i can meet meet with you and just have a lot of those questions  answered if my colleagues don't require that but i don't know how i could make a decision about this or even tell you because i think what you're looking for is a gatekeeper decision on the th you're saying do you want to go forward down this path and ask everybody else their opinion or not and and i think that's the threshold question and that has to be answered in the context of what we're doing with other recreation programs a councilmember hart just to respond staff has the conversation about the value of golf as a community recreation and we believe in the municipal golf course and so we are not having conversations about what if the golf course went away or anything so whatever structure we would go forward with the priority would be how that golf course continues to serve as a municipal golf course we can your question on what level of subsidy is provided to other recreation programs we actually can put that together we actually have done some analysis on that over the years so we can do that and and i think that that's good information to have  and the timing of next steps were open to council and finance committee direction on that we will have the report that will provide the meat and potatoes for the analysis of what would it look like for the city of santa barbara under each of those models and i think that's really what you're looking for if in fact you would like that report with that substantial information to come to the finance committee before we go to the full council we can easily do that and that you know if finance committee that would be a way for you to have more of a discussion and and deliberation of the different models or what it would look like we could do that  so it's really however you would like to well i for one would appreciate that i think that's useful but that's me okay we'll do that we will have we will have analysis and the the notion of what those rounds cost is an important one and i'm sure for all concerned it's just what's the what is a golf we're going to have to pay in as they say we're an m just now bring it over to the golf course of that that cost is a is a core elements so then as we're talking about the out the the course management in ventura obviously how have those rates done through however long they've been is it i'm maybe the renovations were part of the transition to from municipal employment to contract not sure but anyway that would be good information to have to work with  i think that was the end thank you very much