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2002-03-28 . . . CITY OF ENCINITAS ENCINIT AS RANCH GOLF AUTHORITY MINUTES OF REGULAR MEETING Lilac Room, Civic Center 505 South Vulcan Avenue THURSDAY, MARCH 28, 2002 AT 3:00 P.M. CALL TO ORDER/ROLL CALL Chairman Kaiser called the meeting to order at 3:05 p.m. DIRECTORS PRESENT: Edward Kaiser, Alan Archibald and David Wigginton Kerry Miller joined the meeting at 3:10 p.m. DIRECTOR ABSENT: ALSO PRESENT: Susan Lamson John White and Ardyce Jarvis, Carltas Co.; Ron Adelhelm, John McNair and Rod Linville, JC Resorts; Staff members Leslie Suelter and Nancy Sullivan; Recording Secretary Pat Drew ORAL COMMUNICATION [3 minutes for each speaker. Maximum 15 minutes for oral communication.] None AGENDIZED BUSINESS ITEMS 1. Approve Minutes of Regular Meeting of February 28, 2002. Director Archibald moved approval of the minutes of the February 28, 2002 regular meeting, seconded by Director Kaiser. Approved 3-0-2 (Miller and Lamson absent) 2. Report from Sub-committee on Bond Refunding. (Chairman Kaiser/Leslie Suelter) . . . Chairman Kaiser reported that he had met with sub-committee members Director David Wigginton, John White, John McNair, Nancy Sullivan, Leslie Suelter, Tom Johnsen and Bill Huck. Also at the meeting was Ardyce Jarvis of Carltas Co. He asked Ms. Suelter to report on the meeting. Ms. Suelter advised that the group had met a week earlier for the purpose of getting together to give some direction to the financial advisor and the underwriter. This was so that when the time was right, and they could meet the minimum conditions of the board, they could start working to put a deal together. Essentially, what the sub-committee directed and what they wished to confirm with the full Board, was that the minimum savings that they would be looking for in a refunding was $500,000 present value. Bill Huck would then go back and communicate with his colleagues and with Alliance. When they felt they could approach the $500,000 present value savings they would come back to the Board to take some action. (Director Miller joined the meeting at 3:10 p.m.) Director Wigginton said that the sub-committee agreed that it was a good thing and they wished to make a proposal to the Board. Director Wigginton moved, seconded by Director Archibald, that the Board gives the Finance Team the authority to go ahead and take what action is necessary when they can achieve present value net savings of $500,000. Approved 4-0-1 (Lamson) 3. Review Summary of February 2002 Revenues and Expenditures/Financial Statement. (Rod Linville/John McNair) Mr. Linville reviewed the February financial statement. Revenues were $329,358 or 94% of a budget of $351,213; expenditures were $225,979 or 91% of a budget of $248,713; net income was $103,155 or 102% of a budget of $100,833; total rounds were 5,346 or 102% of a budget of 5,216. Year to date numbers at February 28 were: revenues $2,958,497 or 96% of a budget of $3,005,404; expenditures were $1,957,686 or 94% of a budget of $2,085,782; net income was $992,062 or 109% of a budget of $906,789; total rounds were 45,408 or 99% of a budget of 45,917. 4. Capital Reserve Fund (John McNair) Mr. McNair passed out copies of the monthly update on the Capital Reserve Fund and reviewed for the Board. Starting balance was $143,004.78 with addition of revenue for the month of $12,882.84 and no purchases; capital reserves at February 28, 2002 were $155,887.51. Estimated future capital reserves through end of fiscal year were $65,204.20 for a total of $221,091.71. Total estimated z . . . capital purchases for year ending June 30, 2002 are $218,500.00. $65,000 in approved purchases have been moved to the year ending June 30,2003 giving an estimated balance for 2002 of $2,591.71. 5. Quail Gardens Drive Bridge Status Report. (John McNair) Mr. McNair reported that the construction of the bridge is on schedule, the foundations are underway. They have to go to the April 10, 2002 Encinitas City Council meeting for approval of closing Quail Gardens Drive for approximately three weeks. Given that gets approved the bridge will be on schedule. Chairman Kaiser advised that there is an "on site" meeting with Hazard Construction scheduled for 9 a.m. on April 2 and all were invited. He asked Mr. McNair to clarify John Nabors' status in connection with the bridge construction. Mr. McNair said that in response to a question at the previous month's board meeting he had checked into John Nabors relation to the bridge. It started back in September 1999 at which time the Board made a motion to go forward with the bridge and at that point they voted to have John Nabors, through Carltas Co. to get the funds as well as to be project manager. Carltas pays Mr. Nabors and they get reimbursed from ERGA. 6. Restrooms Status Report. (John McNair) Mr. McNair said that he is stalling installation of the restrooms until the bridge is completed and they can run water to the restrooms. Mr. White said that Carltas has a number of meters available that they are able to sell to ERGA very inexpensively. 7. Management Agreement with JC Resorts. (John McNair) Mr. McNair introduced Ron Adelhelm the new CFO of JC Resorts and handed out copies of the new proposed management fee schedule and reviewed the numbers for both a five-year and a ten-year term. Mr. McNair explained that with Safe Harbor Laws there are certain rules in the way they could be compensated for a fixed fee vs. an incentive fee. On the five-year 50% of the fee can be based on a fixed fee; on the ten-year 80% can be based on a fixed fee. Ms. Suelter was asked what the attorneys think about the proposed contract. She said they had made copies available to ERGA's General Counsel, Glenn Sabine, who she expected to be at the meeting. She had also sent a copy to Jones Hall, the bond counsel. They had their staff tax attorney/specialist look it over. Ms. Suelter said she had talked to a David Walton who was very complimentary over- }, . all of the contract structure and how it was arranged. He had no problems with it in that respect. However, he did have something he wanted to point out. If the Board is looking for a legal opinion he felt he needed to disclose this one tiny issue in writing. It has to do with what is included in the base management fee. Ms. Suelter read the communication from Mr. Walton having to do with an IRS ruling on what can be included in the Manager's base fee. He wrote: "There is a difference of opinion among tax lawyers as to whether reimbursement payments by ERGA for the Manager's employee costs should be treated as additional fee to the Manager. The IRS has not taken an official position on this issue and I believe that there is good authority supporting a position that reimbursement of non- management employees should not be treated as part of the Manager's fee. However, because "key" employees described in the proposed Management Contract perform a management function, I suggest that you exclude these key employees from the reimbursement provision and compensate them directly under the proposed management contracts." In other words, Ms. Suelter explained, take them out of the line item under Personnel in the budget and make that a part of the fee that is paid to the Manager, and recalculate the numbers to include them. "I mention this because there is a risk that IRS may raise the issue of including the employee reimbursement payments in the Manager's compensation on audit and ERGA should be aware of this risk. Any letter I write to the City will include discussion of this audit risk regarding the reimbursement of the Manager's employees." Ms. Suelter said that she did not think this was a major risk, and she was not trying to alarm the Board in any way, she just wanted the Board to know that if it wanted something in writing he is going to mention this issue. She said he's not saying that the Board needs to do this or that this is a huge risk or it's not a risk that the Board shouldn't take. He just felt he wouldn't be doing his job if he didn't point this out . Mr. Adelhelm pointed out that it is an industry practice for individuals such as Rod Linville to be treated as direct employees of the course because they are directly there running the operation, as opposed to the oversight management whose costs are covered by the fee. Ms. Suelter said that if the Board is so inclined, she could call Mr. Walton back and indicate that while they are key employees they are not management and the Board doesn't feel this is a risk. He mayor may not still choose to write the letter. Ms. Jarvis suggested that it should be rather easy to put some language in the final agreement that would clarify the issue. Ms. Suelter said that she felt the Board could make a decision to authorize Chairman Kaiser to proceed with implementing the contract pursuant to resolving this issue satisfactorily and that General Counsel Sabine supports it as well. She said that the only reason she raised the matter of a letter from the bond counsel . 'if . . . Respectfully submitted, (~L ¡ "~ })" 'v' Patricia Drew, Recording Secretary 11. 12. was that in the past the Board has asked for something in writing when making amendments. Director Archibald moved, seconded by Director Miller, to proceed with a ten-year contract with some language modification to clarify that the key employees are not management. Approved 4-0-1 (Lamson) It was agreed that the General Counsel would be a part of the conversation relative to language modification. 8. Incidents and Accidents. (Rod Linville) Mr. Linville updated the Board on his discussions with the Sheriffs detective relative to the burglary reported at the February Board meeting. 9. Potential Course Enhancements/Discussion/Direction Operations, Conditions Needing Change. Concerning Course Director Miller asked how the greens are doing. Mr. Linville responded that overall they are much improved and they are in a transition where the poa annua, which is a weed grass, is taking over the dead grass. Once the greens have become 100% poa in about 12-18 months, they should be some of the best greens around. 10. Directors and/or Manager Reports [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.] Director Miller advised the Board that David Wigginton is resigning from the City effective April 11. Next Meeting - Thursday, April 25, 2002 at 3:00 p.m. Adjournment Chairman Kaiser adjourned the meeting at 4:12 p.m. ,. 0 /, ..~ -J/ I I /y""-,,. ({,or." f - - '-- Edward Kaiser, Chairman of the Board s;