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Home My WebLink About04/29/2009 AGENDA FILE CITY COUNCIL 345 6th Street, Suite 600, Bremerton, WA 98337 0 Phone (360) 473-5280 DATE NOTICE ISSUED: APRIL 24,2009 You are hereby notified that the BREMERTON CITY COUNCIL will hold a WORK SESSION on WEDNESDAY, APRIL 29. 2009 beginning at 5:00 PM in the COUNCIL CONFERENCE ROOM located on the 6th Floor of the Norm Dicks Government Center to discuss the following items: 1. Local Historic Preservation - Megan Duvall, Certified Local Government Coordinator, State Department of Archeology & Historic Preservation (Approx 30 minutes) - Pulled 2. Manette Sub Area Plan Briefing - Andrea Spencer, Community Development Director (Approx.30-minutes) 3. Gold Mountain Golf Course Refinancing - Andy Parks, Financial Services Director (Approx.30-minutes) 4. General Council Business - (As necessary and as time allows) (This meeting is open for the general public to attend, however no opportunities will be provided for input or participation. . .) Signed this 24th day of April 2009 ~~~~ ~4'~\ 6'.~ CECIL McCONNELL, COUNCIL PRESIDENT . . . ~ Presentation to City Council Gold Mountain Golf Debt Refinancing/Lease Renewal April 29, 2009 Agenda · History · Cu rrent - Operating agreements - Agreement costs - Debt structure · Key financial indicators · Refunding debt objectives · Refunding debt structure alternatives · Other issues . History · City acquired 8,400 acres of forested property - 1912 through 2007 · Property has multiple purposes - Serves as watershed for City's water utility - Forest harvest revenue used by City's water utility - Biosolid applications - Recreation - Gold Mountain · Cascade golf course built in 1970 · Olympic golf course built in 1994 · New club house built in 2002 . History · Courses and clubhouse built with cash and tax- exempt debt proceeds · Surplus revenue from courses used for park acquisition · Courses have been operated and maintained through various agreements with private sector firms and individuals - Terms of agreements have been for 5+ years with renewal options - Terms reduced to 3 years to comply with IRS private activity regulations . . Current Operating Agreements · Three separate agreements with Scott Alexander's Golf Shop, Inc. - Food and Beverage Agreement - Golf Management Agreement - Lease Agreement · Driving range, pro shop and land for golf carts · Professional Services Agreement - Greens Superintendent with Ed Faulk Operations, LLC · All leases have three year terms and expire December 31, 2009 - Term limited due to existence of tax-exempt debt - Change in IRS private activity rules . Current Agreement Costs · Food and Beverage Agreement · Golf Management Agreement · Lease Agreement . Driving range, pro shop and land for golf carts · Greens Superintendent · Fixed fee $1 millionjyr + 94% sales> $1 million · $358,850 +10% greens fees over $2 million · $36,444 + 6% and 8% of cart rental and driving ra nge · $778,977 jyear · Total out $2.137 million · Total in $36k + % . . Current Debt Structure · Total of $5.075 million outstanding in two issues - $2.89 million balance for 1999 Advance Refunding issue for Olympic course, matures in 2018 - Original refunding amount $4.605 million - May refund in September 2009 - This issue advance refunded the original bonds used to construct the Olympic course that matured in 2007 >> Provided the golf course operation greater flexibility - $2.185 million balance for 2001 $3.1 million issue for clubhouse, matures in 2020 - May advance refund presently, with actual refunding taking place in December 2011 · Total annual debt service approximately $620k . Golf Key Financial Indicators 900 ------------------ --------- 800 - 700 - -Cash flow trending 600 down ----''1___ _ l_____J I -___.J I r I I 500 - 100 -1 i . Cash Flow Iiii Debt Service Ci Working Capital -Debt at $625k/yr -Working capital trending down 400 300 200 o - 2003 2004 2005 2006 2007 2008 . . Golf Key Financial Indicators -Capital 200 expenditures not keeping pace with 150 depreciation . Golf Key Financial Indicators -Debt outstanding 5000 reduced nearly $1.5 million since 2003 4000 . 300 250 --- * 100 SO o - 2003 2004 2005 2006 2007 2008 Debt outstanding 7000 ~ - -- -- --- ------- .. i , 1 - - --- --- ---- --- --- t- -- --- i 1 I i -'- - 1 1 1 -1-- -, -, , 6000 3000 2000 1000 o 2003 20042005 2006 2007 2008 . Depreciation iii Capital outlay iii Debt outstanding . Refunding Debt Structure Objectives · Reduce annual debt service requirements a minimum of $200k/year · Do not extend debt beyond 20 years . Refunding Debt Structure Alternatives · Fully tax-exempt debt issue · One issue tax-exempt, one issue taxable · Fully taxable debt - Marketable security · Three-year interest only · Five-year interest only - City purchased · Variable rate · Fixed rate . ~ .. . . . .. Refunding Debt Structure Alternatives · Fully tax-exempt debt . issue · One issue tax-exempt, one issue taxable · Fully taxable debt - Marketable security . Three-year interest only . Five-year interest only - City purchased . Variable rate . Fixed rate · Fixed payment saving $200k/year · Increases complexity · Maximum flexibility - Allows longer term agreements - Less risk to city - Increased interest earnings to City Other Issues · Taxable debt allows City and Operators to enter into longer term agreements · Change agreements from cash to operators to cash to City from Golf Course and Restaurant - Pay greens superintendent · Shift risk from City to Operator Business Plan Meadow Lakes Golf Course Prineville, Oregon January 2006 Page 1 of 25 Table of Contents Executive Summary.......................... .......... ..........3 Ten-year financial plan...................... ......... ...........6 History............................................................... 7 Staff.. . . . . . . ... .. .. . . . . . . . . . . . . . . . . . .. .. . . . ... . . . . . . . . . . . .... . . . . . . . ..8 Competitive Analysis/Position in Market Place............9 Marketing and Promotion.....................................1 0 Player Promotion Programs.. .............................. .11 Food and Beverage........................................... .13 Golf Instructional Programs... ............................ ...16 Retail Operations.......... ...... .................... ...........16 Financial Summary... ...................................... ..17 Financial and Miscellaneous Suggestions.............. .19 Appendix Capital Improvement Program Fiscal Years Ending June 30, 2006-2015 Exhibit 1 & 2 Buy & Golf Shop Merchandise Sales Habits (AGM Member Survey 2004) Statistics Rounds of Golf Review Page 2 of 25 Meadow Lakes Golf Course Prineville, Oregon Business Plan Executive Summary In September 2005, at the request of the City of Prineville, GEL Oregon Inc., and Mark Amberson, General Manager of Awbrey Glen Golf Club, initiated research and preparation of a business plan for the Meadow Lakes Golf Course. The business plan provides guidance for the implementation of the City's strategic plan (currently under development), and direction in effectively managing the activities of the golf course, restaurant facilities, and treatment facilities. The course's primary purpose is to serve as a treatment site for the effluent from the City's wastewater facility. Owned and operated by the City of Prineville, Meadow Lakes is one of three publicly owned and operated golf courses in Central Oregon. Amenities include an eighteen-hole golf course, full service restaurant and banquet facility, practice range, putting green and pro shop. The course's location and visibility at the western entry point of the City provides an intangible value to the community that may translate to additional property value within the community. To assist with preparation of the business plan, Mr. Amberson and Mr. Andy Parks interviewed City staff, reviewed the Feasibility Analysis and Market Study for New Golf Facilities in the City of Prineville prepared by Landmark Golf Planning and Design, dated May 1991, and the Citizen Opinion Survey and Customer Opinion Survey prepared by The Results Group, Ltd., dated April 2005. Additionally, the City's financial statements for the course, restaurant and treatment related activities for the past three fiscal years, the budget for fiscal year 2006 and preliminary strategic plan elements for the facility were utilized. The business plan addresses the following issues and objectives: · Verifies the purpose and mission of the facility · Documents a reasonable fiscal policy for cost sharing between the Course and the Treatment facility · Considers the financial impact on the facility if the restaurant operation is eliminated · Considers if the current operation and structure is appropriate or are there alternatives that may be desirable to explore · Provides suggestions to increase the number of rounds played · Provides suggestions to enhance restaurant performance · Provides suggestions to enhance administrative and pro shop performance · Provides a ten-year financial plan Page 3 of 25 Original Purpose and Mission Statement "To provide a cost-effective, environmentally friendly wastewater treatment facility for the citizens of Prineville that also provides an affordable municipal golf course amenity that generates revenue for the benefit of sewer customers. 11 This purpose and mission statement continues to receive broad support from community leadership and City staff. However, the golf course must realize significantly increased play (approximately 30,000 rounds versus the current 23,000 round per year) to fulfill its mission of generating revenue to benefit sewer customers. Fiscal policy for cost sharing between the Course and the Wastewater Fund The City's Wastewater Utility financed the construction of the course and continues to provide significant financial assistance to course operation. These expenditures were then and continue to be valid, benefiting wastewater utility customers. However, as the course develops the financial wherewithal it is appropriate for the City to consider reducing financial assistance from the Wastewater Utility. A suggested policy, when financially feasible, is for the Course and the Wastewater Utility to pay reasonable compensation to the other for the respective value of services, products and land provided to the other. Financial impact on the facility if the restaurant operation is eliminated The restaurant facility is overbuilt for the needs of the golf course. In addition to meeting the needs of the course, prior decisions were made to provide community meeting space facilities. The current budget projects a loss in the restaurant of approximately $31,000. This includes a transfer of $47,000 for administration and financial services. Eliminating the restaurant operation and having this space sit idle can reduce the operating loss by approximately $20,000, however, administrative and financial services overhead costs would need to be reduced and or reallocated to other City operations. If the City closed the restaurant, a reduction in play is anticipated. A reduction of 667 rounds (estimated average of $30/round) or three percent (3%) would erase any savings realized. The number of rounds lost due to the restaurant closing could be as high as twenty percent. Another option the City could consider is leasing banquet space and possibly a portion of restaurant seating space to non-restaurant commercial interests. We did not pursue evaluation of this option. Consider if the current operation and structure is appropriate or are there alternatives that may be desirable to explore Alternative ownership and management structures were considered. Other organization structures may provide opportunities to reduce labor costs. However, the interrelationships of the treatment requirements and golf course operation and past performance of outsourced restaurant services suggest the direction and management of the facility is best served with the City retaining its current ownership, management and operational structure. Page 4 of 25 Suggestions to increase rounds played include: · Develop and market to a database of existing customers utilizing existing point-of- sale (POS) system · Maintain and enhance relationships with Central Oregon lodging establishments and high-end courses (for overflow play) · Increase play by residents of Prineville and Crook County o Market much more aggressively to local market o Promote junior golf · Programs for elementary, middle, and high school students o Promote senior and near-senior golf o Partner with developers and real estate agents to promote the course to newly arriving residents o Make minor modifications to the fee schedule o Make minor changes to the annual pass program o Consider relationship with Prineville Country Club to allow golfing privileges at both facilities · Modify marketing campaign material to more closely align with "Golf for Everyone" message · Capitalize on winter playability o Targeted marketing campaigns during winter when weather permits Recommendations to enhance restaurant: · Enhance financial reporting and management use of information · Promote restaurant consistent with golf operation and findings of the costumer opinion survey, Le., "family" · Capture greater share of current and new golfers · Scale back restaurant operation during golf oft-season · Increase banquet business Provides suggestions to enhance administrative and pro shop performance: · Adjust internal charges for administration and financial services to more closely reflect value of services received · Charge golf professionals that serve as private contractors 15% - 20% · Implement inventory control procedures · Increase sales of name brand golf equipment Page 5 of 25 Page 6 of 25 Meadow Lakes operates in a very competitive region in a very competitive industry that nationally has realized limited growth during the past several years. The course and restaurant are established, have good reputations and many good qualities to serve as a solid foundation for future growth. The foresight to utilize effluent for irrigation purposes to reduce treatment costs will be realized as the course attracts additional play. Additional play can most effectively be accomplished through continuing and expanding efforts to capture the local market for regular play and build on the shoulder seasons, particularly during the winter months for local and non-local players. By adding additional rounds played and closely managing the course, risk will be limited, as will the financial exposure of the restaurant operation. Then Meadow Lakes can continue to improve its fiscal situation and meet its mission "to generate revenue for the sewer operation for the benefit of sewer customers while providing an affordable public golf course amenity for Prineville area residents. History In 1988, the City faced fines of up to $25,000 per day if it did not find a solution to disposing wastewater into the Crooked River. The City considered a new wastewater treatment facility and an Environmental Protection Agency (EPA) alternative suggestion of spraying the wastewater on a 400-acre alfalfa field. The EPA alternative evolved into a decision to build a golf course that would be irrigated with effluent and serve as a wastewater treatment site. Constructed in 1992 and opened in 1993, Meadow Lakes Golf Course is now a fully functional 18-hole championship golf course and wastewater disposal site. The water is disposed of through irrigation and ten evaporation ponds that double as water hazards for golfers. What was initially a significant environmental challenge for the City turned into an innovative solution that provides an affordable recreation amenity to the Prineville community, attracts visitors from throughout Central Oregon and beyond and serves as a cost-effective, environmentally friendly treatment facility. In addition to the course, the City Council chose to build a restaurant and clubhouse facility. The facility was overbuilt for the demands of the course at that time, however the expectation was that future growth would be accommodated without expansion. Subsequently, a significant expansion of banquet facilities was approved. This facility was also overbuilt for the demands of the course. Both the restaurant and banquet facilities continue to be well in excess of the demands of the course itself. Meadow Lakes has been featured in many national publications including the USGA Golf Journal and was the first-ever recipient of Golf Digesfs National Environmental Leaders Award. Many other golf courses have been modeled after the project. Meadow Lakes is an active municipal golf course that has hosted two Oregon Amateur State Championships, including the 1998 Oregon Mid-Amateur Championship. Page 7 of 25 The golf course is located along the Crooked River at the base of the canyon on the southwestern edge of Prineville. The approximately 160-acre site is completely within the city limits. Visibility is excellent for tourists entering Prineville from the west via Highway 126. Residential development surrounds approximately seventy-five percent of the course, with steep canyon banks and the river limiting future encroachments. Future development around the golf course will likely be limited to street improvements to the south and potential residential development to the east and on the south and west canyon walls. Staff The City is fortunate to have the high level of professional staff of Wayne Van Matre, Lee Roberts and Lori Ontko. Additionally, per a review of Norm Stevenson qualifications, discussions with City management, and review of work initiated subsequent to beginning this plan, Mr. Stevenson appears willing and able to improve the restaurant operation provided he is given the necessary tools, primarily timely and accurate financial information. The golf department operates with minimal yet adequate staff. If a change is made in the promotional direction, similar to the "Member for a Day" message, additional member service attendants, will likely need to be added to the staff. This will be at a minimal additional cost. With the responsibilities that Mr. Roberts has and those suggested, he would not be on the counter schedule during the busy season. He is an administrator that needs to be free to handle all the various tasks that accompany his position. To provide the level of customer service needed at a facility, two people in the shop during the peak times on a daily basis is appropriate. During the busy \ times, the second person is necessary to assist with retail sales, phones, and counter help. These suggestions can be implemented with current staffing. The Golf Maintenance Department operates with minimal yet adequate staff with the equivalent of 12-13 full time staff in season and four in the off season. Mr. Van Matre is a very experienced Golf Course Superintendent. He understands and knows the needs of the operation. According to industry standards, full time staff of 12-13 in season is appropriate for a facility such as Meadow Lakes. A suggestion is for Mr. Van Matre to provide cross-training to appropriate staff to allow him additional time to perform other aspects of his management position. The restaurant appears to run with minimal yet adequate staff based on the expected business for the day. As noted, Mr. Stevenson must have access on a daily basis to the labor to revenue percentage for service staff and kitchen staff. The challenge in quoting an industry standard is every facility is different and the restaurant is far from reaching an economy of scale, particularly in labor percentage to revenue. Standards suggest that excluding a salaried chef and salaried restaurant manager, kitchen labor to revenue and service staff to revenue should both be in the 18-22% range. The current reporting of financial information does not provide management Page 8 of 25 , with the information to determine what the numbers are. This situation is being addressed through enhancements to the City's computer network access, tracking of information by the restaurant staff, and appropriate adjustments to work flow processes. Staff should continue to make improvements through the next few months and establish in writing practices and guidelines that work best for the operation. Competitive Analysis/Position in Market Place In reviewing the pricing structure of 10 other daily fee courses in Central Oregon, in general, Meadow Lakes' prices are competitive. The following fee structure is suggested for the upcoming golf season: Daily Fee Current Wk Day 18 $36 $32 $32 $23 $14 $23 Category Daily Tri-County Senior Gold/Red Junior Twilight Category Daily Tri-County Senior Gold/Red Junior Annual Passes Category Single Couple Junior **Senior Current Wk Day 9 $23 $20 $20 $14 $9 Current* $795 $950 $100 NA Suggested Wk Day same same $29 same same same Suggested Wk Day $20 $18 $17 $16 same Current Suggested Weekend 18 Weekend $40 $38 , $35 same $35 same $25 same $14 same $25 same Current Weekend 9 $25 $22 $22 $16 $9 Suggested Weekend $28 same same $20 same Suggested same same same $625 * Rates were recently adjusted and are appropriate for current market conditions. **This is a senior single annual pass that is good for weekdays only excluding holidays. A suggestion is for annual plans to be promoted consistent with the golf season, encouraging a decision by golfers to commit. This will require a phase-in process that involves a pro-rated amount of the annual pass to have all passes expire on April 30, 2007. Subsequent annual passes would be marketed for effective dates of May 1 Page 9 of 25 through April 30. During the promotional period, the annual rates noted above would be honored. After the promotional period expires, it is appropriate to raise the annual rates approximately 15-20%. To respond to golfers that prefer to maintain their current annual pass schedule the City could continue the current practice charging the non-discounted rate or utilizing a lesser discount rate, e.g., 5-10%. Currently, Meadow Lakes has sold 181 annual passes, including ten outside Crook County. It is desirable to have approximately 250 annual pass holders. A reasonable goal is to increase the number of annual passes by ten percent per year during the next three years until a base of approximately 250 exists. Subsequently, annual increases approximating the rate of population growth in Crook County is reasonable. Marketing and Promotion When Meadow Lakes opened for play in 1993, the original marketing effort was to promote a "Member for a Day" experience. When a player arrived at the course he or she would be given that kind of special treatment. The facility supported the promotion with a nice lobby, large locker rooms, pleasant dining areas, great practice facility, and a staff that truly wanted customers to feel like they were the "Member for a Day." Golfers that have been in the area since those days still remember that message and treatment they received. The facility and staff are still there, but now the new advertising campaign features a big burly guy running through the golf course catching a football. These two messages cannot be any further apart. The tag line of the new advertising campaign of "Golf for Everyone" is highly regarded. However, the "Golf for Everyone" message is not being delivered correctly with the big burly guy or portions of the current radio ad campaign being bleeped out. The "Golf for Everyone" concept is right on track, a different way to deliver the message should be identified. TIG Advertising brought forth good thoughts and ideas; how to get price conscious golfers to Meadow Lakes, municipal courses have a stigma and Meadow Lakes needs to erase this, make golf fun, don't try to be a private course. Keep the tag line, but work with an advertising agency to find a more effective delivery. The current fiscal year promotion budget is $50,000. This is a reasonable budget, with the majority of dollars dedicated to marketing the facility through a combination of television and radio ads. Staff is encouraged to utilize a portion of the available budget for targeted advertising when the weather is cooperative during winter play. The staff's decision to discontinue the use of the rack service is appropriate as is continuing to use promotional dollars for The Central Oregon Golf Guide. Currently, no advertising is being done for the restaurant. With the recent change in \ managers, management did not feel it was the right time to start advertising. An Page 10 of25 important benchmark to remember for restaurant advertising dollars is that an additional three dollars should be recouped for every dollar spent above and beyond what would have brought in without the advertising. Request the advertising agency show how this can happen and develop a system to track the results. Restaurant advertising should be to the immediate Prineville market for a la carte dintng. Direct mail to businesses and the Chamber list, radio, and organizations may be the best sources. Banquet and wedding business can be handled differently. Staff's decision to attend the Bridal Fair held each January at the Deschutes County Fair grounds is an excellent start. This is a great avenue to contact people looking for large venues for rehearsal dinners and weddings. Every business and local government office in Prineville and the surrounding market should be contacted via phone and letter to invite them to hold their board meetings, awards banquets, holiday events, and retirement dinners at Meadow lakes. Be persistent and they will respond. Consistently good food and professional service will create a loyal clientele. Player Promotion Programs Meadow lakes is suggested to follow the lead of the PGA of America in their "Play Golf America" program. The intent of the program is to introduce the game to as many people as possible. This is done by offering playing opportunities and instructional programs for all ages and levels of players. Instructional programs can range from private instruction, beginner group lessons, ladies' clinics, men's clinics, and half day to multi-day golf schools, and junior programs. The current advertising tag line "Golf for Everyone" works very well with this program. The future of the game of golf lies in today's youth. Meadow lakes has a good junior program, but it needs to be expanded in every way possible. One area that is an opportunity is to introduce the game to more juniors is through the middle school. A golf "block" could be incorporated into the Physical Education programs where the kids are coming to the course 4-6 times during this block. Redmond schools have a very successful program and their high school golf team is showing the results. The number of junior season pass holders and junior daily fee rounds seems very low. It suggests that the local kids are not being introduced to the game and or are unaware of the opportunities available to them. Currently, opportunities for juniors to get on the golf course is great. After 5:00 p.m. Monday and Tuesday, and after 3:00 p.m. on weekends kids play free. We encourage Meadow lakes to gain access to and promote the course in the schools. Once this happens, the kids will get to the course. Get the kids on the course mom and dad may follow! Page 11 of25 A single Senior Annual Pass is suggested. Meadow lakes is a very senior friendly golf course. The course is easy to walk and offers a nice clubhouse. Placing a restriction on this pass to weekdays is appropriate to keep it price competitive. The seniors who buy this pass should be offered the Gold/Red card rate if they do want to occasionally play on the weekends. Many communities have a Park and Recreation program that offers various activities and events. Mr. Roberts is encouraged to contact the Crook County Parks and Recreation District and see if he can assist in developing group lessons for ladies, men, couples, beginners, juniors, or seniors. Meadow lakes is doing a fine job in communicating with past golf groups and inviting them to come back the following season. Continue this annual communication and invitation to come back. There are a significant number of small groups of players that come to Central Oregon for the "annual" outing of golf and fun. It is very difficult to advertise to these groups because they come from areas all over the Northwest. One opportunity is to contact as many lodging properties as possible in Central Oregon. Properties with golf courses can also be helpful. They occasionally are in an overflow situation or a group calls them to make reservations and may be looking for somewhere else to play for one of their days. Contacting desk staff and providing marketing information may create an opportunity for additional referrals. There are many businesses in Central Oregon that take the time and opportunity to entertain their staff. Invite them to a day at Meadow lakes. Offer a clinic, round of golf, and a meal for a reasonable price. This can be very effective during the shoulder season when space is available. One of the major advantages Meadow lakes has over most local courses is the winter golf opportunity. Obviously, some years are better than others, but on average the course offers a fair number of days of winter golf. In the summer, there are many courses to choose from, in the winter the choices are limited. A winter advertising and promotion program should be developed and ready to go when the weather "looks right" for the next few weeks. Meadow lakes is currently offering a winter season pass and supporting this with minimal advertising. Evaluate this effort including the number sold, number of rounds over the winter, and ascertain if a season pass sale was foregone. The City owns a very capable point of sale (POS) system. However, due to a lack of support and training, the system is not utilized. The City is encouraged to secure training and to implement the system. Start with the most desirable and manageable data, experiment with it, monitor results and continue with elements that work and continuing experimenting. Page 12 of25 An example is the POS will allow Meadow Lakes to identify the demographics of those who are playing the course. Currently unknown is where the over 2,100 daily fee players come from or where the over 4,500 Tri-County players came from and what brought them to Meadow Lakes. Staff is encouraged to periodically track information related to why players chose Meadow Lakes. Pick one day a week for a month and ask every pl~yer where they live and why did they choose to play at Meadow Lakes that day. This information can be entered into the POS and will be very helpful to determine future advertising messages and to determine which markets and advertising mediums to use. Food and Beverage The restaurant facilities at Meadow Lakes are very nice and have the capability to do a substantial amount of business. The challenges are: how to get golfers to use the restaurant more frequently; increasing at-large community use of the restaurant; and most importantly, increasing substantially the banquet business. The restaurant has gone through many years of inconsistent and varying operations with different managers and various forms of ownership/lease. In the long run, it is best to stabilize the operation and maintain the current management and control of the restaurant. If the City is interested in another form of operation, the restaurant operation should be included in the evaluation. The Citizens Opinion Survey dated April 2005 has some very useful information. Management has initiated efforts in response to the survey. It is clear from the survey that people who have dined at Meadow Lakes have had a good experience. At the same time, fine dining is not what they want at the restaurant. A preference for family/pub style dining is clear as one reviews this document. However, "pub" is not the right answer given the restaurant amenities and location. Meadow Lakes is a nice restaurant in a nice neighborhood, families and businesses should and do feel comfortable coming in to the restaurant. Promote it in this capacity. "Family" does not mean high-end menu items should be excluded, but keep the menu simple. Only serve items that which can be done well on a regular and consistent basis. The number one killer of a restaurant is inconsistency in food quality and service. This is supported by the information gathered in the survey. Menu pricing is a function of two items; achieving cost of goods sold (COS) goal and what the market will accept. When evaluating cost of sales goal, examine the complete menu, not each particular item. "Loss leaders" or "stars" on the menu may have a higher cost of sales, but other items can help balance the total menu COSo The chef should perform a complete menu plate cost analysis quarterly (or more often if there are significant changes in high cost items such as proteins). Further Page 13 of25 analysis would be to estimate percentage of sales from each item to determine the entire menu COS based on the projected sales of each item. The prices on the various menus appear fair and competitive. At the same time, there is not a plate costs per menu item to compare to the desired COSo There are few competitors in the Prineville market for dinner. Management will want to perform periodic price and menu comparisons to ensure Meadow Lakes is competitive. If Meadow Lakes menu items are priced too high and need to be lowered there are two options; 1) change to a lesser quality product, or 2) accept a higher cost of sales and hopefully make it up in volume. Take caution against the first option. Currently, the restaurant is open for lunch daily and four days a week for dinner. In the summer months, this is appropriate. In the winter, a minimal lunch service at least two days a week, Monday and Tuesday, if not more often is suggested. During winter, a menu that requires only one person on the service staff and one in the kitchen is recommended. This menu should satisfy winter golfers and the occasional person from the community that may dine; e.g., chili, soup, and one or two sandwiches. In the winter, dinner service should be reduced to no more than three days a week, Friday-Sunday, or closing all together. This decision should be based on the ability to generate net revenue on a nightly basis. If the restaurant is unable to do so, the consultants recommend closing, as financially it will be more advantageous to the City. If the restaurant is open for dinners in the winter, consider developing a special for each night, for example Prime Rib Fridays, and Sunday Family Style Suppers. When the business plan effort was initiated financial reporting to restaurant management was not timely or sufficient to meet their needs. Additionally, there were no set inventory procedures, therefore there was no way to accurately know what the cost of sales is by category. Restaurant management has implemented daily tracking of costs and regular inventory tracking. Restaurant staff and finance staff are encouraged to coordinate efforts to ensure duplication is minimized and accounting information is tracked and provided to the restaurant in a format that assists restaurant staff with managing the restaurant. At a minimum, inventory must be done monthly and cost of sales reports completed at the end of each month. The two largest yet controllable variable expenses in a restaurant are cost of goods sold and labor. The restaurant manger should have financial information by 10:00 a.m. daily that provides: 1. Prior day income by meal period by category 2. Total revenue month-to-date (MTD) as compared to MTD budget 3. Prior day labor by meal period in dollars and percentage of revenue 4. Total labor MTD as compared to MTD budget in dollars and percentage of revenue Page 14 of25 With the addition of timely financial reporting, budgets can be prepared more accurately, improving management. Staff is encouraged to modify accounts to track cost centers separately such as the beverage car. Beverage cars may be a great service, but management must determine if it is a profit center. If not, consider discontinuing it. The restaurant currently estimates cost of sales at 42 percent. This is slightly higher than the percentage reported (38.6%) for the upper quartile in the Restaurant Industry Operations Report 2004 (Report) for average checks per person between $15 and $25. The percentage COG reported ranges from 30.9% (lower quartile), to 34.1 % (median) to 38.6% (upper quartile). Financial projections include cost of sales at 42 percent although improvements to this ratio are anticipated. A reasonable goal would be to lower cost of sales to approximately 38.6%. Additionally, the Report shows that income (loss) before income taxes ranges from - .9% (lower quartile) to 4.0% (median) to 9.3% (upper quartile). Currently the restaurant anticipates a loss of approximately 6.2% of sales. Forecasts show gradual improvement to the ratio with breakeven anticipated in fiscal year 2008. In year ten the income before taxes is projected at 3.9% or approximately the median of the range per the Report noted above. Page 15 of25 Golf Instructional Programs Per inquiries in the region, reports indicate that Mr. Roberts is a competent golf instructor and enjoys teaching. In addition to Mr. Roberts, there are four "private contractors" teaching golf. If the demand is that high, Mr. Roberts may need to consider hiring an Assistant Golf Professional with considerable teaching experience. At a minimum all private contractors should pay 15% - 20% of their lesson income to Meadow Lakes. Retail Operations The floor space for the golf shop is limited. At the same time, a higher volume of sales should be able to be achieved. Golf staff is limited at the start of the prime season due to budget constraints with a cash accounting system. This past summer, they operated for 30-45 days with minimal inventory because they felt they had to wait for the new fiscal year to start to bring in more inventory. This will be discussed more thoroughly in the Financial Analysis section below. The inventory control procedures are lacking, as well as, cost of sales reporting due to the cash accounting system. Inventory should be taken at a minimum six times a year on all products. The recommendation would be to do soft goods one month and hard goods the following month. With an accrual accounting system and inventory process, accurate cost of sales figures will be able to be generated as well as any potential shrinkage problems. From the information from the past two years, cost of sales is slightly high at 77%. The current mix of merchandise in the shop needs to be restructured and displayed differently. Too much floor space is allocated to small ticket accessories items. As small as the golf shop is every square foot needs to be as profitable as possible. Lee and Lori are encouraged to look at sales per square foot by item. Exhibit #1 and #2 offers some retail analysis from the AGM 2004 member survey. Be creative in how things are displayed and the frequency in which displays are changed. An area that should be capitalized on is sales of name brand golf equipment. All golfers want to hit what Tiger and Annika are playing. With the demo programs most manufacturers are now offering, this can be accomplished. The consultants did not see any top line brands available for sale other than a few wedges and putters. The past two years Meadow Lakes has averaged $3.10 of merchandise sales per round played. National average for daily fee golf courses is $9.49. A reasonable sales goal of $5.50 per round is suggested. With a 77% CDS, this would add an additional $12,000 to bottom line. Page 16 of25 Financial Summary Meadow Lakes has operated for the past twelve years realizing approximately 23,000 rounds per year. Initial estimates included in the feasibility report prepared in 1991 indicated golf rounds of 22,960 in year one and golf rounds of 28,921 in year four. The initial estimate was realized, however, increased play has not occurred. This may be for several reasons: increased competition resulting from the construction of eight additional courses in the Central Oregon region since 1993, the inability to maintain and enhance market share of local golfers, and the distance of the golf course from the region's population center and tourist facilities, Le., Bend, Sunriver, Eagle Crest and Redmond. Long-term debt associated with the construction of the restaurant and clubhouse facilities has been repaid. Long-term debt associated with facility construction (for effluent disposal) has been and continues to be repaid with sewer user fees and system development charges. Capital leases for carts and equipment with annual debt service of approximately $87,000 exists and is repaid with course revenue (June 30, 2005 balance of $193.373). The Course has outstanding amounts due other funds of $293,200 ($184,200 to the.Wastewater Fund and $109,000 to the General Fund). And a note payable of $200,000 exists to the Railroad Fund. Course and restaurant operations are funded through user fees, sales, and a transfer of approximately $350,000 per year from the City's Wastewater Fund for course maintenance related to disposal of effluent on the course. (The amount of the transfer in fiscal year 2005-06 is a reduction from approximately $500,000 in the prior year). The restaurant operation accrued operating losses during the past several years totaling approximately $200,000. These losses have been capitalized through the loan from the City's Railroad Fund. Meadow Lakes operates as an enterprise fund, Le., it is by definition to be self- supporting. The facility's fiscal year 2006 budget is balanced, generating approximately $100,000 in annual net operating earnings, including the $350,000 payment from the City's Wastewater Fund. The budget includes repayment of capital leases at approximately $87,000. However, repayment of the outstanding $200,000 debt to the Railroad and amounts due other funds are not budgeted and there is insufficient working capital to withstand any measurable interruptions to play or restaurant sales. To ensure operational sustainability without General Fund or other assistance from the City, outside of payments for services from the City's Wastewater Fund, annual net operating income of approximately $150,000 per year is necessary. With approximately $150,000, adequate resources will exist to pay capital leases for golf carts and equipment, debt service for the note to the Railroad and amounts due other funds, and acquire replacement equipment. Additionally, working capital equal to Page 17 of25 sixty-ninety days operating expenses is desired (approximately $200,000 - $300,000). An alternative financing strategy is to consolidate all amounts due the various funds, borrow working capital and finance capital equipment through available cash. If this strategy is pursued, financing of approximately $450,000 is appropriate ($250,000 working capital, $200,000 to repay Railroad Fund, and use of existing cash resources to repay amounts dues other funds $184,200 Wastewater Fund and $109,000 General Fund). The taxable interest loan can be secured by the City's clubhouse and restaurant facility. Annual debt service assuming an interest rate of seven percent and a term of ten years is approximately $64,000. The ten-year financial forecasts presented are based off the fiscal year 2006 budget. The following assumptions are utilized: Annual increase in golf rounds Annual inflation Annual increase in restaurant sales Increase in pro shop sales Facility rental Administration/finance/IT Course operating expenses Waste disposal operating expenses Treatment revenue Page 18 of25 4% 3% 3% 25% year 2-3, 5% thereafter 1 00% year 2, 5% thereafter Reduce $45,000 year 2, increase 3%/year thereafter 4% annually 4% annually Reduce $40,000 per year beginning year six Financial Reporting and Miscellaneous Suggestions Meadow Lakes management will benefit from implementation of the following: 1. Accrual versus cash accounting system 2. Budgets detailed and spread by month 3. Monthly profit and loss reports comparing current month to budget for that month and YTD actual as compared to YTD budget 4. Timely reporting at month end 5. Additional detail in chart of accounts for better tracking a. Separate salary versus hourly, in some cases separate hourly into categories. Specifically in the restaurant, we suggest tracking service staff, kitchen staff, and beverage car separately. b. Report hard goods merchandise sales on a separate general ledger account from soft goods sales and maintain separate inventory accounts for each. 6. Currently, Meadow Lakes allows tournament credit certificates to be used for merchandise and golf and green fees. Tournament credit is customarily distributed only for the purchase of merchandise in the golf shop. We suggest allowing tournament credit for merchandise purchases only. Gift certificates are treated differently, they can and should be able to be used for anything. 7. Currently, there is over $14,000 on the books for unused tournament credit. It is suggested that every 3-4 years the course clear the books. At the start of a new season, tell current tournament credit holders and those that win that all tournament credit accounts will be zeroed at year-end. In an accrual accounting system, this is pure profit and the unused credits are recognized as merchandise sales. 8. See recommendations in retail and food and beverage sections. 9. Explore a group buying organization called VGM. They have national program pricing with many companies in food and beverage, golf maintenance, and golf retail lines. The $600 annual fee can easily be returned in savings if their program works for your course. 10. Update ten-year financial forecasts on an annual basis. 11. Establish financial forecasts as minimum baseline amounts and strive to exceed. 12. Level capital spending on an annualized basis. Use capital leases, if interest rates are very competitive. 13. Adjust the amount paid to the internal service fund for administration, finance and information technology to approximately $75,000 per year. a. Note this adjustment reflects a refinement of the costs of services provided by City administration, finance and information technology. Page 19 of25 Competition Central Oregon has been developed into a golfing mecca. There are a total of xx courses, xx public play courses (3 nine-hole and xx 18-hole), xx private courses (1 nine-hole and xx 18 hole) in the area. The nearest public play courses to Prineville are the nine-hole course in Madras (35 miles) and the new Juniper course (18-hole) in Redmond (18 miles). Additionally, although no official plans have been submitted to the city of Madras or Jefferson County, construction of an 18-hole public course is anticipated during the next three-five years in Madras. Construction of additional resort courses, that likely will include public play, are foreseen during the next ten years near Eagle Crest Resort and in Crook County. These courses will continue to provide significant competition for tourist play and residents of Bend, Redmond and Madras. Closing A community the size of the City of Prineville is fortunate to have an excellent public golf and restaurant facility. Meadow Lakes is highly regarded by golfers and restaurant customers. Due primarily to the limited size of the community the course and restaurant have both struggled to generate the necessary activity to provide the cash flows originally anticipated. The City has managed to meet its obligations through a combination of sales and internal funding improving its overall net assets position as outstanding debt has been reduced. Going forward the City can restructure its debt, secure adequate working capital, increase its sales revenue, reduce administrative overhead costs, limit growth in expenditures and continue reducing financial assistance provided by the City's wastewater operation. To successfully increase sales there will need to be a commitment to compete, requiring marketing efforts, particularly in the local area. We very much appreciate the assistance of City staff, particularly Mr. Van Matre, Mr. Roberts, Ms. Ontko, Mr. Stevenson, Ms. Liz Schuette, and Mr. Robb Corbett, to provide information, insights, and feedback during the preparation of this business plan. Page 20 of 25 City of Prineville Meadow Lakes Golf Course Capital Improvement Plan Fiscal Years Ending June 30, 2006 - 2015 (Amounts in thousands) Est. Life Unit Total Description Yrs Priority Cost Units Cost 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Cart Shed Addition (pro shop) 30 1 45 1 45 46 ReplCK:e clubhouse fireplace 15 1 5 1 5 5 Used pickups - replacement 5 2 15 2 30 16 18 Electric golf carts 5 2 4 45 158 33 34 35 36 37 38 39 40 Interior/exterior painting 10 2 15 1 15 16 Trim mower 5 3 25 1 25 27 Bunker rake 5 3 9 1 9 10 Triplex green mowers 5 4 25 4 100 55 62 Fairway mower 5 4 38 2 76 85 Spray tank - 200 gallons 10 4 27 1 27 30 Turf vehicle 10 5 22 1 22 25 Rough unit mower 7 4 50 1 50 55 Irrigation replacement 20 5 250 1 250 303 Totals 812 67 86 143 175 36 55 341 39 102 Annual inflation factor 3% Page 21 of25 Exhibit 1 AGM Member Survey 2004 Buying & Golf Shop Merchandise Sales Habits Average Golf Shop Merchandise Sales Statistics Rounds Played Shop Square Ft. Gross Merchandise Sales (000) Dollars Per Round Dollars Per Sq. Ft. Gross Profit % Cost of Sales Turnover for Softgoods Turnover for Hardgoods Page 22 of 25 Private Public Resort Off-Course 2003 2003 2003 2003 32,104 48,613 52,616 N/A 1,334 1,323 2,484 5,178 $462 $462 $971 $2,873 $14.38 $9.49 $18.46 N/A $345.98 $348.88 $390.96 $554.80 31% 39% 44% 39% 69% 61% 56% 61% 2.9 2.7 2.9 3.3 2.5 2.6 2.8 4.1 Exhibit 2 Average Number of Lines/Brands carried in each of the following merchandise classification. Men's Apparel Ladies' Apparel Jr. Apparel Headwear Clubs Balls Shoes Gloves Bags Gifts Other Total Private Public Resort Off-Course 2003 2003 2003 2003 2003 8.7 8.9 7.5 10.2 8.1 7.5 7.5 5.7 7.2 8.7 1.6 1.5 1.0 1.3 2.6 3.1 4.4 3.4 7.7 4.6 7.0 5.3 5.2 3.9 13.6 5.5 4.4 5.1 4.8 7.6 3.0 2.6 2.7 2.7 3.9 2.8 2.4 2.9 1.9 4.0 4.6 3.6 3.9 2.8 8.0 10.9 6.4 19.9 9.3 8.3 2.8 2.2 2.2 1.9 5.1 Of note: Rise in ladies and junior apparel in resort and public facilities. A significant rise in clubs at off-course facilities while declining slightly at private clubs. \ Page 23 of 25 Meadow Lakes Statistics Category 02-03 03-04 04-05 # Couple Annual Pass Holders 29 37 42 # Single Annual Pass Holders 74 90 97 Gold Red Annual Pass 48 64 58 Junior Annual Pass 27 34 25 Merchandise Sales $73,375 $69,897 $68,208 Soft Goods Sales $43,739 $42,359 $38,753 Hard Goods Sales $29,636 $27,538 $29,455 Merchandise Purchases $ $53,612 $52,853 cas 77% 77% Food Sales $236,058 $237,214 Food Cost $103,001 $108,628 Food CaS% 44% 46% Soft Drink Sales $27,934 $26,273 Soft Drink Costs $10,973 $11,379 Soft Drink CaS% 39% 43% Beer/Wine Sales $57,027 $48,928 Beer/Wine Costs $19,768 $18, 606 Beer/Wine cas % 35% 38% Liquor Sales $42,136 $49,949 Liquor Cost $11,056 $12,856 Liquor cas % 26% 26% Gift Certificate Sales $13,784 $20,736 $25,197 Gift Shop Credits $13,903 $14,058 $18,108 Page 24 of 25 Rounds of Golf Review from Price Category 02-03 03-04 04-05 New Categories for 04 04*05 18 Holes #Rds #Rds #Rds Included in 04-05 #Rds #Rds Daily 3055 1821 1684 Twilight 196 Gold/Red 700 653 808 Links Card 80 Junior 224 302 168 Annual w/ Cart 414 Junior Pass 660 368 370 Wk Day Daily 120 Tri-County 3155 3308 3586 WkDay Tri County 164 Winter All Day 1876 2589 1612 Wk Day Gold/Red 88 Winter Gold 262 227 216 Wk Day Twilight 32 Annual Pass 6323 6450 7476 Weekend Daily 73 Outing Fee 1277 1283 1240 Weekend Tri-County 198 Complimentary 556 432 578 Weekend Gold/Red 32 Gift Redeemed 94 248 371 Weekend Twilight 32 Category 02-03 03-04 04-05 New Categories for 04 04*05 9 Holes #Rds #Rds #Rds Included in 04-05 #Rds #Rds Daily 639 621 538 Twilight 97 Gold/Red 932 1151 1232 Wk Day Daily 38 Junior 266 327 262 Wk Day Tri County 78 Tri-County 1348 1187 1039 Wk Day Gold/Red 130 Winter 505 865 520 Wk Day Twilight 69 Winter Gold 312 349 299 Weekend Daily 27 Men's League 248 151 13 Weekend Tri-Co 72 Women's League 234 379 233 Weekend Red/Gold 26 Weekend Twilight 41 TOTAL 22.668 22.691 22.245 Page 25 of 25