BALLINGER LAKE GOLF COURSE LEASE AGREEMENT INTRODUCTION

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1 INTRODUCTION Informational Materials: Council Bill Memo Ballinger Lake Golf Course Lease Agreement 2008 Staff Report, Council Bill & Amendment 2009 Staff Report, Council Bill & Amendment 2009 Lease Option Letter March 1, 2009 Hardy Golf Operating Budget

2 Background: In 2006 the city entered into a five-year lease with Hardy Golf to operate the city-owned Ballinger Lake Golf Course. Revenues: $374, $420, $394, $337, (*see comment below) Expenditures: $375, $413, $398, $363, (*see comment below) $450,000 $400,000 $350,000 $300, Revenue Expenditures *Hardy Golf has not completely closed out their 2010 financial records, reports through September 1, 2010 indicate operational costs are projected to surpass revenues by approximately $40,000 - $50,000.

3 Hardy Golf Profit/Loss Summary ( ) Profit/Loss: ($379) $7, ($4,630) ($26,487) (*see comment below) $10,000 $0 ($10,000) ($20,000) ($30,000) Profit/Loss Profit/Loss *Hardy Golf has not completely closed out their 2010 financial records, reports through September 1, 2010 indicate operational costs are projected to surpass revenues by approximately $40,000 - $50,000.

4 Hardy Golf originally projected 26,000 rounds of golf in This was based on a reduction from an estimated 28,000 rounds played in 2004 (the last year the course was operated by Ballinger Recreation, Inc) rounds-22, rounds-24, rounds-23, rounds-22, rounds-18,924 28,000 26,000 24,000 22,000 20,000 18,000 16,000 Golf Rounds The decrease in golf rounds can be directly attributed to the economy and inclement wet weather conditions experienced during the spring and summer.

5 Previous Council Actions: Amendment 1: With golf rounds (and associated revenue) continuing to be below projections, Hardy Golf requested that the 2008 lease payment be kept at the 2007 level. The Council concurred with the request in May, and directed us to prepare an amendment to the existing lease. The Council approved the amendment in June Amendment 2: In March 2009, Hardy Golf requested that the 2009 lease payment be kept at the 2007 level due to declining revenues from fewer golf rounds played (and associated revenue). The Council concurred with the request and approved the amendment in March 2009 including a provision that an additional $10,000 would be paid to the city if more than 28,000 rounds are played in The Original and Amended Lease Payment Schedule for the years are as follows: Orig. Lease Payments: $33,692 $87,000 $135,000 $135,000 $158,010 Amended Lease Payments: $87,000 $87,000 $87,000

6 Current Status: BALLINGER LAKE GOLF COURSE In 2010 Hardy Golf experienced declining golf rounds played from the previous year by 3,848 (7,076 below their original 2006 projection) and associated revenues. This decline has resulted in operational costs surpassing revenues. City conducted an internal audit of Hardy Golf s revenues and expenses from Reviewed previous tax statements and Department of Revenue reports. All financial records appear to be in order. This situation is expected to continue with the current economic recession when people are less likely to spend money on discretionary activities like golf.

7 As a direct result of declining revenues, the payment for the annual lease, utilities, leasehold tax and leased golf course equipment was severely impacted. A summary of past due payments, amounts and solutions are described below: Lease Payment: In 2010 there remains an outstanding balance of $69,000. A promissory note will be drafted that will include the repayment requirements, which may be a combination of services/rentals and payments made, with the total of $69,000 to be paid in full by December 31, Leasehold Tax: Hardy Golf is required to reimburse the city for Leasehold Excise paid to the State in the amount of $1, The city has remitted the $1, to the State of Washington for 2010 Leasehold Excise Taxes and an invoice has been sent to the Hardy s with payment due on or before April 15, 2011.

8 Utilities Payment: The balance due to the City for past due utility payments is $20, The balance for past due utilities of $20, to be paid in full by December 31, Golf Course Equipment: The amount due for golf course equipment (lease payment) is $17,428. The City has made the final payment of $17,428 and has charged the Parks CIP Fund to record the City s ownership of the equipment.

9 Options: 1. Adjusting the annual lease payment from $87,000 to $24, Lease payments of $24,000 to be paid over an 8 month period starting April, Include a provision for % of gross operating revenues to be paid to the City including an incentive if rounds of golf exceed 20,000 rounds yearly as described in the chart below: Description Green Fees (Up to 20,000 Rounds Yearly) 5% 5% 10% 10% 10% Green Fees (Over 20,000 Rounds Yearly) 3% 3% 6% 6% 6% All Other Gross Revenues 5% 5% 5% 5% 5% Estimated Annual Revenue to City: Based upon Hardy Golf s 2011 Proposed Revenue Budget of $323, $40, $51,653 For 2011, Hardy Golf remains cautiously optimistic and has estimated 21,000 rounds of golf will be played.

10 Advantages: The proposed modifications to the golf course lease agreement maintains Hardy Golf as the operator of the Lake Ballinger Golf Course, which in turn saves the City money from having to find a new operator and/or taking over maintenance of the course ourselves. Provides an incentive to Hardy Golf by increasing golf rounds. Provides Hardy Golf with achievable operational/revenue goals. Disadvantages: Proposed changes to the lease agreement will reduce the City lease revenues by an estimated $46,832 in 2011 and In years 2013, 2014 and 2015 City lease revenues would be reduced by an estimated $35,347.

11 Next Steps: March 21 st Council Meeting; Consider approval of Ballinger Lake Golf Course Agreement with Hardy Golf for the years

12 QUESTIONS?