1999-06-24
CITY OF ENCINITAS
ENCINITAS RANCH GOLF AUTHORITY
MINUTES OF REGULAR MEETING
THURSDAY, JUNE 24, 1999 at 3:00p.m.
CALL TO ORDER/ROLL CALL
Chairman Kaiser called the meeting to order at 3:05 p.m.
Directors Present: Edward Kaiser, Susan Lamson, Robert Acker, Alan Archibald, David
Wigginton, being all of the directors.
Also Present: Chris Calkins and John White of Carltas Co.; Scott Bentley and Rod
Linville ofj.e. Resorts; Robert A. Rauch and Jerry W. Brooks of R.A.
Rauch & Associates; Jim Benson, ERGA Manager; Pat Drew, Secretary.
ORAL COMMUNICATION [3 minutes for each speaker. Maximum 15 minutes for
oral communication.]
None.
AGENDIZED BUSINESS ITEMS
1. Approve Minutes of Regular Meeting of May 27, 1999 and adjourned meeting of June
9, 1999.
Director Lamson noted that there was a typo in the title of item 3 of the May 27
minutes. "4th hole" should be corrected to read "14th Hole." Rod Linville pointed out
a correction in the same paragraph to show that it was Mark Warren who had met
with Chairman Kaiser, Scott Bentley and Cary Bickler. Also, same paragraph, second
to last line, Director Lamson requested the addition of the word "too" to the phrase
"a stand of trees close to the tee, not too close to the 15th green."
Director Kaiser moved approval of both sets of minutes, with appropriate
corrections, seconded by Director Archibald. Approved 5-0.
2. Consideration of Request from Robert Rauch to Lease 2.0 acres at the Encinitas Ranch
Golf Course Clubhouse to Construct a Hotel.
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Robert Rauch and Jerry Brooks of R.A. Rauch & Associates made a presentation to the
board relative to their desire to build a hotel on 2 acres of the golf course property.
They currently own and operate the Ocean Inn in Leucadia. They find that the market
is fairly strong as a leisure destination and has a huge potential as a destination for
group visitors and more up-scale experience and also feel that the golf course would
add a tremendous amount of clout to that group market. They feel that revenues
would be such that it would be a tremendous advantage for increased TOT revenue
for the City, and given the scarcity of meeting places in Encinitas this would be an
added attraction. They view the project as being great for the general public because
there would be an establishment of high quality for visiting friends and relatives, for
dining, and for a number of purposes. Mr. Rauch said that the primary reason for
appearing before the Board was to determine if there is an interest in them pursuing
the project. They have a number of plans that they could move forward on but would
like to get some feed back from the ERGA board as to (a) whether or not it is
desirable, and (b) assuming it is somewhat desirable, what questions the board might
have that he could answer as a 25 year hotel veteran who sees this as a great place to
build a hotel.
Director Archibald asked if they had considered how they would access the property
and get parking. Mr. Rauch said they believe that parking would probably have to go
underground although they have not determined how many spaces they would be
able to share with the golf course. Asked what two acres they were considering, Mr.
Rauch said that they are looking at t~e cart storage area and the clubhouse. They
would propose putting the cart storage in the confines of the hotel garage and the
clubhouse in the lobby of the hotel. In response to the question as to how big a hotel
they are envisioning, Mr. Rauch said they are looking at five or six specific types of
products including Embassy Suites, Hilton Suites, W Suites (a Starwood product),
possibly a Marriott Suites, and would look at talking to J.e. Resorts as a possible
product of their own that would be tied to their golf and hotel product in the San
Diego area. Thinking of 145-150 units. Because of site constraints couldn't get much
more. These are their preliminary thoughts.
Mr. Bentley indicated that from a golf standpoint revenues would be increased
because hotel guests are going to pay higher greens fees and buy more merchandise
and food. However, from a logistical standpoint it would mean that area residents are
going to have fewer tee times. 135 rooms could easily fill up all of the prime times
on the golf course.
Mr. Calkins said he had had a discussion with Mr. Rauch on the subject and had
some thoughts to offer. While the problem with the height of the building no doubt
could be solved, one of the issues that actually confronts the ERGA board is that while
it is the owner of the golf course, its charter doesn't allow for it to go into the hotel
business. If the project did go forward the real benefit would be TOT revenue which
ERGA doesn't get. Also, ERGA would have to get its Charter amended together with
appropriate zoning amendments. A decision on this would have to be made by the
City Counci I.
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Mr. Benson said he felt that another issue to be considered is the change in the whole
focus of the golf course, as mentioned by Mr. Bentley. To turn around and take what
was sold through the Specific Plan and Development Agreement process as a public
course, which is generating more resident rounds than was ever anticipated, and then
to say we are going to displace the local-non-Iocals and especially the residents for a
hotel, is a major change to the development of the course. This issue, therefore, goes
full circle back to the City Council for a policy decision.
Director Archibald said that since a project like this would take at least a year to
construct, he was concerned about the impact on the operation of the course while
the area was torn up, since this would include sandwiching a proposed hotel into the
area of the cart barn, club house, practice greens and driving range. These are very
important functions of the course operation, and this was one of the reasons he was
requesting a plan view.
Mr. Benson indicated that he felt absolute approval by the revenue bond investors
would be required. There is an area that the board has left available for a future
clubhouse and that is extremely tight in relation to the existing clubhouse. The
practice greens are right behind that and also the driving range. It is not a big piece of
property. It would be logistically very difficult to keep the course operating the way it
is now.
Chairman Kaiser asked if it was a feasible project without a tee time provision from
the ERGA Board. Mr. Rauch said their fall-back position would be to commence
discussions with J.e. Resorts to see if there is a way they would be interested in
assisting with tee times at their properties; i.e. to build on site but not have
guaranteed tee times, so long as something could be worked out with J.e. Resorts.
Director Wigginton said he had a question concerning the clubhouse. At present
ERGA owns the clubhouse and J.e. Resorts rents it. If the clubhouse is built as part of
the hotel, who owns it? Does that mean we would lease it from thern and we incur
another expense? It was agreed the hotel would build the clubhouse for ERGA for
free.
Director Archibald said that at a minimum he would like to see a plan scale layout
and a construction sequencing on how the golf course is kept open, and how the
parking is going to be accommodated.
Mr. Calkins suggested the Board members give Mr. Rauch their comments so he can
prepare a proposal for Council consideration. However, he urged the Board to pass
the issue to the City Council as soon as possible in order for them to make a policy
decision. His concern is that ERGA will look like the Agricultural Association of Del
Mar if this doesn't get a Council policy direction first. This should be done before any
further discussion is held.
Chairman. Kaiser asked if rezoning would. be required. Mr. Calkins advised that it
would have to be rezoned, including an amendment to the Specific Plan, a Coastal
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Commission amendment, a General Plan amendment, and probably amendments to
the Development Agreement.
Director Acker agreed that when this goes back to City Council it should have the
input from the ERGA board as contained in the minutes and which should accompany
the request from ERGA for a Council policy decision. Chairman Kaiser asked that the
minutes contain comments that, from his perspective, he is not thrilled about cutting
into the tee times on a municipal golf course. Director Acker also agreed that Council
should know of those concerns. If they are going to become involved in this, or even
making a threshold decision, they should be aware of ERGA's concerns. Director
Archibald commented that he is not even sure that it would work logistically, from
fitting it in, accommodating the golf needs and the hotel needs. That's why a plan
view is so important just to see if it is even feasible.
Chairman Kaiser said that this is one of the nicest recreational facilities that the City
has provided its citizens and he would hate to see it compromised. Directors
Archibald and Lamson concurred. Scott Bentley commented that such a project
would really put a strain on the course and the residents would be the ones to be
impacted.
Director Lamson said she agreed with Mr. Calkins that the issue should go to the City
Council. HoweVer, she wants to be sure the Council understands it is not going to
them because ERGA has decided to go with the project. Chairman Kaiser said it is
quite clear that it isn't in ERGA's charter to do anything but operate a golf course.
Mr. Calkins stated that he would assume City Manager Acker would take it to the
Council at an early Council meeting.
Mr. Rauch summarized his understanding of the Board's direction as to how he
should proceed. He should put together a proposal for Council that pulls together the
ERGA Board's concerns, and at the same time the minutes from this meeting will also
include the directors' concerns. He will work to incorporate those concerns in his
recommendation so that it includes all the sensitivities.
Director Archibald commented that he felt that Mr. Rauch's representation to Council
should be that he is not even sure that the project is feasible but that he knows it has
to go through Council before he can go back and convince ERGA that it is feasible.
Mr. Rauch said that while he is neither discouraged nor encouraged by the comments
from directors, he will go ahead and put together a more comprehensive proposal for
Council that addresses all of the ERGA directors' concerns. It's not to say it will
positively work but at least he will then know if the Council has any interest in
pursuing such a venture. Director Wigginton commented that even if Mr. Rauch
does come back to ERGA he doesn't see any enthusiasm or support from the ERGA
board at this time.
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Both Mr. Calkins and Director Acker agreed that Mr. Rauch should focus on the
policy issue with the Council, rather than spending a lot of time and money on a
proposal.
3. Review Revised Language in Cornerstone Communities' CC&Rs.
Not available for review. Mr. Benson will bring back to next meeting.
4. Review Revised Projections and Format for Use of Excess Golf Course Net Revenues.
(Manager Benson)
Manager Benson reviewed the revised projections for use of the excess net revenues.
He said that the spreadsheet is the same one he used at the May meeting but with an
improved format. It is also the same information that the investor is looking for and
that he gave to the City Council at their presentation the previous week. Mr. Benson
said this gives him the confidence level that he is looking for. That, in fact, the rates
that were put in place using Option 6, and given the obligations ERGA has right now,
gives the picture on which the Board can make judgments on whether a bridge can
be paid for, etc. Mr. Benson confirmed for Director Archibald that the schedule does
not show that money will be available for the bridge. He said that Carltas Company
has made some representations about things that they would be willing to do
recognizing that this is what was anticipated would come out, but not knowing the
specific numbers until the spreadsheet was prepared.
Mr. Calkins had some observations that he wished to share with the Board. Mr.
Benson's report assumes ERGA does not do refinancing of the revenue bonds. Right
now the bonds are at approximately 2 Y2 points over what ERGA could probably get
in the market at this time. Those savings alone could probably finance several
million dollars of investments/improvements in the golf course without materially
changing that.
Director Archibald said the only problem with this was that the bridge is more of an
immediate need, from a safety standpoint, and can't wait until ERGA refinances. We
are going to expose ourselves to having golf carts competing with cars.
Mr. Benson said that Director Wigginton had reminded him that the City Council
authorized a loan of up to $250,000 and of that only $50,000 was used. If ERGA is
willing to pay the current City investment rate, and putting on his other hat as Finance
Director for the City, he could say that that would be a legitimate use of the City's
money. It improves traffic safety on Quail Drive and also benefits the golf course on
an amortized basis. Re-payment would come from net revenue after additional cash
requirements. Mr. Calkins said that he felt the best thing would be to move forward
and figure out a financial structure that would take this into account. They (Carltas)
would acknowledge that there is some capital investment going on that affects the
bottom line. Certainly, if ERGA could work out an arrangement to finance and build
it now while the road is closed it would be advisable. Mr. Calkins said that the work
on Quail Gardens Drive is proceeding at such a pace that the road will be ready to
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open by the end of the year. It could be kept closed later than that if the Board wants
to think about getting the bridge in before the road opens to full traffic. However, the
Board needs to look at it very soon.
Mr. Calkins also recommended that before looking at any refinancing, for the bridge
or otherwise, the board should look into the cost of the clubhouse so as to take it into
account in the refinancing.
Chairman Kaiser said that he would like the Bridge Committee to explore the cost of
the bridge, get more bids on it, and that we should consider asking the City to provide
the funds. Mr. Calkins said he urged the Board to take this direction. To refinance
the bonds would take time since all the other issues have to be resolved before it can
be done.
Mr. Bentley asked if Cornerstone Communities had been approached about building
the bridge since it would enhance their property. He was told that Cornerstone has
absolutely no interest in the bridge.
5.
Adjustments to Encinitas Ranch Golf Course Budget #6.
(Manager Benson)
Mr. Benson advised that when approving the budget a couple of issues were raised
and a couple of others were caught in the process. One of the things not in the
budget was the projection for the interest from the monthly cash balance. JC Resorts
did a projection of about $20,000 over the course of the year. Also, there has been a
I ine in the budget for some time that should have been removed, and has now been
removed, for a projection of property tax. Since this is a public golf course no
property tax is involved. There was a question concerning the bottom line as to why
the rate was in fact going down on projections on JCR Club cards. This correction
increased the revenue and the average per round has been raised from $40 to $45.
This generates about another $5000. Another correction is that the golf school will
not open up until October and will reduce revenue about $6000. The biggest
correction that had not been caught was that Phil Cotton of the City Community
Services Department is, and has been, spending more time on the contract
administration with J.e. Resorts. Given the construction going on, and the proposed
bridge together with the construction of the housing, and the work to be done on
Hole 14, we are going to need more hours from Phil Cotton. This revision of hours
has been taken into account in the revised budget.
The bottom line for all of these items would be an increase in net incom~ of about
$9000.
Director Archibald moved that the budget be revised according to the Item 5
spreadsheet, seconded by,Director Lamson. Approved 5-0.
6. Proposal by J.e. Resorts to Replace Pro Shop Software Package with Related Budget
Adjustment. (Scott Bentley)
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Mr. Bentley said they have been looking for new golf shop software that would run
the golf business. At the time the golf course opened they had already spent a couple
of years researching the market and found that Guarantee Times had what they
thought was the best program to provide the golf shop. They were a fairly new
company and in all their data testing modes. J.e. Resorts signed up with them hoping
that they could adopt the software at all their golf courses. However, it wasn't until
May of this year that J.e. Resorts decided that it was not the best software for them.
Some of the major reasons being a difference in philosophy, and at time of signing did
not expect that they would have to pay transaction charges on tee times which would
be on going on a yearly basis. It would have cost close to $15,000 for Encinitas
Ranch course on a trial basis; nothing has been paid. The new company that they
have identified is Integrated Business Systems (IBS). They are going to go with them
for all their companies. It is a fully integrated system much like the one they have
been using. However, it has a better history; they have over 400 installations across
the country. Much more proven, stable and consistent.
They have had an in-house demonstration and found it very acceptable, and called
other operations for references. No courses in San Diego County are using it at this
time. The company is in North Carolina and, of course, much bigger on the East
Coast. Mr. Bentley said they selected reference calls from the list of installations that
the company provided; multi-course references, 36-hole courses, and management
companies. They have not been able to find any problems. J.e. Resorts are adopting
the software for all their courses and purchasing a package deal with plenty of
discounts. The cost of the software is $19,809.90 per course with a $2800 yearly
maintenance fee. Cost includes installation and training. One of the projects in the
1999/2000 budget was $25,000 for an extension of the driving range. They would
propose holding off on this project and using that money out of the capital budget for
the software so as to stay within budget.
This is a fantastic program. This is the most proven company and has the latest
technology with a Windows based system, which is very flexible. They have
compared prices with other programs and price-wise it is in the middle of all the
programs being offered. Dtrector Archibald recommended that payment be withheld
until the system is up and running. Mr. Bentley said that they are very confident that
the system will work to their satisfaction.
Mr. Benson said that when he received a copy of the contract on Monday he gave a
copy to the City Attorney (who also serves as ERGA's General Counsel) for review.
He did have a couple of comments regarding a clause in each of the three sections
(software I icense, support agreement and the computer/hardware software sales
agreement) of the agreement which is pretty standard in each one of the sections,
relative to liability which "shall not exceed the total amount of all license fees paid to
licensor hereunder." This is a concern if one is in negotiating language, certainly
wouldn't want this. However, this is real standard in software stuff, too. Also, there
is nothing in any section of the agreement that talks about legal action. Counsel
recommends that we consider asking that a clause be added under the title Legal
Action that /I in the event that either party brings any legal action or procedure to
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enforce or interpret the terms of this agreement the prevailing party shall be entitled to
reasonable costs incurred, including attorney's fees, from the other party."
Mr. Bentley said they are in rather a bit of a dilemma in that there is a two-month
waiting period just to get on the calendar for installation. They have signed up for
their other courses but need to move the Encinitas Ranch along so they can get it into
the installation schedule. The changeover will be made overnight so there will be no
disruption to customer service. Staff training will be done in the two previous weeks.
Chairman Kaiser made motion to delay the $25,000 capital expenditure on the
expansion of the driving range/tee area to pay for the new software system provided
that the attorney approves the wording in the contract to include attorney's fees,
and that the down payment is lowered and balance paid after installation. Director
Archibald seconded the motion. Approved 5-0
7. Resolution #99-01 Authorizing Agreement of Banking Arrangements between ERGA
and the Union Bank of California. (Manager Benson)
Director Archibald moved approval of Resolution 99-01 Authorizing an Agreement
of Banking Arrangements between ERGA and the Union Bank of California,
seconded by Director Acker. Approved 5-0.
8. Review Summary of May, 1999 Revenues and Expenditures/Financial Statement.
(Scott Bentley/Rod Linville)
Rod Linville reviewed the May, 1999 income and expenditures advising that it was
the best month they have had since opening and that June is not slacking off either.
Total revenues were 120% of budget, and expenses were at 104%. Net income
resulted in 143% of budget. Total rounds were at 110% and they expect to make
71,000 rounds for the year as opposed to the 67,000 projected.
9. Report on Road Access Challenges during Construction of Leucadia Boulevard and
Quai I Gardens Drive. (Manager Benson)
Manager Benson stated that he and City staff had met with Ca:rltas Co. and Mr.
Calkins on the subject item. For some time they had been struggling with how to
minimize the impact on the golf course with the construction on Leucadia Boulevard,
and in particular the Quail Gardens Drive and Leucadia Boulevard intersection.
Mr. Calkins said that at the intersection there is a great deal of work that has to be
done, and explained the purpose for the request for a detour for traffic to reach the
golf course.
Director Lamson made motion that the Board authorize Director Archibald (in the
Manager's absence) to execute the easement agreement with the standard
indemnification as discussed, subject to approval by the ERGA attorney. Seconded
by Director Kaiser. Approved 5-0.
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10.
Progress Report from Bridge Sub-committee.
(A. Archibald/D. Wigginton)
Director Wigginton said that now that Director Archibald has the topographical they
could proceed with getting a bid for construction.
11.
Approve Signage for Golf Course directed to Non-Golfing Public.
(Rod Linville)
Mr. Linville passed out the proposed wording for signage directed to the non-golfing
public. Mr. Bentley said they are proposing to go with a "friendly" notice, e.g.
"registered golfers only." Director Acker suggested that they confer with the
Attorney to determine about including the Municipal Code section. This gives a
certain muscle to enforcement, when or if needed.
Director Wigginton left the meeting at 4:50 p.m.
Mr. Bentley said they would bring back to the next meeting for the Board's approval,
a sample sign with wording together with a plan of where they propose erecting the
signs.
12. Potential Course Enhancements.
No reports.
13. Discussion/Direction Concerning Course Operations, Conditions Needing Change.
John White said a couple of people have commented to him about late tee times in
terms of people who have tee times and that people who are walk-ons are permitted
to go ahead of those with tee times. This has happened a couple of times with the
same group. Rod Linville explained that if they are on schedule and a group doesn't
show for their appointed time, then the starters would let a foursome from the wait-list
go ahead.
14. 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.]
None.
15. Next Meeting - Thursday, July 22,1999, at 3:00 p.m.
16" Adjournment
Chairman Kaiser adjourned the meeting at 4:55 p"m"
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17. Items for Future Agendas:
a) Approve Landscape Maintenance Agreement. (Manager Benson)
b) Approve Notice of Completion of Golf Course (Alan Archibald)
c) Update from Bridge Subcommittee (A. Archibald/D. Wigginton)
d) Liquor License (Scott Bentley)
e) Review Revised Language in Cornerstone Communities CC&Rs. (Mgr. Benson)
f) Review Summary of June, 1999 Revenues and Expenditures/Financial
Statement.
Respectfully submitted,
(j7
/ . /
,~!Ift/~- '
Edward Kaiser, Chairman
~~~
Patricia Drew, Secretary
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