Annual Plan FY 2014-2015 SilverRock ResortAGENDA CATEGORY:
BUSINESS SESSION:
CONSENT CALENDAR:
STUDY SESSION:
PUBLIC HEARING:
CITY / SA / HA / FA MEETING DATE: April 15, 2014
ITEM TITLE: APPROVAL OF SILVERROCK RESORT FISCAL
YEAR 2014/15 ANNUAL PLAN INCLUDING PURCHASE
AND LEASE OF MAINTENANCE EQUIPMENT
RECOMMENDED ACTION:
Approve the SilverRock Resort 2014/15 Annual Plan and authorize staff to
purchase and lease maintenance equipment.
EXECUTIVE SUMMARY:
• Each year, Landmark Golf Management submits a SilverRock Golf
Operations Annual Plan (Attachment 1) for review, recommendations, and
approval. The plan provides the projected annual revenues and expenses
with a detailed proposal of department costs, staffing levels, and service
levels.
• Revenues are projected to be lower as a result of the Coachella Valley
Water District (“CVWD”) Canal Relocation Project.
• The 2014/15 Annual Plan includes an equipment lease. A portion of the golf
maintenance equipment has reached its useful life and Landmark and City
staff have determined that a combination of an operating lease (5-year
equipment life) and equipment purchase (10-year equipment life) is the best
approach for replacement.
FISCAL IMPACT:
The 2014/15 Annual Plan is projecting operating expenses of $3,547,298 and
revenues of $3,464,972 for an operating loss of $82,326.
The 2014/15 Annual Plan includes an equipment lease (units with a 5-year life) that
will be paid through golf operations for $66,858 annually and purchase of
equipment with a 10-year life for $213,208 using funds from the Golf Course
Capital Equipment Reserve Fund.
BACKGROUND/ANALYSIS:
The City entered into a new Golf Course Management Agreement with Landmark
Golf Management, LLC in July 2012. The Agreement requires that Landmark
submit an Annual Plan to the City Manager. The Annual Plan provided by
Landmark is a strategic management plan for the golf course operations and is
presented to City Council each year for review, recommendations, and approval.
Summary of the Fiscal Year 2014/15 SilverRock Resort Annual Plan
Assumptions in this plan include:
• 41,100 rounds of play (46,710 last year);
• An average projected revenue of $84.25 per round ($80.10 last year);
Federal Minimum Wage will increase outside services (rangers, starters,
valet, driving range and bag room staff) by $19,000;
• A two percent capital reserve of $60,875 is set aside for future golf course
equipment, improvements (per the Management Agreement);
• Management Fee of $96,000.
The reduced rounds and revenue is a result of the closure of the back nine golf
holes (July through September) for the CVWD canal relocation project.
Maintenance Equipment
The cost for the new equipment is $586,026 and the current equipment scheduled
for replacement has a trade-in value of $35,250. Staff is recommending a
combination of an operating lease and equipment purchase for the new
equipment.
The equipment with a shorter useful life of 5 to 6 years will cost $337,568. Staff is
recommending this equipment (fairway and rough mowers) be leased at a 3.95
percent interest rate for an annual lease cost of $66,858. The lease will be paid as
an expense through the golf operations and is included in the Annual Plan.
The remaining equipment scheduled for replacement has a longer useful life of
10-plus years and will cost $213,208. Staff is recommending this equipment
(tractor and aerators) be purchased with funds from the Golf Course Capital
Equipment Reserve Fund. There is currently $500,223 available in this fund.
Purchasing the equipment that has a longer useful life will save on extended term
interest payments.
The rationale for using a combination of lease and purchase for the replacement
equipment is to acquire these units in a fiscally prudent manner. Leasing costs
will be paid as a golf operations expense, while purchasing will utilize a portion of
the Golf Course Capital Reserve without exhausting all of the funds.
Staff is developing an account of Lifecycle costs for SilverRock. The Lifecycle
costs will chart the inventory, original cost, depreciation, and useful life of the
facilities and equipment. This information will be used to determine the amount
of revenues necessary to fund ongoing SilverRock Capital Equipment Reserve
Funds. Currently, the Golf Course Capital Reserve is funded by two percent
(approximately $61,000) of the gross revenues each year.
Marketing
The Marketing Narrative is on pages 21 and 22 of the proposed 2014/15 Annual
Plan. The Marketing Budget is listed on page 17. Direct advertising and creating
awareness for SilverRock is budgeted for $239,876. SilverRock is being promoted
as a premier golf destination in the Coachella Valley through newspapers,
magazines, directories, the internet, television, and radio. Marketing efforts
include the closure of the back nine and new summer rates that are offered during
the canal relocation.
Additional City Expenses
In addition to the Annual Plan, there will also be $116,000 of City expenditures
included in the FY 2014/15 City operating budget. These expenditures include:
staff salary and benefits for contract oversight ($54,000); facility maintenance and
repair ($30,000); and bank charges for accounting and credit card use ($32,000).
The total net loss for FY 2014/15 is projected to be $198,326.
ALTERNATIVES:
Approve the Annual Plan with modifications.
Report prepared by: Steve Howlett, Golf & Park/Landscape Manager
Report approved for submission by: Edie Hylton, Community Services Director
Attachment: 1. SilverRock Resort Annual Plan