Loading...
HomeMy WebLinkAbout0006_1_OB - SRPage 1of 5 REPORT TO OVERSIGHT BOARD TO THE SUCCESSOR AGENCYOF THE REDEVELOPMENT AGENCYOF THE CITY OF LAKE ELSINORE To:Chairperson Kelley and Oversight Board Members From:Barbara Leibold, Successor Agency Counsel Date:May 16, 2018 Subject:Restated Fifth Amendment to Stadium Interim Management Agreement Recommendation Adopt A RESOLUTION OF THE OVERSIGHT BOARD TO THE SUCCESSOR AGENCY OF THE REDEVELOPMENT AGENCY OF THE CITY OF LAKE ELSINORE, CALIFORNIA,APPROVING A RESTATED FIFTH AMENDMENT TO THE STADIUM INTERIM MANAGEMENT AGREEMENT BETWEEN THE SUCCESSOR AGENCY OF THE REDEVELOPMENT AGENCY OF THE CITY OF LAKE ELSINORE AND THE LAKE ELSINORE STORM LP Background The former Redevelopment Agency of the City of Lake Elsinore constructed the Lake Elsinore Diamond Stadium (“Stadium”) as a redevelopment project to stimulate redevelopment activities in the “Back Basin” area of the City consistent with the Redevelopment Plan for the Rancho Laguna Redevelopment Project No. III. The Stadium site was donated to the former Redevelopment Agency in 1993 for purposes of constructing a public minor league professional baseball stadium. The terms of the land donation agreement provide that if the public Stadium use is discontinued or if the Stadium is transferred to a private ornon-governmental entity within 50 years of the donation(i.e. 2043), then the former Agency (now Successor Agency) must pay the donor the current fair market value of the “Stadium Site” and “Stadium Access Parcel.” The Stadium was completed in 1994 and has been home to the Storm minor league baseball team for 24 seasons pursuant to various license and maintenance agreements. In April 1998, the former Redevelopment Agency entered into a “Final and Fully Executed Stadium Property and Facility Lease”. TheLessee/Operator under the 1998 Agreementreported significant financial losses andabandoned the Stadium in October 2000. In the wake of that Lessee/Operator default, the Redevelopment Agency initiated litigation against the Lessee/Operator and commencednegotiations with the Storm to mitigate damages and ensure the Storm’s continued use of the Stadium. As a result of these negotiations, the Redevelopment Agency entered into certain agreements involving theoperation and maintenance of the LakeElsinore DiamondStadium, including a LicenseAgreement, a Stadium Field And Maintenance Agreement, and a ConcessionLicense Agreement (collectively, the “Stadium Operations Contracts”). Pursuantto the Stadium Operations Contracts, the Stormlicensedandmaintained the Stadium for baseball games and other Storm events. An affiliateof the Storm, Golden State Concessions and Catering, Inc. (“Golden State”),operatedthe concessionsat the Stadium.Under the Stadium Operations Contracts, the Agency’s management, operation and maintenance costs were significant and the Stadium operated at a loss requiring a significant allocation of the Agency’s tax increment annually. Fifth Amendment to Interim Stadium Management Agreement May 16, 2018 Page 2of 5 In an effort to mitigate the financial strain on the Agency and seek a more cost-effective means of Stadium operations, the Agency published a “Request For Proposals for the Operation, Lease or Purchase of Lake Elsinore Diamond Stadium” (“RFP”) in May 2005. The RFP was widely distributed, including publication in institutional baseball publications such as International Association of Assembly Managers, Stadia, and Streets & Smiths Sports Business Journal. The Agency received only one response - the Diamond Stadium Group (DSG). In 2005,the Agency commenced negotiations with DSGto undertake all of the Stadium operations, maintenance and management responsibilities. Storm LP,Golden State and DSG share common controlling ownership. Negotiationsbetween the Agency and DSG resulted in July2007 amendments to theStadium Operations Contracts and a new Stadium License, Lease and Management Agreement (the “2007 Management Agreement”). The amendments to the Stadium Operations Contracts extended the term of each of the Agreements through December 31, 2016 with extension terms through December 31, 2026. The Amendments provided that so long as the 2007 Management Agreement was in effect, the Stadium Operations Contracts were suspended, but that if the 2007 Management Agreement was terminated, then the Agency and the Storm would again be responsible for performance under the Stadium Operations Contracts. DSG fulfilled all aspects of the 2007 Management Agreementwhich reduced the Agency’sStadium-related costs. However, DSG reported annual losses under the 2007 Management Agreement. In June 2011,DSG exercisedits right to terminate the 2007 Management Agreement effective December 31, 2012. Upon termination of the 2007 Management Agreement, the rights and responsibilities for Stadium management, operations and maintenance were again divided in accordance with the Stadium Operations Contracts. Thetransition back to the Stadium Operations Contracts occurred soon after the dissolution of the former Redevelopment Agency under Assembly Bill x1 26 and Assembly Bill1484(together,the “Dissolution Law”)which dissolved all California redevelopment agencies effectiveFebruary 1, 2012. TheSuccessor Agency did not have the personnel, expertise or resources to satisfactorily perform its obligationsunder the Stadium Operations Contracts nor to enter into and administer individual contracts with individual contractors and vendors to perform selected maintenance, management and operations services. In order to avoid a default under the Stadium Operations Contracts and provide for the efficient and cost effective management, maintenance and operation of the Stadium, the Successor Agency entered into the Stadium Interim Management Agreement on December 11, 2012for the 2013 calendar year(“Interim Agreement”). The Successor Agency and the Oversight Board found that the Interim Stadium Management Agreement was in the best interestsof the taxing entities because the Storm could provide the most efficient and cost effective management, maintenance and operation of the Stadium since it (i) was already on-site, (ii) had the institutional knowledge, Fifth Amendment to Interim Stadium Management Agreement May 16, 2018 Page 3of 5 familiarity, expertise, personnel and resources to perform, (iii) had performed the maintenance (including field maintenance) and operations services for years, and (iv) had existing relationships with vendors and contractorsto service all stadium elements. The State Department of Finance (DOF) agreed. A First Amendment to the Interim Agreement was approved in September 2013. A Second Amendment to the Interim Agreement was approved in September 2014, a Third Amendment was approved in September 2015, and a Fourth Amendment was approved in September 2016. The State Department of Finance has approved the allocation of Real Property Tax Trust Funds (RPTTF) for Stadium obligations in accordance with the Successor Agency Recognized Obligations Payment Schedules (ROPS). The Interim Agreement and the First,Second,Third and Fourth Amendments have been successfully implemented to provide for efficient and cost effective management, maintenance and operation of the Diamond Stadium. The history of the Diamond Stadium Agreements is summarized in the Attachment to this Report. Discussion In January 2018, the Successor Agency and the Oversight Board approved a Fifth Amendment to the Stadium Interim Management Agreement which provided for an initial two-year term commencing July 1, 2018 and, unless terminated early by either party, would renew automatically for up to three two-year Renewal Terms and one six-month Extension Term. The outside expiration of the Fifth Amendment ran concurrent with the expiration of the Stadium Operations Contracts on December 31, 2026. Upon review, the Department of Finance objected to the renewal terms and rejected the Fifth Amendment. Consequently,the Executive Director terminated the Fifth Amendment in accordance with the early termination provisions. The Fourth Amendment expires on June 30, 2018 and in order to provide for the continued maintenance, operation and management of the Diamond Stadium, the Successor Agency approved a Restated Fifth Amendment at is May 8, 2018 meeting. The term of the proposed Fifth Amendment commences upon expiration of the Fourth Amendment on July 1, 2018 and expires June 30, 2019. Except for the term, the provisions of the Restated Fifth Amendment mirror those of the amendment approved by the Successor Agency and the Oversight Board in January. During the Successor Agency’s Meet & Confer consultation with DOF regarding the allocation of RPTTF to the Successor Agency for Stadium obligations, DOF suggested that disposition of the Stadium to another governmental entity would not violate the Stadium Operations Contracts or the donation agreement and would be in the best interests of the taxing entities. While conveyance to another governmental entityis permissible,the Successor Agency believes that such conveyance is impractical since any disposition must be subject to the obligations of the Stadium Operations Contracts and the use restrictions of the land donation agreement. Like most public facilities, the Stadium costs more to operate than Fifth Amendment to Interim Stadium Management Agreement May 16, 2018 Page 4of 5 the revenues it generates and no governmental agency will take on those financial obligations without a guaranteed revenue source to cover the costs. Similarly, any proposed disposition to a private entity must be subject to the Stadium Operations Contracts and the financial obligations thereunder. In addition, conveyance to a private entity would trigger financial penalties under the land donation agreement. Even if a conveyance of the Stadium is possible, it is not possible to complete such conveyance prior to the June 30, 2018 expiration of the Fourth Amendment. Consequently, the Successor Agency determined that the Restated Fifth Amendment extending the existing payment and performance obligations of the Successor Agency and the Storm is in the best interests of the taxing entities. DOF also referenced the provisions of the Dissolution Law that allow the Oversight Board to direct the Successor Agency to terminate or renegotiate contracts if doing so is in the best interests of the taxing entities. The Successor Agency determined that termination of the Stadium Operations Contracts is not in the best interests of the taxing entities because it would constitute an Agency default and trigger significant damages, financial penalties and other liabilities that exceed the costs of retaining the Stadium and performing the enforceable obligations under the Stadium Operations Contracts. Contract renegotiation is infeasible since the payment schedule under the Interim Stadium Management Agreement and each of the Amendments have been based on the formula required under the Stadium Operations Contracts and negotiated each year based on prior year’s actual costs and costs budgeted for the agreement term. The Storm’s actual costs have exceeded the compensation paid by the Successor Agency every year. The proposed Restated Fifth Amendment is in the best interests of the affected taxing entities because it provides a high level of certainty relating to the costs of Stadium operationsand maintenance compared to the uncertainty presented by the daunting possibility of defaulting under the Stadium Operations Contractsand land donation agreement. TheStorm’sskills, knowledge and resources will provide continued, efficient and cost effective management, maintenance and operation of the Diamond Stadium which will protect the public’s investment in the Stadium, minimize costs and mitigate against potential breach of contractand relateddamages. In light of the impending June 30, 2018 expiration of the Fourth Amendment to the Stadium Interim Management Agreement, the Restated Fifth Amendmentis the only way to ensure that thecontractual rights of the “Lake Elsinore Storm” to play its home baseball games at theDiamond Stadiumin accordance with the Stadium Operations Contractsare protected.The Storm possessesthe experience, capabilitiesand qualifications tobestcarry out these obligations. The Restated Fifth Amendment to Interim Stadium Management Agreement incorporates the obligations under the Stadium Operations Contracts and provides for a Capital Improvement Schedule. During the 2018-2019termof the Restated FifthAmendment, compensation to the Storm for the performance of the maintenance, management and operations services shall be as follows: Fifth Amendment to Interim Stadium Management Agreement May 16, 2018 Page 5of 5 (a)Assignment of GRCS Concession Fee. Successor Agency assigns Successor Agency’s right to payment of the GRCS Concession Fee under the Concession Agreement to the Stormduring the 2018-2019term, estimated at$34,000 annually; and (b)Waiver of License Fee. Successor Agency waives Successor Agency’s right to payment of the License Fee in the amount of $522,473for the period July 1, 2018 through June 30, 2019under the License Agreement as an offset against the payments due by the Successor Agency to the Storm; and (c)Payment of Maintenance Fee. Successor Agency shallpay the Annual Maintenance Feein the amount of $243,912for the period July 1, 2018 through June 30, 2019; and. (d)Payment of Additional Interim Management Fee. Successor Agency shall pay to Storm $468,147 for the periodJuly1, 2018through June 30, 2019, payable in equal monthly installments (“Additional Interim Management Fee”). The Maintenance Fee along with the Additional Interim Management Fee will result total cash payment from the Successor Agency to the Storm of $712,059for the period July 1, 2018 through June 30, 2019as consideration for services provided under the Stadium Operations Contracts and theInterim Agreement, which aggregate amount shall be payable in equal monthly installments of $59,338.25for the period July 1, 2018 through June 30, 2019. The Successor Agency continues to be responsible for all Capital Repairs and alterations consistent with the Stadium Operations Contracts. Capital repairs for 2018- 2019, as included in the Restated FifthAmendment, reflect that the Stadium is twenty- four(24) years old and include, without limitation, capital repairs necessary to comply with ADA and energy and water efficiency requirements, roof repair/replacement, plumbing and drain repair and equipment replacement. Following approval by the Oversight Board, the Restated FifthAmendmentwill be submitted to the DOF. Attachments: History of Diamond Stadium Agreements Resolution No. OB 2018-0 Exhibit A -Restated FifthAmendmentto Stadium Interim Management Agreement