City Council approves a 20-year lease for Course Co. takeover of Valley Oak Golf Course

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By Reggie Ellis @Reggie_SGN

VISALIA – Local golfers may not notice a difference in the Valley Oak Golf Course from this year to the next, but over the next 20 years there is now the potential of major improvements being made to both the course and its operations.

At its Sept. 18 meeting, the Visalia City Council held the first reading of an agreement to lease the golf course to Course Co. Inc., the Petaluma-based company that has been managing it for the last 17 years.

Recreation Director Jeannie Greenwood said the golf course management company submitted a letter to her office several years ago expressing interest in a lease agreement after two years of negotiations. The negotiations began just as Course Co. had begun to turn a profit on its existing five-year contract extension which expires on Dec. 31, 2019.

“We have had a great partnership with them for 17 years,” Greenwood said.

While the partnership has been amicable it has not been profitable for the City. Under the current agreement, the City contracts with Course Co. to oversee operations and maintenance. Those costs range from $95,000 to $100,000 per year. The city lost money if the first two years of this contract in 2011-12 and 2012-13. And even after seeing a profit the last three years, Greenwood said the number of golfers are in decline due to the Tiger Woods effect. Without its star player, less new players are joining the sport. Despite having net gains in 2014-15 and 2015-16 of $482,000, the City was left with a small profit of between $30,000 and $40,000 after making payments on a capital improvement loan, to Course Co. for management services, city staff time and subsidized green fees to keep the course affordable. All of the remaining money

“As expenses continue to increase faster than revenues, subsidizing the golf course could become a reality in the next several years,” Greenwood said.

The bigger issue is the debt the City carries on the course. The left over $30,000 goes toward a long term debt obligation that was still more than $1.3 million at the end of the 2015-16 fiscal year. That was compounded by the City’s remaining capital improvement loan debt of more than $1 million. Greenwood said that current capital improvement loan and old debt grew unchecked until a few years ago when the City Council decided to use all of the money generated from a $5 surcharge per round to pay down the CIP debt.

“Entering into a lease agreement rather than a management agreement guarantees the City a set amount of money each year and Course Co. assumes the financial risks involved with operating the course,” Greenwood stated in her report.

The new 20-year lease would take effect on Jan. 1, 2018 and expire on Dec. 31, 2037. Course Co. will pay $90,000 per year through 2031 and $110,000 per year for the remaining 14 years. In addition to leasing the land, Course Co. agrees to contribute 3% of annual gross revenues and at least $300,000 in the first three years to the Capital Improvement Fund for course maintenance and improvements less than $1,000. Course Co. is also required to spend half of the $300,000 within the first three years and $3 million over the term of the lease in carts and other equipment. Gross revenues are based on an average baseline of $2.4 million per year, which is adjusted annually for inflation. The City will receive 15% of any profits over the baseline. All of the rights for food and beverage licensing would transfer from the City to Course Co.

“It’s a great idea of giving this over to a private entity,” said Councilmember Phil Cox. “It gives them an opportunity to think outside of the box and create some revenue.”

The City is required to pay for major repairs, such as any equipment failure that costs more than $1,000 to repair or replace. Greenwood said Course Co. would be able to make improvements for less than the city because they do not have to pay prevailing wage for capital projects. The agreement also comes just as the city was preparing to replace $400,000 in aging golf carts.

“It’s always better when the private sector can run an organization much better than the government can run it,” said Vice Mayor Bob Link.

Costs to maintain exterior roofs, sewer facilities, potable water facilities, building improvements, such as heating and cooling systems, electrical systems, plumbing fixtures, and mechanical systems, will be shared between City and Course Co.

“I’m interested to see what a private entrepreneur can do,” Mayor Warren Gubler said.

Michael Sharp, president of Course Co., said he was glad to see the deal finalized nad was excited about the contract even though it seemed extremely favorable to the City.

“I’m excited about the next chapter of this model partnership,” Sharp said.

Greenwood said the only disadvantage of the lease was that the city would lose control over operations, including setting the fee schedule for golfing in Visalia.

“It would not be in their best interest to dramatically increase prices and potentially lose patrons with which they have developed a close relationship over the years,” Greenwood wrote in her report.

Councilmember Steve Nelson mad the motion to approve the lease saying, “I couldn’t find anywhere where it is a disadvantage to the City. I found it very fair and a good course of action.” The motion carried 4-0 as Councilmember Greg Collins was absent.

The lease agreement and corresponding ordinance will come back to the City Council on Oct. 2 for a second reading before taking effect later this fall.

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