City of Madera Fails to Enforce the Golf Course Contract Requirements Madera Municipal Golf Course: Revisited 2023-2024

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Receive information on the current funding status of the Madera Municipal Golf Course and provide direction regarding deferred maintenance as appropriate. SUMMARY: During the City Council meeting on April 3, 2024, staff presented the annual report on the golf course. Following the presentation, Council requested an update on projected capital revenue and plans to address maintenance needs at the Golf Course. This item is intended to provide said information. DISCUSSION: During the June 21, 2023, City Council meeting, the Council approved a Ninth Amendment to the Madera Municipal Golf Course and Management Lease agreement with SGM Inc. dba Sierra Golf Management, Inc. (SGM). This amendment extended the existing lease agreement by an additional 5 years through June 30, 2028, and outlined a new and improved revenue agreement between the parties (Attachment 1). Existing Agreement (Amendment 9 to the Agreement) The following is a synopsis of the 9th Amendment. ▪ The agreement is for 5 years and includes, at City discretion, one (1) option to extend the term an additional (5) years. This agreement will expire on June 30, 2028, with a five-year extension available through June 30, 2033. ▪ The amendment allows for increased base rent and per-round golf rates compared to the previous contract. ▪ In years one through four, SGM will remit $2.75 per round of golf to the City, increasing to $3.00 per round in year five. ▪ SGM, the Clubhouse Tenant, currently Sugar Pine Smokehouse (SPS), and the City will each contribute $25,000 annually to a capital improvement fund. Thus, the grand contribution for capital improvements annually shall be $75,000. ▪ The base rent will be $65,000 annually to lease the golf course and clubhouse facilities. ▪ The City will utilize the Golf course for 5 events; o Annual 4th of July Holiday Golf Tournament o Fishing Derby o Employee Appreciation Day o Yet to be determined o Yet to be determined ▪ There will be annual updates to the City Council on the previous year's improvements and the planning year's improvements. ▪ The City will hold SGM capital funds of $50k annually until capital projects are completed. ▪ Golf Course Committee comprised of: o One City Council member o Parks Director o SGM Representative o Service Organization Representative o Golfer/At-large Community member o Food and Beverage Director/Representative FINANCIAL IMPACT: Table 1 provides a summary of the agreement. Table 1: Overview of the Existing Agreement Terms 5 years Base rent to City per year $65k Per Round Rate to City Years 1-4 Year 5 $2.75 $3.00 Capital Improvements Contribution by SGM per year $50k Capital Improvements Contribution by the City per Year $25k While preparing the 9th Amendment to the agreement with SGM, assumptions were necessary to determine potential revenue. Table 2 provides an overview of the assumptions. Table 2: Projected Revenue to the City from SGM per Amendment 9 (1) Year of contract per the 9th 1 2 3 4 5 Amendment Fiscal Year 2023/2024 2024/2025 2025/2026 2027/2028 2028/2029 Base Fee $65,000 $65,000 $65,000 $65,000 $65,000 Estimated Rounds 30k 30k 30k 30k 30k Fees Per Round $2.75 $2.75 $2.75 $2.75 $3.00 Revenue for Rounds $82,500 $82,500 $82,500 $82,500 $90,000 Payment to the City $147,500 $147,500 $147,500 $147,500 $150,000 (1) Does not include Capital Improvements contributions which are identified in Table 6 of this report Condition and Improvement Plans The City's contract fire marshal completed a site inspection of the Madera Golf Course on October 25, 2023. An inspection report was prepared on November 1, 2023 (Attachment 2) and shared with the advisory Committee shortly thereafter. After review and discussion, the Committee drafted a letter (Attachment 3) outlining concerns relating to deferred maintenance at the Golf Course. However, the letter did not propose any cost estimates but was subsequently shared with the City Council on March 6, 2024. Budgetary estimates addressing all deferred maintenance concerns were discussed during the Committee meeting held on April 22, 2024 (Table 3). Table 3: Repair Estimates Deferred Maintenance Item $ Assembly Bldg. Tree Roots External Concrete $10,000 Missing Paint External $50,000 Exit Signage (Complete) - Kitchen Ceiling (Complete) - AC Mechanical Units $210,000 Restrooms ($40K FY 23/24 + $40K FY 24/25) $80,000 Egress Doors $60,000 Irrigation System (Full System) $4,000,000 Pump Station (1) $60,000 Heads and Controller (2) $1,000,000 Current Annual average Irrigation Repair Costs (1) $40,000 Invasive Grass and Weeds (SGM will handle) - Enhanced Practice Facilities (2) TBD Additional turf on the Driving Range (2) TBD (1)Alternative instead of replacing the complete irrigation system (2)Requires Additional clarification from USGA Table 4 provides an overview of the revenue the Golf Course has generated for the City over the last several fiscal years. It includes information on the sources of revenue, including income from SGM and any transfers of funds from the General Fund. Table 4: Madera Golf Course Fund – Revenue (1) Fiscal Year 2020/21 2021/22 2022/23 2023/24 2024/25 (2) Projected Rents/Pro Shop $20,049 $19,970 $24,267 $50,799 $65,000 Green Fee User Charges $58,004 $54,742 $59,878 $78,584 $90,000 Transfer-In (from the General Fund) (3) $298,804 $298,151 $298,804 $76,336 $0 Total Revenues $376,857 $298,151 $298,804 $76,336 $155,000 (1) All figures are rounded to the nearest dollar. (2) Year to date. There are still approximately 2 months remaining in this fiscal year. (3) Transfer-in are funds provided by the General Fund. Funds from the General Fund are transferred to the Golf Course Fund, thus it is shown as a revenue. These funds helped pay to service outstanding debt. Table 5 offers an e overview of the City's expenditures related to the Golf Course, encompassing debt service, payments to the Airport due to the Golf Course's utilization of Airport-owned property, and insurance costs. Notably, insurance expenses, previously covered by the General Fund, are now recorded in a newly established account to enhance transparency in financial reporting. This summary provides insight into the financial obligations of operating and maintaining the Golf Course. Table 5: City Expenses for the Golf Course (1) Fiscal Year 2020/21 2021/22 2022/23 2023/24 2024/25 (2) Projected Liability/Property Insurance $0 $0 $0 $14,459 $14,458 Payment to Airport $64,083 $64,083 $64,083 $51,266 $64,083 Interest Payment for Loan $32,128 $22,590 $12,744 $2,581 $0 Principal Payment for Loan $296,600 $306,200 $316,100 $161,800 $0 Total Expenses $392,811 $392,873 $392,927 $230,106 $78,541 (1) This does not include the City’s contribution of $25k for Capital Improvements as outlined in Amendment 9 beginning in Fiscal Year 2023/24. Capital Improvements contributions are listed in Table 5. (2) Year to date. There are still approximately 2 months remaining in this fiscal year. Capital Improvement Funds The current contract includes provisions for the City to contribute $25,000 annually towards capital improvements. As part of the 6th Amendment to the agreement with SGM, SGM contributed $20k annually towards capital for 2 fiscal years, plus a one-time $15k contribution for water improvements. Prior to the COVID pandemic, SGM contributed $50k per year for capital improvements. In the current agreement, approved in June 2023, SGM contributes $50k, whereas the City contributes $25k for a total of $75k per year. Table 6: Capital Improvement Contributions per Amendment 9 Year of contract 1 2 3 4 5 Fiscal Year 2023/2024 2024/2025 2025/2026 2027/2028 2028/2029 SGM $25,000 $25,000 $25,000 $25,000 $25,000 Clubhouse $25,000 $25,000 $25,000 $25,000 $25,000 City Contribution $25,000 $25,000 $25,000 $25,000 $25,000 Total Capital $75,000 $75,000 $75,000 $75,000 $75,000 Why has the City historically subsidized the Golf Course? The tables above summarize the revenue and expenses of operating the golf course. Notably, they highlight the General Fund's supplemental funding, which offsets the golf course's expenses. It is essential to recognize that historically, the General Fund has played a crucial role in supporting the golf course financially. However, it's important to understand that the General Fund also subsidizes various other public spaces within the City, including: ▪ Town and Country Park ▪ McNally Park ▪ Pan-American Center ▪ Sunrise Rotary Sports Complex ▪ Frank Bergon ▪ Public pools While the golf course and public pools are the only City facilities typically accessible via payment from visitors, the golf course is the only facility operated by a for-profit private company. This distinction is important in understanding the diverse operational models employed within our community spaces. Furthermore, while programmed sports fields such as soccer fields and baseball diamonds are available to the public, it's pertinent to acknowledge that private leagues often lease these fields. However, the rental rates only partially reflect the actual costs of maintaining these facilities. As a result, the General Fund also subsidizes such facilities, emphasizing the broader context of financial support for public amenities within the city. This holistic perspective underscores the understanding that profitability alone does not serve as the sole measure of the value these facilities bring to our community. Instead, they contribute to residents' overall well-being and enrichment, promoting recreation, leisure, and social cohesion. Financial Outlook for the Golf Course With the retirement of the debt, a significant milestone has been achieved. Projections indicate that revenue from the Golf Course is expected to surpass expenses for the first time. Table 7 outlines a summary of projected expenses versus revenue for the upcoming five years, offering an overview of the anticipated financial landscape. Table 7: Financial Outlook (Revenues minus Expenses) for 5 fiscal years based on assumptions Year 1 2 3 4 5 Fiscal Year 2023/2024 2024/2025 2025/2026 2027/2028 2028/2029 Revenue Base Fee $65,000 $65,000 $65,000 $65,000 $65,000 Estimated Rounds 30k 30k 30k 30k 30k Fees Per Round $2.75 $2.75 $2.75 $2.75 $3.00 Revenue for Rounds $82,500 $82,500 $82,500 $82,500 $90,000 Ongoing Expenses Liability/Property Insurance ($14,459) ($14,458) ($15,000) ($15,000) ($15,000) Payment to Airport ($64,083) ($64,083) ($64,083) ($51,266) ($64,083) City Contribution for CIP ($25,000) ($25,000) ($25,000) ($25,000) ($25,000) Total $43,958 $43,959 $43,417 $56,234 $50,917 ALTERNATIVES: The staff has no recommendation currently. Request the council review the above information and determine whether it is feasible to stay the course as outlined in Amendment 9 or move forward with a budget adjustment addressing any or all the deferred maintenance items as presented. ATTACHMENTS: 1. Resolution - Approving Ninth Amendment 2. Inspection Report for Madera Golf Course dated November 1, 2023 3. Golf Course Advisory Committee Letter received February 7, 2024 ATTACHMENT 1 RESOLUTION NO. 23-113 NINTH AMENDMENT TO THE MADERA MUNICIPAL GOLF COURSE OPERATION AND MANAGEMENT LEASE AGREEMENT WITH SGM INC. DBA SIERRA GOLF MANAGEMENT INC. WHEREAS, the City of Madera (City) owns the Madera Municipal Golf Course, hereinafter called golf course for use and benefit of the public; and WHEREAS, the City desires to provide the highest level of service to the community of Madera by providing an improved golf course facility and related operations; and WHERAS, the City and SGM Inc. DBA Sierra Golf Management Inc. (SGM) entered into a five-year agreement on October 7, 2009; and WHEREAS, the initial five-year agreement allowed for a five-year extension and said five year extension was exercised via Amendment on October 15, 2014; and WHEREAS, on October 3, 2013, the City Council approved the second amendment to the agreement; and WHEREAS, on October 15, 2014, the City Council approved the third amendment to the agreement; and WHEREAS, on October 2, 2019, the City Council approved the fourth amendment to the agreement; and WHEREAS, on April 15, 2020, the City Council approved the Fifth amendment to the agreement; and WHEREAS, on March 17, 2021, the City Council approved the Sixth amendment to the agreement; and WHEREAS, on April 27, 2023, the City Council approved the Seventh amendment to the agreement; and WHEREAS, on May 28, 2023, the City Council approved the Eighth amendment to the agreement; and WHEREAS, the existing agreement is set to expire on June 30, 2023; and WHEREAS, the City SGM have been in negotiations to develop new lease terms for full service golf course operations; and WHEREAS, the City and Sierra Golf Management have agreed to extend the existing agreement to five years including a five-year renewal option; and WHEREAS, all terms and conditions of the agreements shall remain unless expressly amended in the ninth amendment a copy of which is attached hereto as Exhibit 1 and referred to for particulars, is approved; and NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF MADERA, finds, orders and resolves as follows: 1. The above recitals are true and correct. 2. The City Council approves the Ninth Amendment to the Lease Agreement with SGM for Golf Course Operation and Management which is attached hereto as Exhibit 1. 3. The Mayor of the City of Madera is authorized to execute the Amendment on behalf of the City. 4. This Resolution is effective immediately upon adoption. PASSED AND ADOPTED by the City Council of the City of Madera this 21st day of June 2023 by the following vote: AYES: Mayor Garcia, Councilmembers Gallegos, Rodriguez, Montes, Evans, Mejia and Villegas. NOES: None. ABSTENTIONS: None. ABSENT: None. APPROVED: SANTOS GARCIA ATTEST: -·- Exhibit 1 NINTH AMENDMENT TO MADERA MUNICIPAL GOLF COURSE OPERATION AND MANAGEMENT LEASE AGREEMENT BETWEEN THE CITY OF MADERA AND SIERRA GOLF MANAGEMENT, INC. This Ninth Amendment to Madera Municipal Golf Course Operation and Management Lease Agreement {"FIFTH Amendment"} is made by and between the City Of Madera, a California municipal corporation, ("City"), and SGM Inc. dba Sierra Golf Management Inc., Post Office Box 788 Chowchilla, California 93610 ("Sierra") both hereinafter collectively referred to as "the Parties." RECITALS WHEREAS City and Sierra entered into an agreement on October 7, 2009, to contract for the operation and management of the Madera Municipal Golf Course ("Agreement"); and WHEREAS, the Parties executed a Second Amendment to Agreement on July 3, 2013, a Third Amendment to Agreement onOctober15, 2014, a Fourth Amendment to Agreement on October 2, 2019, a Fifth Amendment to Agreement on, a Sixth Amendment on April 15, 2020, a Seventh Amendment on 27 April 2023, an Eighth Amendment on May 28, 2023; and WHEREAS, the Parties have been diligently negotiating a new long-term agreement for the last few months; and WHEREAS the Agreement is set expire on June 30, 2023; and WHEREAS, the Parties the parties have reached mutual agreement on a new long-term contract. AMENDMENT 1. Section 2 of the Agreement entitled "Term" and as amended by prior amendments is amended by adding the following to the end of Section 2: "Notwithstanding the above language, the term of this Agreement shall extend for a period not to exceed five years from the date of execution. Both parties agree to resume discussions related to exercising a five-year option to renew the agreement of the termination date. 2. Section 5.1 of the Agreement entitled "Base Rent" and as amended by prior amendments is amended by adding the following to the end of Section 5.1: "Notwithstanding the above language, the base rent shall be $5416.66 per month during the term as described in Section 2 of the Agreement. 3. Section 5.2 of the Agreement entitled "Per Round Rate" and as amended by prior amendments is amended by adding the following to the end of Section 5.2: "Notwithstanding the above language and Section 4.6 of the Agreement, the Per Round Rate shall be $2.75 during years one (1) through four (4) and $3.00 in year four (4) through five (5) during the term as described in Section 2 of the Agreement. Years 1-4 $2.75 per round Year 5 $3.00 per round 4. Section 5.5 of the Agreement entitled Capital Improvement Account is amended as follows. Commencing on the Effective Date and continuing through the Initial Term and Renewal Term, the City shall hold in reserves $75,000 in the Golf Course Capital Improvement Account and shall make such funds available exclusively for capital improvement projects at the Leased Premises. 5. Section 5.6 of the Agreement entitled Capital Improvement in the Agreement relating to Capital Improvements is amended as follows. "Each year of the extended Agreement as per the Ninth Amendment, Sierra shall make capital improvements to the leased Premises in the amount of $50,000 per year. Sierra and its Tenant shall make an annual expenditure of no less than $25,000 each or $50,000 in total per calendar year. The first priority shall be the repair and upgrade of the banquet hall restrooms. In parallel or soon after, SGM will utilize the unexpended funds, $15,000 previously allotted via Amendment no Sixth to address the issue of potable water. These funds will be utilized to purchase a new water tank and pump. All other said capital improvements, and order of priority shall be determined by the Golf Course Committee. 6. Section 7.13 of the agreement entitled Restaurant and Banquet Operations is Amended as follows. Sentence 2 of Paragraph No 2 is deleted in its entirety and replaced with "Should SPS vacate the clubhouse, the City, and SGM will work together to procure a new operator" 7. Section 40 is added to the agreement to read as follows; The City will utilize the Golf course for 5 events; 1. Annual 4th of July Holiday Golf Tournament 2. Fishing Derby 3. Employee Appreciation Day 4. Yet to determined 5. Yet to be determined 8. Section 41 is added to the agreement to read as follow: Golf Course Advisory Committee - of the effective date of this contract, a Golf Course Working Group shall be mutually established between the parties. The group shall be comprised of: 1. One City Council member 2. Parks Director 3. SGM Representative 4. Service Organization Representative 5. Golfer 6. Food and Beverage Director/Representative 7. At-large Community member 9. Except as amended by this Ninth Amendment, all terms and conditions of the Agreement shall continue in full force and effect. IN WITNESS WHEREOF, the City of Madera has caused this Ninth Amendment to Agreement to be executed on its behalf by its Mayor and duly attested by its City Clerk, and SGM Inc. dba Sierra Golf Management Inc. has executed this Ninth Amendment to Madera Municipal Golf Course Operation and Management Lease Agreement on the day and year written below. CITY OF MADERA, SGM INC. OBA SIERRA GOLF MANAGEMENT A municipal corporation INC. Santos Gar~ Date Date APPROVED AS TO FORM: Hilda Cantu Montoy, City Attorney ATTEST: ATTACHMENT 2 ATTACHMENT 3