DATE:
August 20, 2024
TO:
Mayor and City Council Members
FROM:
Rachel Molina, City Manager
BY:
Casey Brooksher, Assistant City Manager
SUBJECT:
Contract Amendment with Donovan Bros
RECOMMENDED ACTION
It is recommended that the City Council authorize a five-year amendment to the agreement with Donovan Bros. Golf LLC (Donovan Bros.) for $1,985,800 for a total not-to-exceed amount of $4,323,846 for the continued operation, management, and maintenance of the Hesperia Golf Course & Country Club (Golf Course) through September 17, 2029.
BACKGROUND
In 2019, the City issued a Request for Proposal (RFP) for the operation and maintenance of the Golf Course. This process resulted in the City Council approving a five-year agreement with Donovan Bros. The agreement included an annual management fee of $72,000 per year, $570,300 in capital improvements, and coverage of projected losses totaling $1,407,746 over five years.
With the current contract nearing expiration in September 2024, the City has monitored the actual expenses compared to the projections presented to the City Council on August 20, 2019. The following chart details the original projection of the Donovan Bros. contract compared to the actual costs.
The three components of the contract are the management fee, capital costs, and loss coverage.
The management fee is the contracted amount to manage the operations of the Golf Course.
With the capital component, Donovan Bros was able to add significant capital improvements to the Golf Course, including needed improvements to the irrigation system, along with roof and HVAC repairs at the clubhouse. The irrigation system was not working well when the City assumed operations in 2019 and required manual watering. The roof at the clubhouse was over 60 years old and was in poor condition, with a number of leaks. The repairs required the removal of all the existing roofing material and the replacement of the damaged sub-roof to protect the inside of the clubhouse from sustaining any further damage to the walls. The last component of the start-up costs included the purchase of a mower, aerifier, and utility carts.
The final component of the contract was the coverage of losses. As detailed, Donovan Bros. was able to outperform in this category. The August 2019 projection assumed Golf Course operations losses of $1,407,746, while the actual five-year loss was $1,202,862, for a savings of $204,884.
From FY 2019-20 through FY 2024-25, Donovan Bros increased the level of play at the Golf Course. In 2019, the Golf Course hosted 765 tournaments, which increased to 1,598 tournaments in 2024, or a 109% increase. Further, approximately 18,000 annual play rounds occurred before Donovan Bros. managed the Golf Course. For FY 2023-24, the Golf Course experienced approximately 26,000 rounds of play, a 44% increase.
Further, improvements have been made to the clubhouse, restaurant/bar, and general landscaping to create an inviting environment. To demonstrate the improvements, the following is a comparison of the 2019 activity to the 2024 activity:
Additionally, the storied history of the Golf Course is well known as it was a former tour stop of the Professional Golfers’ Association (PGA). With the improvements to the Golf Course, tours have returned to Hesperia, especially those on the junior circuit. The following is a listing of the tours that now utilize the Golf Course:
United States Golf Association (USGA) – Junior Amateur
Southern California PGA Junior League
American Junior Golf Association (AJGA)
The AJGA is a multinational tournament where top players tend to receive college scholarships.
ISSUES/ANALYSIS
The initial five-year agreement, which ends in September 2024, included an option to extend for an additional five years. As with the current contract, the extension provides for a management fee to operate the Golf Course, the City to cover the losses, and a request for capital replacement.
Regarding the management fee, Donovan Bros. has expressed a need to increase the monthly management fee from $72,000 per year to $86,400 per year for the next five years due to inflationary factors over the past five years. While this is a 20% increase, the Donovan Bros. contract does not include an annual inflator increase typical of other agreements. The 20% increase effectively equates to a 4% increase yearly over five years, which aligns with other City contracts.
The second contract component covers losses to the Golf Course. The following chart is a conservative estimate of the expected losses during the five-year extension.
Based on the current economic conditions and the level of play, it is conservatively estimated that the course would need an annual subsidy of approximately $250,000. It should be noted that the projected total loss/subsidy through FY 2028-29 of $1,247,800 is consistent with the actual total losses for the five years of FY 2019-20 through FY 2023-24 of $1,202,862.
The third and final component is related to capital. With aging equipment, Donovan Bros. identified a five-year capital schedule for facility improvement and equipment replacement. It should be noted that the City will own any capital.
This equipment schedule will replace the aging fleet and allow Donovan Bros. to maintain the Golf Course at its current standard.
As with the current contract, the extension includes the management fee component, coverage of losses, and capital component. Of the three components, the management fee will be paid at the contracted annual rate. Both the capital replacement and annual losses are projected amounts. The following table indicates the projected total cost of the five-year extension.
Projected
Capital Improvement Projection
$ 306,000.00
Management Fee ($86,400 per year)
432,000
Cumulative Operating Losses
1,247,800
Projected Cost of Five-year Extension
$1,985,800
For comparison, the current contract (five-year) totaled $2,338,046, of which $2,133,162 was spent to date for a savings of $204,884. The projected five-year extension is anticipated to total $1,985,800, which is $352,246 less than the original contract authority or $147,362 less than the actual to-date amount spent over five years.
CITY GOAL SUPPORTED BY THIS ITEM
Financial Health – Maintain a balanced budget and adequate reserves.
FISCAL IMPACT
The five-year contract amendment with Donovan Bros. is $1,985,800 for the continued operation and maintenance of the Golf Course through September 17, 2029. A sufficient budget exists within the FY 2024-25 General Fund Budget for the operation and maintenance of the Golf Course. Should the City Council approve the five-year contract extension, a First-quarter Budget Amendment will only be needed for the first year of capital replacement, totaling $103,000.
ALTERNATIVES
Provide alternative direction to staff.
ATTACHMENTS
None
City of Hesperia STAFF REPORT City of Hesperia STAFF REPORT City of Hesperia
STAFF REPORT
City of Hesperia
STAFF REPORT
Staff Report to the Mayor and City Council Members
Contract Amendment with Donovan Bros. for Continued Operation, Management and Maintenance of the Hesperia Golf Course & Country Club August 20, 2024