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2000-08-24 CITY OF ENCINITAS ENCINITAS RANCH GOLF AUTHORITY MINUTES OF REGULAR MEETING Carnation Room, Civic Center 505 South Vulcan Avenue THURSDAY, August 24, 2000at 3:00 p.m. CALL TO ORDER/ROLL CALL Chairman Kaiser called the meeting to order at 3:01 p.m. Directors Present: Ed Kaiser, Alan Archibald, and David Wigginton. Susan Lamson arrived at 3:07 p.m.; Kerry Miller joined the meeting at 3:15 p.m. Directors Absent: None Also Present: Rich Eaton and J.M. Scoffin of the Encinitas Ranch Men's Golf Club; John Nabors, Nabors Consulting; john McNair, Rod Linville, Mark Warren of J.e. Resorts; Leslie Suelter and Nancy Sullivan, City's Finance Department; Pat Drew, Recording Secretary. General Counsel Glenn Sabine was present for the Closed Session portion of the agenda. ORAL COMMUNICATION [3 minutes for each speaker. Maximum 15 minutes for oral communication.] None. AGENDIZED BUSINESS ITEMS 1. Approve Minutes of Special Meeting of june 29, 2000. Director Wigginton moved approval of the june 29, 2000 minutes, seconded by Director Kaiser. Approved 2-1-2 (Archibald abstained, Miller and Lamson absent) 2. Review and Approve Men's Club's Proposed Calendar of Events for year 2000-2001. (Pres. Rich Eaton/Mickey Scoffin) 1 President Rich Eaton of the Men's Golf Club presented their proposal for the year 2001 tournament schedule which has been reviewed and approved by Scott Brand of JC Resorts pending the ERGA board's approval. He advised that their membership is now at 602 with 380 being Encinitas residents and 180 Carlsbad residents. Director Lamson arrived at 3:07 p.m. Director Kaiser moved that the schedule be permitted as presented, seconded by Director Archibald. Approved 4-0-1 (Miller) 3. Review Summary of June and july, 2000 Revenues and Expenditures/Financial Statements. (Rod Linville/john McNair) Mr. Linville reviewed the financials for june and july 2000. For June total revenues were $412,891 or 110% of budget; expenses were $219,650 or 93% of budget; overall net income for the month was $192,330 or 143 % of budget; total rounds were 6,954 or 100% of budget. For the fiscal year end the net Income was $1,608,354 compared to budget of $1,251,851 or 128% of budget; rounds were 76,052 compared to budget of 73,935 or 103%. Director Millerarrived at 3:15 p.m. ) For the month of july total revenue was $493,354 compared to budget of $441,861 or 112% of budget; expenses were $260,846 compared to $249,552 or 105% of budget mainly due to increased costs for electricity and water. Net income was $231,320 compared to a budget of $190,026 or 122 % of budget; rounds were 7,786 compared to budget of 7,500 or 104%. 4. Report on Soil Testing in the Areas between Holes 11 and 10, and 16; Discussion re Replacement Plants for the Brome Grass. (Mark Warren/John McNair) Mr. Warren distributed copies of the soi I testing results in the areas between holes 11 and 10, and at hole 16. As the report indicated, the biggest problem is the high sodium content. In his discussion with the laboratory about the plant materials for use in the problem areas, Mr. Warren said their recommendation is that no matter what is used it will have to be hand planted. Seed will not germinate with the level of sodium in the soil and he has no way to lower the sodium content on the slopes. The exception to that would be material native to Encinitas that has proven to be the best for germinating from seed. Coastal Sage, for instance, has done very. well and requires very low maintenance. Regardless of what the Board decides to do, there are some irrigation modifications that will need to be done on the slopes. Chairman Kaiser said that he would like to continue discussion of the issue to the next month's meeting agenda. In the meantime, work should continue on Hole 14. 2 ) 5. 14th Tee. (john Nabors/Mark Warren) a) Landscape Plan b) Budget Mr. Warren distributed copies of the estimated budget for the renovation of hole #14. It came in at $77,400, and with the $35,000 to be contributed by Cornerstone, the project is under-funded by approximately $42,400. Mr. Warren reviewed the various trees and shrubs he was proposing to use for the renovation of hole 14 and where he planned to plant them. Mr. Warren also gave the board members an update on the work being done on hole 14. He anticipated that by the end of the following day the irrigation would be in and completed, including the wiring. In addition, he needed the Board's approval to go ahead and order new sod. The growers have discontinued growing Yuma sod. Chairman Kaiser said that there were two issues to be decided: 1) how much do we spend, and 2) what do we spend it on? He reminded the Board that at the last meeting they had appointed a project committee comprised of Director Archibald, Mark Warren, john McNair, john Nabors and Phil Cotton to look at these issues. Director Archibald advised that as of the month of July the Golf Course exceeded expectations by almost $60,000. This renovation project is about $42,000 under funded, which is less than two thirds of one month's excess revenue. He did not feel that it would be a drain on the golf course revenues to proceed with the proposed renovations. In response to a question from Director Wigginton as to the repayment of cost overruns, Director Archibald said it would affect the Carltas CO.'s ability to get some of that money for the golf course overruns. Chairman Kaiser asked Nancy Sullivan to address the issue of funds set aside in the capital reserve account. Ms. Sullivan advised that there is money being set aside in the capital reserve account and right now there is $140,000 in the account. Each month an additional 2.5 percent of gross revenue goes into the account. She anticipates there will be approximately another $106,000 through the current year. While it has not been done to-date, the Board should be preparing an annual budget as to how it anticipates spending the money. Ms. Sullivan agreed that only the Board can authorize the use of the money, and the money can only be used for capital items that are in the budget for'the year. It was determined that there are funds in the capital reserve account that could be used for the additional amount needed for the hole 14 renovations. Chairman Kaiser invited a motion on the budget to finish the project. 3 Director Wigginton moved that to complete the renovation of hole 14, the Board appropriate $47,000 (this includes a 10% contingency amount) from the Capital Improvement Fund to be put with the $35,000 already provided for this project, and authorize the Chairman to write to Cornerstone Communities requesting. the agreed upon funds. Motion seconded by Director Archibald. Approved 5-0. Director Archibald advised that the City's MIS/GIS division is planning to do some controlled aerial photography of the City. If they do this they will certainly get as- builts of the golf course. Chairman Kaiser said he recommended that john Nabors review the plan for planting the trees with Horton as part of our "good neighbor" pol icy, and the project committee review the proposed materials with Mark Warren and Mike Wells of the City's Parks Division. Director Wigginton volunteered to work with the City's Community Development Department to get their approval of the tree plan. 6. Quail Gardens Drive Bridge Uohn Nabors/jim Gay) John Nabors reviewed the discussions to-date and advised that the Planning Commission was not comfortable with the design. Through some ERGA sub- committee meetings it was determined that the Planning Commission desired to have a more natural, wood-looking structure instead of a metal bridge. This information was turned over to Hazard and Jim Gay was at the meeting to report on their part in the design. Mr. Gay of Hazard Construction advised that to keep within their budget they had drawn up a design of an all-timber and all glulam bridge; the only things that are concrete are the abutments. The exposed portion of the concrete wi II have river rock fascia made to look like the Leucadia Boulevard bridge. Overall height is about 48 inches. Director Archibald recommended that if the cost difference was not significant they go with a twelve-foot bridge. Mr. Nabors said a seven-foot bridge would be somewhat cheaper but not a lot. On a question from Director Miller concerning the estimated cost, Mr. Nabors responded that the present design and preliminary cost estimate is about $10,000 over the original contract which was to build a metal structure. That contract was to build the bridge plus about six additional costs - e.g. lighting allowance, grading and traffic allowance, for a net increase of about $10,000 for an eleven foot bridge. This would bring the estimated cost to $332.580 which would include allowances for retaining walls that may have to be built, work on the slopes, drainage, etc. Mr. Nabors recommended that the Board direct Mr. Gay to do cost estimates for seven- foot and twelve-foot wide bridges. 4 Mr. Nabors said that he would meet with the subcommittee and Planning Commissioner Alice Jacobsson and produce a good presentation package for the Board. They will prepare cost estimates for a twelve-foot bridge with curbs, and a sev~n-foot bridge with curbs and have available for review and discussion at the meeting with the subcommittee. 7. Hole 13 Safety Fencing for Trail. (David Wigginton) Director Wigginton said he had nothing to report. A letter had been sent to the Course Architect, Cary Bickler, who had responded negatively to the suggested fencing. He was asking for a complete cage. Director Wigginton said he could get a cost for a cage if that is the Board's desire. Directors agreed that a cage is a "major over-kill." Director Archibald stated that he felt a chain link fence with a small mesh in black vinyl placed on the south side of the trail at an angle that people are likely to hit, would be satisfactory. Director Wigginton said he would check with Planning Department to see if it would require a design review and report back to the Board. Taken out of Order. 10. Review of the Indenture of Trust Section 4.02(d)(iv) calculation to determine if the $2,200,000.00 net operating income requirement was met by june 30, 2000; and authorize the transfer of Excess Golf Course Net Revenues to the Trustee to pay the Developer for the cost of Golf Course Construction Cost Overruns totaling $1,057,788.00. (Leslie Suelter/Nancy Sullivan) Nancy Sullivan reviewed her agenda report and discussed the requirements of the Indenture of Trust. She said the Board should determine whether the $2.2 million operating income requirement had been met. The Indenture said the requirement had to be met by june 30,2000 in order to allow ERGA to pay the golf course construction costs overrun. She had reviewed her interpretation of the Indenture of Trust with Fitzpatrick and Gonzalez, the CPA firm, and also submitted to Stone & Youngberg and finally to the bondholder, Alliance Capital. All three agreed with the interpretation and the calculations, and agreed that ERGA did indeed meet the $2.2 million requirement. Board members also agreed with the calculations and had no questions. Ms. Sullivan said that with the Board's approval she would then go on to Item 8 of the agenda since the two issues were related. 8. Submission of the Certificate of Authority Letter for Golf Course Construction Cost Overruns. (Leslie Suelter/Nancy Sullivan) Director Miller moved that the Board accept the calculations and authorize submission of the Certificate of Authority letter, seconded by Director Kaiser. Approved 5-0. 5 9. Authorization of Use of the Capital Reserve Account (Leslie Suelter/Nancy Sullivan) Ms. Sullivan explained that the Golf Course determines how much cash they need to keep on hand for the current month and the following month. Any cash over that amount is wired to the City. Part of it goes into the excess cash fund and the balance goes into the capital reserve fund. jC Resorts has been transferring money into the capital reserve fund since March of 1999. The ERGA Board of Directors is the only entity authorized to use the funds and they may only be used for capital projects that are part of the golf course budget - i.e. anything to improve the golf course. The Management Agreement says that it's for items in the annual budget. As of june 30, 2000 there were $140,000 in the capital reserve account. Ms. Sullivan said that what she and Leslie Suelter were asking the board to do is to allow them to utilize the funds to cover current year capital expenditures. Mr. McNair reviewed item 12-1, concerning the 2000/2001 capital expenditures budget, and 12-2, the 2000/2001 course improvement budget. He said that prior to his coming to jC Resorts, the ERGA board had set aside $24,000 per year for the golf course improvement budget. Page 12-2 reflects this budget. Also, in the capital expenditures budget there is about $10,000 in contingencies, unallocated for just the kind of issue under discussion. It could be possible to pull some monies from the $24,000 course improvement budget if needed. Chairman Kaiser asked john McNair to include, as a part of the monthly financial reporting, the condition of the capital reserve account, together with a listing of anticipated expenditures. Director Archibald asked Mr. McNair how much was being contributed to the capital reserve account and was advised that it was 2.5% of gross revenues. For the current year it is estimated that $106,601 will be allocated for capital improvements. Chairman Kaiser asked if the 2.5% is stipulated in the Agreement and how does it actually work? In regards to the excess revenues generated over and above what is required in terms of debt service, where does the money end up? Ms. Sullivan replied that it is ERGA money and is deposited to the Enterprise Fund at the City. There are two funds: excess cash and capital reserve fund. Every month that excess cash comes from the golf course it is split between the ERGA excess cash/enterprise fund and the capital reserve fund. Out of the excess cash fund she pays the monthly debt service for the golf course. As of june 30, 2000 there was $1.144 million, including the capital reserve fund, in the fund. There is enough cash to pay the golf course overruns. After that payment there will be about $60,000. Chairman Kaiser asked if ERGA has the ability to increase the 2.5% deposited to the capital reserve fund. Ms. Sullivan said that it was possible but the Board should understand that when the Agreement comes into play, in addition to paying the debt 6 service from the excess cash, at the end of the year the golf course is supposed to pay their portion of the CFD bonds. This year, because the golf course paid for capital expenditures out of operating funds last year, there was no money left over to pay the golf course portion of the CFD bonds. The taxpayers/homeowners of the Ranch property paid it instead. Ms. Sullivan advised the Board that they should be careful not to deplete the cash account since the Agreement says that eventually the golf course will be picking up its portion of the CFD infrastructure bond payments on its property. Director Wigginton asked Nancy Sullivan if she could tell the Board what she felt would be a prudent reserve amount to be able to cover the CFD bond payments. Ms. Sullivan responded that there is actually a schedule showing the golf course's portion of the CFD. Ms. Suelter recommended that this issue be brought back to next month's board meeting at which time they will have a full written report. Director Miller moved that the Board Authorize the Use of Capital Reserve funds, seconded by Director Wigginton. Approved 5-0. 11. Approval of Audit Contract with Fitzpatrick and Gonzalez. (Nancy Sullivan) Director Archibald moved approval of the extension of the Audit Contract with Fitzpatrick and Gonzalez, seconded by Director Miller. Approved 5-0. Chairman Kaiser asked if the price was competitive. Ms. Suelter responded that they did not go out for a competitive price to change their fee. It is higher than what they have offered in the past. She believes that they did indeed put more hours into the audit than their last year's fee brought them. This is a pretty compl icated deal and she feels that they have a very good understanding now of the golf course, the various agreements, the relationship with jC Resorts, and they understand the management contract, and the bond documents. Given that the golf course is sti II rather new, going out and hiring new auditors and bringing them up to speed would probably, in the long run, not be cost effective. That is why they are recommending there be no change. Chairman Kaiser said that as a banker it is always kind of a red flag when he sees a change in accountants. 12. Capital Improvements. Uohn McNair) john McNair reviewed the proposed capital expenditure budget for 2000/2001 and responded to various questions from the directors. Chairman Kaiser said he would like to have a capital reserve running report with the monthly financial report. 13. Potential Course Enhancements. 7 No report. 14. Discussion/Direction Concerning Course Operations, Conditions Needing Change. Nothing to report. 15. 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.] Chairman Kaiser asked that Bylaws Review be placed on the next agenda. 16. Next Meeting - Special Meeting, Thursday, October 5, 2000 10:00 a.m. Date changed from September 28 due to conflict on three directors' calendars. Board adjourned into closed session at 5:00 p.m. 17. CLOSED SESSION: CONFERENCE WITH LEGAL COUNSEL, ANTICIPATED LITIGATION SIGNIFICANT EXPOSURE TO LITIGATION AUTHORITY: Govt. Code Section 54956.9b NUMBER OF POTENTIAL CASES: ONE CIRCUMSTANCE: (1) ALLEGED UNWARRANTED SUSPENSION OF A JUNIOR PLAYER 18. Adjournment Meeting adjourned at 5:30 p.m. with no reportable action. Respectfully submitted, .'J ' (-~ '. . ~(" / ) c~)J..v/o.A':'A....t:<.- d:;t--, Q.....;.., Patricia Drew, Board Secretary ;f lr: :/ / .,4" f /' ,,_,4/ 'L.I~ , ./"-/1 /;,I/? )la;:~~~_ _ 2,1/1 ; r. f.. ..~.." "t t:f---/Jff t__/ ". Ed'ward Kaiser, Chairman 8