2003-12-11
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CITY OF EN CINIT AS
ENCINITAS RANCH GOLF AUTHORITY
MINUTES OF SPECIAL MEETING
THURSDAY, DECEMBER 11, 2003 AT 3:00 P.M.
LILAC ROOM
CITY HALL, 505 SO. VULCAN AVE.
CALL TO ORDERIROLL CALL
Chainnan Kaiser called the meeting to order at 3: 12 p.m.
Directors Present:
Director Absent:
Also Present:
Edward Kaiser, Kerry Miller, and Peter Cota-Robles.
Phil Cotton and Cindy Jacob
Tom Johnsen, Dan Wiles, Fieldman, Rolapp & Assoc.; Chris Calkins,
Carltas Co.; John McNair, Ron Adelhelm, Rod Linville, JC Resorts; Jay
Lembach and Nancy Sullivan, City Staff; John Frenken, representing
Director Phil Cotton; and Pat Drew, Board Secretary.
ORAL COMMUNICATION [3 minutes for each speaker. Maximum 15 minutes for
oral communication.]
None
AGENDIZED BUSINESS ITEMS
1.
Approve Minutes of Special Meeting November 13, 2003.
Director Cota-Robles moved approval of the November 13 minutes, seconded by
Director Miller. Approved 3-2 (Cotton and Jacob)
2.
Discussion of Refunding ERGA Bonds.
(Tom Johnsen/Leslie Browder/Jay Lembach)
Nancy Sullivan introduced Mr. Lembach, Finance Manager, the City of Encinitas, and Tom
Johnsen and Dan Wiles of Field man, Rolapp & Assoc, Mr. Lembach said that the Finance
Tecun is coming to the Board with some options for refinancing the ERGA existing debt
and are looking to the Board for some guidance and parameters as to what level the Board
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would like to look at a transaction. Tom Johnsen and Dan Wiles will give the nuts and
bolts of the proposal.
Mr. Lembach distributed a missing page three to the contract with Fieldman, Rolapp for
:unancial advisory services, and explained Exhibit B, Part I to the Financial Services
Agreement. He said there are two scenarios under which they will be operating: #1 is that
ERGA and Fieldman, Rolapp will negotiate directly with the holder of the bonds, Alliance
Capital, to look for a restructuring rather than a retirement and new issuance; scenario #2 is
that ERGA actually retire the old bonds and issue new bonds, as a regular refinancing
transaction. Fieldman, Rolapp are requesting a fee of $45,000 if they are successful in
negotiating the restructuring of the bonds. If that is not successful but they are successful in
retiring the old bonds and issuing new bonds, they are requesting a fee of $32,500. In either
of those cases compensation is dependent upon a successful completion ofthe transaction.
Mr. Lembach advised that staff is recommending that the first sentence of paragraph two be
struck from the contract, and replaced with "If the consultant performs financial advisory
services pursuant to Section I of the Agreement, in connection with the refinancing of the
existing bonds, financial advisory services performed will be billed at $32,500." It was
recommended that the two paragraphs be prefaced with "either or" in connection with
payment.
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Mr. Lembach also explained some action that the City Council had taken at its meeting the
previous evening relative to the debt service on the CFD #1 bond payments which also
affects ERGA's payments. What was taken to City Council was a recommendation to do a
refunding on the $40 million CFD bonds. It is planned for the bonds to be sold on January
26 and closed on March 1 st. Based on current estimates and current interest rates the total
savings on the transaction is about $2.7 million or $290,000 per year. Under that scenario
ERGA would benefit approximately 16-17% of that amount per year. ERGA's debt service
amount will go down about $45-50,000 per year.
Tom Johnsen reviewed the history of the bond issuance and the work they had done on a
refunding during the spring and summer of 2001. He also referred to the discussions they
had had with the Board after the collapse of the treasury market as a result of the 9-11
attack. He distributed a copy of a refinancing analysis they had prepared, and reviewed with
the Board.
Mr. Johnsen outlined two different options for the Board:
Option 1: Under the renegotiation they are able to strike a mutually agreeable
transaction with Alliance. This would involve Bond Counsel redrafting the documents,
probably need to make changes in some of the agreements and the bond purchase
agreement, but there would not have to be an Official Statement, there would not have to be
a bond sale. Basically it's that they (Alliance) own all the bonds and let's renegotiate.
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Option 2: The second primary option would be, maybe Alliance for their needs would
say, we'll let you call these bonds in September of 2004 instead of2006, and we don't want
to own them any more, we'll take right of first refusal, you do a bond issue. If we like the
interest rate we'll buy them. But you write us a check out of that to compensate us for
allowing the transaction to go ahead.
Mr. Johnsen said there are probably endless alternatives and scenarios; they don't know
exactly what type of deal they could strike.
Director Miller asked about the downside of engaging in such discussions with Alliance, if
¡my. Mr. Johnsen said he didn't see any downside in ERGA's relationship with Alliance.
Mr. Calkins asked if they renegotiate could there be another call date some time in the
future and was told yes there could be. Mr. Johnsen said that his recollection was that the
call date was pretty critical to ERGA so they would work that into the negotiations.
Mr, Lembach noted that the more call protection that could be offered the better deal they
are going to get but they are locked into that time period. If bonds were issued without
much protection at all there wouldn't be as much savings right now.
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Director Miller said that he would like to see net value savings of about $1 million with
mIDual savings of $ 100,000 and a call of2010 and asked if they could do that. Mr. Johnsen
said that's very close to what they are recommending and they have actually prepared a
letter to go to Alliance with an illustration that mimics Director Miller's thoughts.
Director Miller moved that the Board authorize Mr. Johnsen to go ahead and contact
Alliance with that as a goal.
Mr. Lembach said they have no problem with that as a goal but believes the situation they
are up against is that because this is a bond market type field they are looking for some
ability to be able to execute the transaction if Alliance says they like it. They need the
ability to sign within, say, twenty-four hours. They would like some minimum level above
which they have the authority to sign a deal.
Director Miller said that if they could deliver something in the million dollar net value
savings ballpark, plus or minus, he would be comfortable with that. He needs them, the
Finance Team, to tell him what they think they would be comfortable going into as an
appropriate minimum to give them that kind of discretion. Mr. Johnsen said that his
intuition says $750,000 and Mr. Lembach said he is comfortable with that number also.
Director Miller said that he would be more comfortable with $850,000. What he would like
to suggest is that if they are in those negotiations and Alliance comes back with an offer of
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$800,000, he would feel very comfortable with them caIling the Board's Chairman and, if
they need a 24 hour authorization, Iet Chairman Kaiser make that call.
Director Miller moved that the Board authorize the Finance Team to renegotiate the
bonds at a net present value savings of a minimum of $850,000 or greater and give
them full discretion to be able to execute a deal with a maximum ten year call; and
authorize the Board Chair to consider approving a renegotiation of $850,000 with a
minimum of $750,000. Director Cota-Robles seconded, approved 3-2 (Cotton and
Jacobs)
Director Cota-Robles moved that the Board approve the contract with Fieldman,
Rolapp Assoc. for Professional Services, as amended, seconded by Director Kaiser.
Approved 3-2.
Messrs. Johnsen, Wiles and Lembach left the meeting. Mr. Calkins also left the meeting.
3.
Review Summary of November,
Statement/Update on Capital Reserves.
2003
Revenues
and Expenditures/Financial
(Rod Linville/John McNair)
Mr. Linville reported that for the month of November total revenues were $324,865
compared to a budget of$312,754 or 104% of budget; Expenditures were $231,912 or 89%
of a budget of $260,769; Net income was $92,453 or 181 % of a budget of $50,951; Total
rounds were 4,619 or 94% of a budget of 4,895.
Year to date Net Income was $684,862 or 113% of a budget of $605,699; Total Rounds
were 30,138 or 99% ofa budget of30,457.
Capital Reserves at November 30,2003 were $66,249.01.
Mr. Adelhelm of JC Resorts asked if he could discuss Worker's Compensation at this point.
He distributed copies of a letter ITom their Corporate Controller addressed to Chairman
Kaiser with an analysis of their Worker's Compensation renewal for the year 9/1/2003-
9/1/2004, with a $250,000 deductible.
Mr. Adelhelm said that had they stayed with a fully insured program the quotes they were
getting were anywhere in the range of$3.2 million to $3.4 million. This was almost double
the previous year's premium. More and more companies are lowering the portion of the
risk of Worker's Comp to themselves and then managing that risk by managing the number
of claims and the accidents that the employees actually have at the facility. They had
received quotations ITom about six different carriers and looked at a number of different
programs. There is also a bit of apprehension of golf courses and hotels in the Worker's
Comp business because in golf courses, people lift things, they bend down, they work on
greens and courses and work with heavy duty equipment. JC Resorts puts a lot of effort
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into safety training the employees and making them very aware and conscious of Worker's
Compensation costs and claims. They have monthly safety meetings for the golf course and
hotel employees.
Mr. Adelhelm reviewed the schedule for the Worker's Compensation for the year 9/1/03 -
9/1/04 and said that the share of the cost for the Encinitas Ranch Golf Course will be
$77,603. Under their prior program a year ago, it was almost $89,000 so there's going to
be some savings. If they had gone to a fully insured program the Encinitas Ranch fees
would have been about $146,000.
Chairman Kaiser asked Director Miller if there was any way the golf course could piggy-
back on the City's Worker's Comp insurance. Director Miller said he didn't know but said
he would invite the City's Risk Manager, lace Schwarm, to join the discussion.
Ms. Schwarm joined the meeting and Mr, Adelhelm explained the discussion and what JC
Resorts does with respect to Worker's Compensation, He said they have gone fTom a fully
covered program to a program that has a $250,000 per occurrence deductible, with about an
aggregate of 7% cost of payroll.
Chairman Kaiser said that what this leads us to is that Encinitas Ranch would incur
$250,000 per occurrence for golf course employees. He asked Ms. Schwarm if there was a
way where Encinitas Ranch Golf Authority (ERGA) could provide the insurance, even
though they are not our employees, by piggy-backing on to the City and saving money. Ms.
Schwarm said the City is also self-insured and they have a $350,000 self-insured deductible,
so JC Resorts has a better coverage. She said what JC Resorts can do is to set aside cash
reserve funds to cover the losses.
Going back to the schedule, Mr. Adelhelm said that the bottom line is that the Ranch Golf
Course will be charged $77,603 for the year 9/2/03-9/1/04.
4.
Report on Tree Enhancement! /Markers
(Subcommittee)
No report.
5.
Rmge Mowing.
(Rod Linville)
Mr. Linville said that in their contract there is an item about fTequency of when they do
things at the golf course. Part of that has to do with the range mowing. Right now it
requires that they mow the range twice a week. During the winter and certain times of the
year, the range grass doesn't grow as much as the fairway grass. If they mow twice a week
they have to stop selling range balls - as an example today they stopped at 3 o'clock
because they have to go out and literally pick every range ball off the grass so that the next
morning the crew can mow the driving range. This causes them to lose the revenue fTom
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those customers who come between 3 pm and sunset, and 9 a.m. the next morning from
those who want to use the range before they tee off. What he is suggesting is that they
could gather some additional revenue if they reduced the frequency of mowing in those
times when the grass is not growing so fast. He believes this way they could take in an
additional $400-$600 a month.
Chairman Kaiser said that, for the record, they should just mow as frequently as they think it
should be done.
6.
Club House Improvements
(John McNair)
1\.1r. McNair said that the only thing he has to report is that Tony Wanket who built the
original building elected not to get involved. He has some other companies he is working
with and by the next board meeting should have some blueprints for the Board's revue.
7.
Update on Restrooms.
(John McNair)
Mr. McNair reported that the restrooms are completed, just need to do some curb repair.
8.
Update on Cell Towers.
(John McNair)
Mr. McNair said that they are moving along well. They are going to be doing the trenching
for the phone and the electric.
He is in negotiation with Nextel and tried to get money up front from them to pay for the
addition to the clubhouse. Nextel does not put money up front the reason being the risk of
some day not needing the satellite and changing technology, and the risk of not getting their
money back.
9.
Incidents and Accidents.
(Rod Linville)
Nothing to report.
10.
Potential Course Enhancements.
Mr. Linville pointed out that there is a new gate at the entrance to the golf course.
DiscussionlDirection Concerning Course Operations, Conditions Needing Change.
Chairman Kaiser reported that the City of Carlsbad has approved their new golf course.
Directors and/or Manager Reports
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[For reported topics not described on this agenda, State law prohibits Board
discussion, responses, and action. A Boardmember may ask questions, but only to
clarify what the speaker is reporting. J
Director Cota-Robles reported that at last night's Council meeting the City Council
approved a list of contracts which included the contract for the De Las Flores crossing.
13.
Next Meeting - Thursday, January 22,2004 at 3:00 p.m.
14.
Adjournment
Chairman Kaiser adjourned the meeting at 4:55 p.m.
Respectfully submitted,
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Patricia Drew, Recording Secretary
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Edward O. Kaiser, Chairman of the Board
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