2008-01-22
CITY OF ENCINITAS
ENCINITAS RANCH GOLF AUTHORITY
MINUTES OF SPECIAL MEETING
Lilac Room, Civic Center
505 South Vulcan Avenue
TUESDAY, JANUARY 22,2008 at 4:00 p.m.
CALL TO ORDER/ROLL CALL
Chairman Dean called the meeting to order at 4:07 p.m.
DIRECTORS PRESENT:
Phil Cotton, Bill Dean, Chris Hazeltine, and Cindy Jacob.
DIRECTORS ABSENT:
Peter Cota-Robles.
ALSO PRESENT:
John McNair, Rod Linville, John Fuller, (until 5:30 p.m.), JC
Resorts; Chris Calkins, Carltas Co. (until 4:45 p.m.); City Staff
Jennifer Smith, Jay Lembach, and Board Secretary Joan Woods.
ORAL COMMUNICATION
None.
REGULAR AGENDA
1. Approve Minutes of Special Meeting of December 19, 2007.
ACTION:
Hazeltine moved, Cotton seconded to approve the December 19, 2007 Special Meeting
minutes. Motion carried: Ayes: Cotton, Dean, Hazeltine and Jacob. Nays: None. Absent:
Cota-Robles.
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2. Review Summary of Revenues and. Expenditures/Financial Statement/update on Capital
Reserves for December 2007. (Rod Linville/John McNair)
Mr. Linville reviewed the summary of the December financial report.
Revenues for the month were $331,596 compared to a budget of $354,387 or 94% of
budget; Expenditures were $254,342 compared to a budget of $268,021 or 95% of budget;
Income for the month was $70,528 compared to a budget of $86,366 or 82% of budget.
Total rounds were 4,412 compared to a budget of 4,881 or 90% of budget.
Year to date net income was $540,076 compared to a budget of $702,479 or 77% of budget.
Year to date total rounds were 34,503 compared to a budget of35,557 or 97% of budget.
Mr. Linville pointed out that the current YTD financials require some adjustments, based on
the results of the FY 2006-07 financial audit.
Mr. Lembach from ERGA Management suggested that the Board review and adjust this
year's budget due to the adjustment made to the Financials for fiscal year 2007/2008.
Board Member Cotton asked about the administration/general & misc. expenses reported at
160% of budget and marketing expenses at 134% of budget. Mr. McNair stated he would
research and report back to the Board.
Mr. McNair stated that current revenues were down due to the rain.
3. Encinitas Ranch Golf Authority Fiscal Year 2006-2007 Audited Financial Results and
Auditor's Letter to management discussing recommendations for improvements.
(Jay Lembach)
Mr. Lembach presented the audited 2006-2007 financial statements to the Board. Mr.
Lembach's staff report reflected the following financial and operational highlights:
. The Golf Course once again turned in a solid financial performance.
. OPERATING RESULTS: The Course had 2007 Operating Income of$715,000,
compared to $918,000 in the prior year. Actual operating income exceeded budget
projections by $39,000, primarily because payroll and related expenses were
significantly under budget.
. OPERATING REVENUES: Total operating revenue increased approximately
$35,000, or less than 1%. Greens fees increased $120,000, or 3.6% based on
comparable play of 71,000 rounds. This increase was offset to some extent by a
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decrease in. sales of merchandise that was the result of the remodeling in progress at
the Clubhouse.
. OPERATING EXPENSES: Total operating expenses increased $238,000, or 6%,
with increases in all categories except cost of goods sold. Excluding cost of goods
sold and depreciation, operating expenses increased $254,000.
. NET ASSETS: Overall net assets decreased by $166,000, primarily due to operating
and non-operating expenses exceeding net revenues for the year.
. NET CASH POSITION: ERGA ended the year with $1.47 million in operating
cash compared to $2.1 million in the prior year, a decrease of $630,000. Of this
amount, about $230,000 represents prior year capital reserves that were expended on
the Clubhouse Expansion project. An additional $400,000 was expended on the
project and was owed to the Operating Fund at June 30, 2007.
. SURPLUS GOLF COURSE NET REVENUES: Surplus Golf Course Net
Revenues totaled $242,227 for fiscal year 2006-2007, of which $165,475 was
available to pay other demands (after the payment ofthe CFD #1 bond payments.)
Mr. Lembach stated one of the items that merited particular attention was the issue of the
payroll allocation of JC Resorts personnel to ERGA. An amount was budgeted for this
item, but JC Resorts was unable to provide adequate substantiation to support the basis
for the allocation. He further stated an allocation of payroll expenses in this type of
situation should be supported by a third-party cost allocation study that details the total
"pool" of overhead costs and the allocation methodology utilized to all participants that
were sharing the costs.
Chairman Dean suggested that JC Resorts work with Mr. Lembach in the capacity as
ERGA Management to review the payroll allocation of JC Resorts personnel to ERGA
rather than utilizing a third-party cost allocation study. Board Member Cotton preferred not
to incur additional costs for a third-party study and suggested JC Resorts and ERGA review
the payroll allocation to ensure accuracy.
Mr. Lembach stated the second item that merited attention was all capital reserves were
depleted as of June 30, 2007 for the Clubhouse Expansion project. The course's cash
position went from $2.1 million on June 30, 2006 to approximately $1.47 million on June
30, 2007. Mr. Lembach stated the Board should consider taking action to replenish the
capital reserves, particularly the long-term capital reserves.
Mr. Lembach stated the draft letter from ERGA's independent auditor containing
recommendations for improvements to financial policies and procedures was attached to the
agenda report.
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Mr. John Fuller from JC Resorts responded to the auditor's draft letter and explained JC
Resorts responses to the auditor's recommendations.
Chairman Dean requested the auditor's letter to management should delete the personnel's
individual names and identify only by position and/or title.
Board Member Cotton stated an auditor's letter of recommendations was a serious matter and the
payroll allocation was a significant event and needed to be addressed.
CONSENSUS:
Board consensus was to delete the personnel's individual names and identify only by position
and/or title and to bring the formal management letter back to the Board at the February 26th
meeting.
Mr. Lembach asked JC Resorts for a plan of corrective action. Chairman Dean confirmed a need
for a plan of corrective action from JC Resorts and asked Mr. Fuller to address. Mr. Fuller stated
that he would develop a plan of corrective action prior to the next ERGA meeting and would meet
with Mr. Lembach within two weeks on the payroll allocation.
Mr. Lembach said the auditors would be requesting additional fees for the audit due to the increased
costs caused by lack of experienced personnel at JC Resorts in locating documents during JC
Resorts staff's transition. Mr. Lembach would have the auditors put their request in writing for the
increased fees for the Board.
ACTION:
Cotton moved, Jacob seconded to accept the Annual Financial Report of the Encinitas Ranch
Golf Authority for the fiscal year ended June 30, 2007. Motion carried: Ayes: Cotton,
Dean, Hazeltine and Jacob. Nays: None. Absent: Cota-Robles.
4. Discussion of Financial policies for addressing reserves, payment obligations, etc.
(Jennifer Smith)
Jennifer Smith presented an outline of proposed ERGA Finance Policies. The outline identified
potential areas to be considered and discussed by the Board:
1) Use of Capital Reserves, 2) use of Operating Reserves, 3) treatment of one-time revenues, 4) JC
Resort Corporate overhead allocations to the Encinitas Ranch golf course and 5) procedures for
excess cash to the City.
Board Member Cotton suggested the Board have him direct the City Staff to draft procedures
and/or policies individually on the proposed outline. Mr. Cotton further suggested that proposed
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items # 1 and #2 (Use of Capital Reserves and Operating Reserves) be addressed first and be
agendized for the March 2008 ERGA meeting.
CONSENSUS:
Board consensus was to have Board Member Cotton direct City Staff to draft procedures
and/or policies on use of Capital Reserves and use of Operating Reserves and agendized for
the March 2008 ERGA meeting.
Mr. McNair stated the calculation methodology for item #4 (JC Resort Corporate overhead
allocations to the Encinitas Ranch golf course) may be resolved by the February 2008 ERGA
meeting.
Board Member Cotton stated that Nancy Sullivan from City Staff had prepared a synopsis of how
the bond documents require the sharing of net golf course revenues for: payment of the CFD Bonds
"5-year look back"; and the sales tax repayment from Carltas Co. The Board requested that this be
agendized for the February meeting and have the Ad Hoc Committee present their findings.
5.
Discussions on Banquet room charge pricing and policies
(John McNair)
Mr. McNair presented the proposed Encinitas Ranch banquet room charge pricing and policies.
The Board discussed non-profit rate pricing. The Board agreed to the change in the proposed policy
to reflect "Resident/Non-profit", which provided a non-profit rate the same as the resident pricing.
Encinitas Ranch Room Rental Rates
Resident (1 )/Non-profit(2) event with food ($10 per person
minimum)
Ranch Room
Less than 50
quests
$25
No time minimum
$75
2 hour minimum
$50
No time minimum
$150
2 hour minimum
Waived
No time minimum
Resident (1 )/Non-profit (2) event without food
Non-resident event with food ($10 per person minimum)
Non-resident event without food
Tournament
Ranch Grill
50-144 quests
$75
2 hour minimum
$150
2 hour minimum
$150
2 hour minimum
$300
2 hour minimum
Waived
No time minimum
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1. Resident definition: To qualify for a resident event rate, the host business must be based in the city of Encinitas.
In the case of an individual signing the contract, the individual must live in the city limits ofEncinitas.
Proof of business address or residence may be required.
2. Non-profit definition: Must be a 501 (c) (3) tax exempt organization, not conducted or maintained for profit, whose
net earnings are devoted exclusively to charitable, educational, or recreational purposes. Includes associations,
community groups, non-government organizations and political campaign organizations established to influence
legislation or elect a candidate for public office.
3. All rates are per hour.
ACTION:
Hazeltine moved, Jacob seconded to approve the proposed Banquet room charge pricing and
policies with the change which reflected the Resident/Non-profit rate as both the same rate.
Motion carried: Ayes: Cotton, Dean, Hazeltine and Jacob. Nays: None. Absent: Cota-
Robles.
6.
Encinitas Ranch Golf Course Marketing Plan.
(John McNair)
Mr. McNair presented a list of Encinitas Ranch Taglines:
North County's Coastal Favorite
Coastal Golfto Play Again and Again
North County's Pure Coastal golf
Cross Over to Pure Golf
Mr. McNair stated his preference was "North County's Coastal Favorite" and asked the
Board for comments, Board Member Cotton suggested keeping the Marketing Plan on the
agenda and would like to see how the tagline could be incorporated with the marketing plan.
7.
Report on Course Enhancements
(Kent Graff)
Mr. Linville updated the Board on the Course Enhancements. Mr. Linville stated that he
had received proposals from two golf cart lease companies, pricing increased significantly
(approximately $87,000 higher) and both proposals did not provide four year warranties on
the batteries. Both proposals warranties for batteries were based on rounds of golf or energy
used. Mr. Linville estimated the replacement costs of the batteries would be approximately
$60,000 to $65,000 and the battery life was approximately 2 1Iz years.
Board Member Cotton suggested that the Board increase the Cart Fees at the same time as
the new carts are delivered. An increase of $2.00 for Cart Fees would generate
approximately $125,000 in revenue. The perception of the public would be more
accommodating for the pricing increase due to the increase in expense for the new golf
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carts. Mr. Linville stated the new carts were more energy efficient providing a cost and
environmental savings. Mr. Linville stated that the Golf Cart Leases would be agendized
for the next meeting.
8.
Update on Cell Tower Discussion
(John McNair)
Mr. McNair updated the Board on the status of the cell tower discussions with Verizon.
Mr. McNair stated that negotiations should be concluded within the following two weeks.
9.
Incidents and Accidents.
(Rod Linville)
Mr. Linville stated there were no reports for incidents and accidents for December.
10. Directors and/or Manager Reports
. There were no reports.
11. Next Meeting - Tuesday, February 26, 2008at 4:00 p.m.
12. Adiournment
Chairman Dean thanked the Encinitas Ranch Golf Course Staff, on behalf of the Board, for
the wonderful reception at the December meeting and adjourned the meeting at 6:00 p.m.
Respectfully. submitted,
. C4tMV >f. WH4
JI6'~n Woods, Board Secretary
Bill D~ o[the Board
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