03. KGA Responseo
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Incorporated 1892
Telephone (406) 758-7700
FAX (406) 758-7758
Post office Box 1997
Zip 59903-1997
TO: Mayor and City Council
FROM: Bruce Williams
DATE: December 12, 1994
RE.: Status of Golf Course Lease Negotiations
I have been attempting to renegotiate the Golf Course lease
with Steve Dunfee representing the KGA board. As you are
aware, the negotiations were promoted by the KGA's interest in
financing $600,000 worth of improvements to the golf course,
which require your approval. Also, the KGA will need a time
extension to the existing lease to satisfy the lending
institutions requirements before a loan can be granted.
Through the negotiating process I have taken the position that
the lease has value to the city and that we didn't think the
present lease met our expectations of value. Since we now
have the opportunity to correct this deficiency, by a
renegotiated lease, I believe it is in our best interest to
stand firm with respect to our expectations. The economic
offer submitted on your behalf would require a lease payment
of $25,000 annually or 50% of the course's net income,
whichever is greater.
The $25,000 would be adjusted each year for inflation, and if
we ever participated in profit sharing (net income), we would
allow the KGA to deduct all operating expenses, reasonable
depreciation, debt P & I, debt reserves and a sufficient cash
balance to meet expenses during off-peak months, before we
would collect a penny of profit. This offer does not appear
to be unreasonable in light of the KGA's need for a time
extension of up to 15 years on the lease term.
The following information represents income to the city from
the lease from 1989 through 1993 and net income to the KGA for
the same time period:
1989 1990 1991 1992 1993
Net Income
KGA 89,429 231,420 219,180 267,190 33,036
Lease Income
to City* 5,482 7,701 8,520 9,395 8,434
Douglas Rauthe
Mayor
Bruce Williams
City Manager
City Council
Members:
Gary W. Nystul
Ward I
Cliff Collins
Ward I
Barbara Moses
Ward II
Dale Haarr
Ward II
Jim Atkinson
Ward III
Lauren Granmo
Ward III
Pamela B. Kennedy
Ward IV
M. Duane Larson
Ward IV
*Income to city is calculated by taking 1% of gross income from
green fees, memberships and driving range income.
I have also proposed a tiered membership fee, which gives a lower
rate for city residency.
Using the rates proposed in the KGA correspondence of November 18
as the base for annual memberships beginning 1995 through 1999, I
have offered the following:
1995 1996 1997 1998 1999
city resident 250 275 325 375 400
county resident 275 300 350 400 425
out of county 300 325 375 425 450
For green fee play, I propose that a city resident pay $12.00,
county resident $15.00, and non -county resident $18.00, with the
three dollar spread continuing through 1999.
The other point that needs mentioning is that the KGA will be
borrowing money from local lending institutions at prime plus 1-
1/2%, which means that the interest rate could be as high as 10-
1/2 0. I have researched the statutes and have found that state law
allows an SID for improvements such as those proposed by the KGA.
Therefore, the council would have the option of creating a special
improvement district and sell SID bonds, the proceeds of which
would be used to build the course improvements. This method would
save the KGA as much as 3-1/2 points on the interest rate for
borrowing.
It is my recommendation that if the KGA board is unwilling to
negotiate a more favorable lease with the city, then you should not
approve of the improvement plans and simply wait 14 more years to
let the present lease expire, at which time you will be in a
considerably better position to negotiate a more favorable lease or
consider other options. In the meantime, I suggest you consider
the tiered membership rate referred to previously in this memo.
iheCiryoIncorporated 1892
f Kalispell
Telephone (406) 758-7700
Douglas Rauthe
FAX (406) 758-7758
Mayor
Post office Box 1997
Zip 59903-1997
Bruce Williams
City Manager
January 18, 1995
City Council
Members:
Mr. Steve Dunfee
Gary W.Nystul
Kalispell Golf Association
Ward
Post office Box 1116
Cliff Collins
Kalispell, MT 59903-1116
Ward
Barbara Moses
Dear Steve:
Ward it
The City Council, at it's meeting
of Tuesday, January 17,
Dale Haarr
unexpectedly considered the K.G.A.'s
proposal as outlined in
Ward11
your letter of January 13, 1995.
Jim Atkinson
Ward III
After considerable discussion, the
council unanimously voted
to approve your Phase I improvements of $600,000, and denied
Lauren mo II
Wardll
I
approval of your recommended fee schedule for 1995.
Pamela B. Kennedy
Their preference remains a tiered fee schedule as follows:
Ward IV
M. Duane Larson
Ward IV
Annual Season
Full -Time
Pass
Collette Junior
City resident 250
125 75
County resident 275
150 100
out of County resident 300
175 125
The fees as identified above were adopted 'as part of their
agreement to allow your Phase I improvements. Your daily
green fee schedule is approved as per your proposal.
We certainly do hope that this meets with your board's
expectations, and we look forward to working with you in
financing the Phase I improvements.
Sincerely,
Bruce Williams
City Manager
BW/ksk
Kalispell Golf Association
Council Work Session
January 23, 1995
Mr. Chairman, members of the Council:
My name is Jim Robischon. I reside at 645 7th Avenue East, in
Kalispell. I was recently retained as legal counsel to the Board
of Directors (Board) of the Kalispell Golf Association (KGA) to
consult with and advise the Board on matters relating to the
relationships between the KGA and the City of Kalispell, including
the matters before you this evening.
Appearing with me this evening is Steve Dunfee, the Operations
Manager of the KGA who will be available, upon conclusion of my
statement, to answer any questions that the Council may have
concerning any references that I shall make to the affairs of the
KGA that come under Mr. Dunfee's management or supervision.
The purpose of our appearance this evening is to provide the
Council with an explanation as to why the KGA Board believes that
it cannot implement a "tiered fee schedule" as requested by the
Council in the action taken by the Council last Tuesday.
At the outset it should be noted that:
A. the Board has taken formal action to defer proceeding
with the Phase I improvement plan to 1996. Among the reasons for
this action is that the proposed course improvement plan submitted
to the KGA membership for approval included an annual fee schedule
and increases in that fee schedule that the Council has not
approved;
B. irrespective of the Board decision to defer Phase I of
Statement
January 23, 1995
Page 1
the improvement plan, the Board has determined that an increase in
the annual revenue from membership fees is required to meet the
revenue requirements of the 1995 budget; as only a portion of the
1995 dues/revenue increase was assigned to debt service.
Steve Dunfee can -provide you with the detail concerning that
matter, if you so request.
I. INSTITUTIONAL LIMITATIONS PLACED UPON THE BOARD OF
DIRECTORS:
The preference of the Council for a "tiered fee schedule" is,
in reality, a directive to the Board for the implementation of a
discriminatory annual fee schedule which would result in favoring
one class of members over another member or other classes of
members based upon the member's residence.
On December 20, 1994, the Board received a written opinion
from its corporate counsel that: "...it would be necessary to
first amend the by-laws of the association to specifically allow
for such a structure."
Under, Article X of the KGA By-laws, the by-laws of the
Association may only be altered or amended by a majority
affirmative vote of the shareholders either through direct action
or by ratification of action by 2/3rd affirmative vote of the whole
number of the Board.
It is the consensus of the members of the Board that, as a
practical matter, the KGA membership would not approve such an
amendment to the KGA By-laws by the majority required; nor would
Statement
January 23, 1995
Page 2
" the members approve a capital improvement plan that included a
discriminatory annual membership fee schedule for the funding of
those improvements.
II. EXTERNAL CONSTRAINTS UPON BOARD ACTION:
A. The principal external constraint upon the Board taking
formal action to adopt a discriminatory membership fee schedule
relates to the possible effect of such action upon the non-profit
taxpayer status of the KGA.
In the written opinion of corporate counsel for the KGA of
December 20, 1994, the Board was advised that if the By-laws were
amended "...it will be necessary to resubmit an exemption
application to the EP-EO office of the I.R.S" in order to retain or
maintain the KGA's non-profit taxpayer status. The Board can not
predict whether or not the IRS would act favorably upon such an
application and believes that there may be some level of risk
involved in resubmitting such an exemption application.
B. The Board is aware of the fact that there are those
critics of its position who dismiss these considerations as not
valid reasons for not accommodating the Council in its request for
a discriminatory membership fee schedule. Be that as it may; there
are others who will take these matters seriously.
Prospective lenders, whether they be commercial banks or
prospective purchasers of a municipal revenue bond or other
municipally assisted borrowing will not only require that the
adoption and approval of annual fee schedules complies with the
KGA's institutional legal requirements; but also, will insist that
Statement
January 23, 1995
Page 3
there be no cloud over the KGA's non-profit taxpayer status that
could possibly impair its ability to service the proposed debt.
IN CONCLUSION, the KGA Board, collectively, has difficulty in
understanding_why the KGA is facing such substantial obstacles to
the improvement of the leasehold property from its Lessor; and,
exposure to the risk of loss of its non-profit taxpayer status at
this time.
A. The members of the KGA, by a two -to -one majority,
approved the proposed non-discriminatory 1995 dues schedule, and
the proposed 1996 - 1998 annual dues increases, as a part of the
approval of the Phase I improvement plan at the November 16, 1994
special meeting.
B. Approximately one year ago, the Board was advised of the
Council's interest in the adoption of a discriminatory membership
fee schedule by the KGA. Since that time, the Board has acted to
increase its membership fee schedule under the historic, non-
discriminatory format in connection with its Phase I property
improvement program. Have the members of the Council been receiving
complaints or requests concerning the 1995 KGA membership fee
schedule proposal or the proposed increases planned for 1996 -
1998, from their constituents?
The Board members have received no such complaints or
requests.
C. As I mentioned, at the outset, Steve Dunfee, Operations
Manager of the KGA is available to expand upon, explain or even
corroborate, if necessary, any remarks that I have made concerning
fiscal matters in this statement.
Statement
January 23, 1995
Page 4
AGAIN, THANK YOU FOR THE OPPORTUNITY TO ADDRESS THE COUNCIL ON THIS
MATTER. ON BEHALF OF THE BOARD OF THE KGA, WE RESPECTFULLY REQUEST
THAT THE COUNCIL RECONSIDER THE ACTION TAKEN ON JANUARY 17 RELATING
TO KGA'S PROPOSED MEMBERSHIP FEE SCHEDULE FOR 1995.
Statement
January 23, 1995
Page 5