CITY COUNCIL STAFF REPORT
MEETING DATE: May 18, 2016
PREPARED BY: Chris Ghione, Community Services Director
APPROVED BY: City Manager
Title
OUTDOOR SPORTS CENTER CONCESSIONAIRE AGREEMENT AMENDMENT
END
RECOMMENDATION(S)
RECOMMENDATION
1. Adopt resolution authorizing the City Manager to enter into a Third Amendment to the Concessionaire Agreement for the Outdoor Sports Center (OSC) with the Morgan Hill Youth Sports Alliance; and
2. Direct City staff to begin review of alternative operating models for future operations at the OSC.
BODY
COUNCIL PRIORITIES, GOALS & STRATEGIES:
Ongoing Priorities
Maintaining fiscal responsibility
Supporting youth
2016 Focus Areas
Developing Our Community
REPORT NARRATIVE:
The concessionaire agreement with the Morgan Hill Youth Sports Alliance (MHYSA) currently runs through June 2016. On March 4, 2015, the City Council directed staff to negotiate an agreement extension with the MHYSA that runs through June 2018 and works to achieve the following goals:
1. Operate the OSC without city subsidy.
2. Balance community access and regional use.
3. Ensure a diverse mix of field use by sport type.
4. Provide sustainable, fiscally responsible, and transparent operations of the OSC.
5. Propose innovative facility use approaches and improvements, while further stimulating Morgan Hill’s economy.
6. Propose improvements to the current parking congestion related to OSC events.
7. Maintain the facility at a level consistent with the City’s other recreation facilities, and plan for future replacement of assets at the OSC.
Additionally, the Council asked that the MHYSA complete all recommendations of the audit and be responsible to provide the following items before the new agreement is approved by Council:
1. Proof of submission of 501(c)(3) application.
2. Proof that all back tax returns are filed.
3. An updated, detailed profit/loss statement.
4. Proof that the MHYSA is in good corporate standing with the State of California.
During Council discussion at that meeting, the idea of changing the structure of the agreement and operations with the MHYSA to one that was more partnership oriented and was similar in nature to the agreement the City has with the YMCA for operations of the CRC was discussed.
Financial Considerations
The MHYSA has provided proof of completion on all the items required by the Council. Additionally, during the Fiscal Year 14/15 the MHYSA had their most financially stable year to date, with year-end net income of $18,663. This was the first year that the MHYSA showed a positive net income for their operations. This net means that MHYSA is required to pay 50% net income into a replacement fund and 10% of the net income to the City above the base payment of $65,000. Additionally, the audit for Fiscal Year 2014/15 showed improvements in accounting practices over past audits. The audit for Fiscal Year 2014/15 is included as Attachment 4.
However, the audit still identifies ongoing significant debt of the MHYSA at the OSC as a major concern. While Fiscal Year 2014/15 showed an increase in net assets for the organization, the MHYSA is not estimating that trend to continue at year-end in Fiscal Year 2015/16. Due to the loss of multiple large tournaments, the MHYSA is projecting that Fiscal Year 2015/16 will break even financially for the organization. Understanding this, the MHYSA is requesting that the new agreement be structured to allow them to begin to pay off a significant portion of their debt over the next three years.
Capital Considerations
The most significant needs for continued success of the OSC relate to major capital improvements. The replacement of the synthetic turf fields, which were installed with a minimum life expectancy of 10 years, will need replacement within the next four-six years. While the City will receive approximately $9,000 this Fiscal Year for the capital reserve fund established in the agreement, this falls far short of the annual need identified in the City’s Infrastructure Report.
To date, the MHYSA has made minor enhancements to the OSC, including plumbing for use by new water cannons that water the grass fields in a more efficient and effective manner. However, as in the past, the current model is not likely to provide sufficient revenue to support major facility enhancements, such as turf replacement, in ground irrigation systems, or additional field lighting. During negotiations for the agreement extension, a funding solution has not been identified.
Parking Considerations
The need for improving parking conditions for the OSC and Aquatics Center has been discussed at length. While the number of tournaments and major events has increased at the OSC under the MHYSA, difficulties in managing parking have also arisen. The MHYSA’s fee based parking model sometimes causes visitors to park on streets, even when lots are not full. Thus, there are times when the existing parking infrastructure has capacity, but visitors are parking elsewhere. During the negotiations, the idea of eliminating pay parking was discussed, but financially this would not be feasible for the MHYSA to eliminate this revenue source. Parking accounted for over $185,000 in revenue in Fiscal Year 2014/15 for the MHYSA. The discussion of increasing rental rates to cover the loss of this revenue should parking be eliminated was an option reviewed, but was found to not be feasible as it would raise rental rates to a level that is not conducive to attracting large regional tournaments to the facility.
It has been concluded by staff that the most significant reason for parking problems is simply because of the high attendance events held at the facilities. The City has an active Capital Project to address this long term issue.
Economic Development Considerations - “Sports Tourism Commission”
Sports tourism is a very important component of economic development for the City and is very unique in nature. City staff in the Economic Development Division anticipate it will be an important component in the City’s Economic Blueprint which is currently in development. The size of the OSC and volume of attendees it attracts provides a unique economic development asset for the City. In turn, this is beneficial to our local economy from both a transient occupancy tax and sales tax perspective.
While the MHYSA has built relationships with local businesses, only a limited number of agreements with hotels and businesses have been developed. It is not believed that the current resources within the MHYSA, the community, and the City are currently at a level to take on a major sports tourism promotion effort.
It is now recommended that the City begin a more formal process of developing a sports tourism program, which may involve the development of a “sports tourism commission”. A sports tourism commission is an entity within an area that focuses on the promotion, coordination, and collaboration between local sports venues, hotels, and businesses. The commission could be structured in a variety of ways, but most commonly is one of the following:
- Independent, non-profit
- Division of a local convention and visitors bureau
- Division of a government agency (City, County)
Operational Considerations
From a maintenance perspective, there are not any significant issues related to the performance of the MHYSA. However, the field conditions should be improved. Increased capital improvements and maintenance funding could support these improvements. Additionally, maintenance of the facility in the areas of landscaping, restrooms, and fencing are lower than that of a City recreation facility. It will be critical for the MHYSA to continue to invest in maintenance of the facility in the future to maintain the City’s asset. The proposed agreement amendment would allow for the MHYSA to continue to fund maintenance at a high level.
From a booking perspective, the MHYSA saw a decrease in usage for major events during Fiscal Year 2015/16. The MHYSA attributes this to a handful of key events that were cancelled from previous years. The MHYSA believes they will be able to increase usage to past levels in Fiscal Year 2016/17, but this fluctuation demonstrates the need for ongoing promotion of the facility to outside organizations looking to hold events that are regional and national in nature.
Recommendations for Future Operations
It is recommended that the Council take action to extend the agreement with the MHYSA for an additional three years through June of 2019 and direct staff to begin review of new operating models based upon the attached schedule (Attachment 3). The following is a list of the various components of these recommendations.
Term of Agreement
The staff recommendation would extend the agreement with the MHYSA one year longer than previously proposed and through June of 2019. This timing would allow for the City to move to a new operating model as outlined in Attachment 3. The three years would allow for two years to put the new model into place and one year of overlapping time to transition to the new operations. It will also provide adequate time for the MHYSA to pay down its debt.
Payments to the City
The proposed amendment to the agreement provides the MHYSA with a reduced financial obligation to the City to support its repayment of debt. This schedule would generate approximately $24,500 less over three years for the City’s general fund than what is currently forecasted. It would also eliminate the requirement of the MHYSA to pay a percent of net revenue to the City unless significant net revenue is generated. Elimination of this requirement will also support the MHYSA in paying off debt.
Enhanced Operational Partnerships
The new agreement would provide for streamlined special event permit processing, but also require more detailed parking plans be developed for each event. The City has begun and will continue to include in the requests for proposals and agreements with maintenance vendors a provision that provides for the MHYSA to receive “city pricing” on services. The City and the MHYSA will collaborate on a coordinated advertising/sponsorship program at the OSC and Aquatics Center.
Transparency through continued improvement in financial accounting and reporting
The MHYSA will continue to provide audited financial statements annually to continue to demonstrate improved accounting practices.
Coordination in efforts to enhance Sports Tourism
The City’s Community Services Department and Economic Development Division will work to develop a formal sports tourism program through the development of a sports tourism commission or similar entity, followed by the implementation of a new operating model for the OSC. The MHYSA will be a stakeholder in the development of this model, and will be critical in the transition to the new model.
COMMUNITY ENGAGEMENT: Not Applicable
The amendment to the agreement with the MHYSA was negotiated between City staff and representatives of the MHYSA.
ALTERNATIVE ACTIONS:
The Council may elect to provide different direction to staff to continue to negotiate the agreement amendment with the MHYSA in relation to specific components of the amendment. If given this direction, the item would return to the Council on June 1st.
PRIOR CITY COUNCIL AND COMMISSION ACTIONS:
May 19, 2010 - Selected the MHYSA as the operator of the OSC
June 16, 2010 - Approved the Concessionaire Agreement with the MHYSA
June 19, 2013, - Approved First Amendment to Concessionaire Agreement with the MHYSA
September 24, 2014 - Audits of MHYSA operations of OSC presented
October 1, 2014 - Council receives OSC operations update and directs staff to offer the MHYSA a one year extension to the Concessionaire Agreement
December 3, 2014 - Council approves Second Amendment to the Concessionaire Agreement with the MHYSA extending it for one year through June 2016
February 17, 2015 - The Parks and Recreation Commission reviews operations and makes a recommendation to Council on future OSC operations
March 4, 2015 - Council directs staff to negotiate an agreement extension with the MHYSA
FISCAL AND RESOURCE IMPACT:
It is projected that the proposed amendment will generate $24,500 less in revenue for the General Fund than the previous agreement terms would have.
CEQA (California Environmental Quality Act):
Not a Project
Since the resulting activity is an administrative program that will not result in a change to the physical environment, this action is not a project under the California Environmental Quality Act.
LINKS/ATTACHMENTS:
1. Resolution
2. Third Amendment to Concessionaire Agreement
3. Timeline for Operations Evaluation
4. Fiscal Year 2014/15 Audit