City of Reno
Nevada

Staff Report
3455

Staff Report (For Possible Action): Discussion, direction to staff and possible approval of agreements with Northern Nevada Youth Golf Foundation, D/B/A The First Tee of Northern Nevada, for the short- and long-term lease, management, operation, and development of Rosewood Lakes Golf Course and the provision of golf services by independent contractors

Information

Department:Parks, Recreation and Community ServicesSponsors:
Category:Agreement

Recommendation and Proposed Motion

Recommendation:  Staff recommends City Council accept the staff report and approve the recommendations in the associated staff reports.

 

Proposed Motion:  I move to approve staff recommendation.

Staff Report Formal Body

Summary: Rosewood Lakes Golf Course (the “Golf Course”) is owned and operated by the City of Reno.  Each year, on average, the City spends approximately $736,000 from the General Fund to operate the Golf Course and cover bond payments.  The City has received a request from The First Tee of Northern Nevada (“TFT”) to lease, manage, operate and redevelop the Golf Course.  Attached for City Council review and approval are:  (i) Agreement for Services of Independent Contractor; (ii) Short-Term Lease Agreement (Rosewood Lakes Golf Course); (iii) Golf Course Reconstruction Option Agreement (Rosewood Lakes Golf Course); and, (iv) a City Council resolution directing the defeasance of the City of Reno, Nevada, General Obligation (Limited Tax) Golf Course Refunding Bonds Series 2004A. Staff recommends that City Council approve the agreements and adopt the resolution.

 

Previous Council Action: 

 

March 12, 2014- City Council directed staff to negotiate a lease with First Tee of Nevada for future use of the Rosewood Lakes Golf Course to provide public golf services.

 

January 15, 2014- James Keegan of Golf Convergence, Inc. presented a market analysis of the Golf Course to City Council. 

 

December 4, 2013-City Council upheld the Planning Commission decision and approved a Special Use Permit to RTC for the construction of the Southeast Connector. 

 

January 16, 2013-City Council approved a five year, medium-term lease-purchase agreement with EZ-GO for sixty (60) golf carts. 

 

February 3, 2012-City Council approved that certain Agreement Permitting Construction of Southeast Connector on Rosewood Lakes Golf Course dated February 3, 2012 by and between the City and RTC (“SE Connector Agreement”), which provides for the construction of a public arterial street through the Golf Course.  The City received $7.5 million from RTC for that Agreement. 

 

Background:  The City of Reno, Nevada, General Obligation (Limited Tax) Golf Course Refunding Bonds Series 2004A (the “Bonds”) require the City to operate the Golf Course and charge whatever rates are necessary to maintain the Golf Course and pay debt service (approx. $280,000/yr.).   Until the Bonds are paid off, the City cannot change the use of the Golf Course, close the Golf Course, or redirect the pledged revenue for any other purposes.  Currently, the outstanding balance on the Bonds is approximately $1.48 million. 

 

Prior to commencement of road construction on the Golf Course, the City must defease the Bonds.  Likewise, if the City enters into the proposed lease agreement with TFT, the City must defease the Bonds within ninety days.  Failure to defease the Bonds will trigger a covenant default and an adverse tax consequence, i.e., the Bonds will lose their tax-exempt status.  A portion of the funds received from the RTC has been earmarked to defease the Bonds. A Resolution directing defeasance and redemption of the Bonds is provided as Item J.2.5.

 

Discussion:  TFT is a nonprofit corporation and a charitable entity qualified under Internal Revenue Code Section 501(c)(3) that provides youth development golf classes and programs.  The Northern Nevada Chapter began in 2008 and served 500 youth participants.  In 2013, TFT served more than 7,500 youth participants.  The activities of the organization are more fully described in Attachment B. 

 

Due to the closure of other area courses, TFT has been looking for a new “home course” to base its operations.  After seeing Mr. Keegan’s presentation, TFT submitted a letter of interest to the City to lease, manage, operate and redevelop the Golf Course.  See Attachment A.

 

At City Council’s direction, staff met with representatives of TFT to discuss mutual interests, goals and approaches to providing golf services to the community, and the prospects for reconstructing and operating the Golf Course both before and after the construction of the Southeast Connector.   As a result of those meetings, TFT and staff negotiated three agreements:  (i) Agreement for Services of Independent Contractor; (ii) Short-Term Lease Agreement (Rosewood Lakes Golf Course); and, (iii) Golf Course Reconstruction Option Agreement (Rosewood Lakes Golf Course).  The material terms of these agreements are as follows:

 

1.                   Agreement for Services of Independent Contractor (“Golf Classes Agreement”)

 

The Golf Classes Agreement is Item J.2.2. In the Golf Classes Agreement, TFT agrees to conduct golf classes and provide golf programming to children who are members of the general public at the Golf Course

 

2.                   Short-Term Lease Agreement (Rosewood Lakes Golf Course)

 

The Short-Term Lease Agreement is Item J.2.3, and allows TFT to occupy, manage and operate the Golf Course on a month-to-month basis until construction of the Southeast Connector is completed.  The key terms of the agreement are as follows:

 

·         Rent.  $1.00 per year.

·         Term.  Month-to-month.

·         Termination. Either party upon thirty (30) days notice.

·         Approved Uses.  Operating a municipal golf course, driving range, practice areas, golf pro shop, bar/grill open to the general public, and concessions and other activities customarily associated with or incidental to the operation of Golf Course.

·         Operations.  April 1st through October 1st, minimum six (6) days per week.  This year, operations will commence on or before May 15, 2014.

·         Operational Standards.  TFT shall cause the Golf Course, at all times, to be operated and maintained in a manner consistent with standards and conditions for municipal golf courses.

·         Utilities.  Triple net.

·         Maintenance.  City is responsible, at its sole cost, for the construction and maintenance and expense for all physical permanent improvements to the Golf Course requiring physical alterations to the existing conditions at the Golf Course to accommodate the Approved Uses (e.g., roof replacement, major structural repair, carpet replacement, major irrigation system repair, cart path replacement).  City, however, retains the right to refuse to perform its maintenance obligations, in which case, TFT’s sole remedy shall be to terminate the Lease without incurring any liability to City. Exhibit 1 identifies improvements/repairs the City intends to make associated with this short term lease (FY14).

·         Road Construction.  TFT may close all or any part of the Golf Course to public use during construction.

·         Condition of Property.  AS IS / WHERE IS (except for Exhibit 1 planned improvements)

·         Alterations.  Require City approval.

·         Golf CartsCity supplies golf carts and pays the lease/purchase debt obligation in full per previous agreement (Resolution No. 7804). 

·         Effluent Water.  Must use City effluent water at no cost to TFT.

 

3.                   Golf Course Reconstruction Option Agreement (Rosewood Lakes Golf Course) (the “Option Agreement”)

 

The Southeast Connector, when constructed, will occupy a substantial portion of the Golf Course, making it infeasible to operate an eighteen-hole golf course.  TFT has expressed a desire to design, develop and reconstruct a nine-hole golf course, driving range and practice areas on the property. The Option Agreement is Item J.2.4, and provides a vehicle for the parties to realize their mutual long-term plans and goals for the property.  The key terms of the Option Agreement are as follows:

 

·         Grant of Option.  TFT granted option to lease Golf Course pursuant to Long-Term Lease Agreement (Rosewood Lakes Golf Course)

·         Term of Option.  Three years.

·         Conditions Precedent to Exercise of Option.

o       Financing Plan.  Approved by City Council.  TFT plans for financing the acquisition, construction, equipping, operation, and maintenance of the Project and Golf Course improvements (hereinafter the “Financing Plan”).  The Financing Plan will indicate all sources of funds necessary to pay, when due, the estimated costs of the Project, including without limitation hard and soft construction costs, and will be accompanied by evidence that, to the extent the source of funds is not the City, all such funds have been firmly committed by The First Tee, or by equity investors or lending institutions, subject only to commercially reasonable conditions.

o       Design Professional.  Operator, or other design professional approved by City Council.

o       Plans.  Detailed plans, specifications and cost estimates for the Project improvements.  Approved by City Council.

o       Schedule of Construction.  Approved by City Council.

o       Permits.  TFT shall have obtained any and all permits necessary under applicable law to construct, operate and maintain the Project improvements.

·         Change in Plans.  Must be approved by City Council.

·         Exhibit 2:  Form of Long-Term Lease.  Same as Short-Term Lease, but with the following modifications:

o       Term.  Initial five (5) year term, with three (3) additional five (5) year terms.

o       Termination.

§         City.  For cause only.

§         TFT.  TFT may elect to terminate Lease without cause:  (a) during the first three (3) years of the initial Term, upon prior written notice of termination effective not earlier than (i) one year from its date of delivery, or (ii) the expiration of a full Golf Season after the notice; and (b) after the third year of the initial Term and during any Extended Term, upon 60-days prior written notice of termination to Landlord.

o       Construction Mandatory.  Must reconstruct Golf Course in accordance with agreed upon Plans.  Prevailing wage required.

o       City Financial Contribution.  As set forth and agreed to in Financing Plan, Exhibit D.  Based on preliminary discussions between the parties, the City’s Financial Contribution is estimated to be in the range of $300,000 to $400,000.  See Exhibit 1.  The actual amount and timing of payment of the City’s Financial Contribution, however, will depend upon a number of factors including, but not limited to, the duration and impact of the RTC road construction, the deferred maintenance on existing facilities, and the agreed-upon scope of the Golf Course reconstruction.

 

Financial Implications: 

Operations: The golf course is currently budgeted to operate in FY 13/14. In FY 12/13 the Rosewood Lakes Golf Course had a net operating loss of $870,571, and in the last three fiscal years the Course has had an average net operating loss of $736,210. Once approved, these agreements will relieve the City of future annual operating costs for the course.

 

Bond Implications: Since the proposed Short-Term Lease Agreement is a change in use of the Bond-financed facilities, defeasance of the Bonds must occur within ninety (90) days of the effective change in use.  If Council approves the agreement today, April 16, 2014 becomes the effective change-in-use date, and the Bonds would be scheduled for defeasance on July 10, 2014.

 

Upon approval of the lease and adoption of the resolution, staff will proceed with defeasance of the Bonds, using funds received from RTC currently held in reserve ($1,500,000).

 

Golf Cart Lease:  On January 16, 2013 City Council approved a sixty (60) month lease purchase agreement with EZ-GO for the purchase of sixty (60) golf carts.  The monthly city’s payment for the golf carts is $3,589 or $43,070.40 annually.  The proposed agreements with TFT require that the lease be paid in full.  The lease does not allow for any assignment, sale, transfer, pledge, sublease or for the City to part with possession of the golf carts.  On July 10, 2014, the approximate payoff amount will be $159,300. Once the golf carts are paid off, they will become part of the overall lease to TFT.

 

Future Costs: The attached Exhibit 1 identifies the estimated costs to the City to transition from being the operator of the Golf Course to allowing a lessee (i.e. TFT) to operate the Golf CourseExhibit 1 also identifies the foreseen City costs to transition to a nine-hole course after construction of the Southeast Connector.  Sewer funds will be used to replace and repair the irrigation system that provides effluent for disposal on the Golf Course ($96,000). The balance of the funding will come from the general fund. The impact to the City General Fund in FY 15 will be a net savings of approximately $350,000 (assumes golf cart lease is paid in full). Future year general fund savings, based on FY 15 projected costs and revenues, would be approximately $620,000/year.

 

Legal Implications:  Pursuant to NRS 268.053, the governing body may lease real property to a nonprofit organization that is a recognized as exempt under section 501(c)(3) of the Internal Revenue Code;  is affiliated by contract or other written agreement with the City; and provides to residents of the city or to other persons a service that the city would otherwise be required to expend money to provide, under such terms and for such consideration as the governing body determines reasonable based upon the costs and benefits to the city and the recommendation of any city officers who may be involved in approving the lease. 

Meeting History

Apr 16, 2014 12:00 PM Video Reno City Council Regular

A RECESS WAS CALLED AT 4:35 P.M. AND UPON RECONVENING AT 4:40 P.M., COUNCIL MEMBER DORTCH WAS ABSENT.

Julee Conway, Parks, Recreation and Community Services Director, presented a brief overview of the Staff Report.

A lengthy discussion ensued regarding details of the proposed agreements.

The Council accepted the report.

RESULT:APPROVED [UNANIMOUS]
MOVER:Sharon Zadra, Council Member
SECONDER:Hillary Schieve, Council Member
AYES:Robert Cashell, Jenny Brekhus, Sharon Zadra, Oscar Delgado, Neoma Jardon, Hillary Schieve
ABSENT:Dwight Dortch