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RESOLUTION NO. 2016-053 OF THE CITY COUNCIL OF THE CITY OF CHULA VISTA APPROVING THE TERMS FOR AN AGREEMENT WITH POINT LOMA TRUST FOR THE OPERATION OF THE CHULA VISTA ELITE ATHLETE TRAINING CENTER
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RECOMMENDED ACTION
Recommended Action
Council adopt the resolution.
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SUMMARY
In 2014, the United States Olympic Committee (“USOC”) approached the City to determine if the City would be interested in acquiring the Chula Vista Olympic Training Center land, facilities and equipment, and in continuing to operate the facility as a U.S. Olympic and Paralympic Training Site. After extensive analysis and negotiations with the USOC, on February 23, 2016, staff presented to the City Council, and the City Council approved, the key agreements with the USOC to implement this transaction. One of a number of key remaining actions is the City’s approval of an agreement for the operations of the facility (now known as the Chula Vista Elite Athlete Training Facility) with a third party operator. City worked with the USOC to solicit and evaluate proposals for prospective operators. In the end, the Point Loma Trust, an affiliate of Point Loma Nazarene University, was selected as the most qualified and suited to the task. City staff has now negotiated substantially final terms for this agreement with the Point Loma Trust (“PLT”). This item presents these terms to the City Council for its consideration and approval. If the City Council so directs, staff will proceed to finalize its negotiations with PLT consistent with these terms, and bring back a final agreement for City Council consideration at the April 5th Council meeting.
ENVIRONMENTAL REVIEW
Environmental Notice
Environmental Notice
The activity is not a “Project” as defined under Section 15378 of the California Environmental Quality Act (“CEQA”) State Guidelines; therefore, pursuant to State Guidelines Section 15060(c)(3) no environmental review is required.
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Environmental Determination
The Director of Development Services has reviewed the proposed for compliance with CEQA and has determined that the activity is not a “Project” as defined under Section 15378 of the California Environmental Quality Act State Guidelines because the activity consists of approval of proposed business terms for transfer and operating agreements for the USOC site, and does not involve a potentially significant physical impact on the environment. Therefore, pursuant to State Guidelines Section 15060(c)(3) no environmental review is required.
BOARD/COMMISSION RECOMMENDATION
Not Applicable
DISCUSSION
In 2014, the USOC approached the City to determine if the City would be interested in acquiring the Chula Vista Olympic Training Center land, facilities and equipment, and in continuing to operate the facility as a U.S. Olympic and Paralympic Training Site. Negotiations commenced and an operating model was developed that was intended to allow the City to continue operation of the facility as an Olympic and Paralympic Training Site, with other uses and events compatible with the existing elite sports training activities. The model included the construction of additional athlete dorms (which Council approved in its action on March 15, 2016 pursuant to a contract for the development of 100 beds with Baldwin & Sons). and selection of a third-party operator to minimize risk to the City’s general fund.
In July 2015, the City issued a Request for Expressions of Interest (RFEI) for a third party operator. Eleven potential operators responded. Through a series of evaluations, the City and the USOC narrowed the selection and ultimately selected the Point Loma Trust (PLT), and affiliate of Point Loma Nazarene University (“PLNU”), as its preferred operator. PLT was selected because of PLNU’s experience with operating high quality sports facilities, buildings, residence halls and dining facilities; its understanding the need to market the facility for additional revenue generation that complements the core business such as increased use by international athletes, grass root camps, hosting additional NGB’s, sport and teambuilding clinics; its existing investment in Chula Vista with their relationship with Southwestern College; its acceptance and desire to embrace and promote the vision of the City and the USOC regarding the Olympic movement and support of the Elite Athletes training at the center; its desire to exceed the expectations of USOC and the City; its desire to develop strategic partnerships with, and to maintain or enhance service levels for Easton Archery Center of Excellence; and its willingness to bear risks of operating deficits.
The proposed key terms for the Operator Agreement (“Agreement”) between the City and PLT for the operation of the CVTC are set forth below. A number of “Notes” are also provided to indicate where negotiating points still remain.
1. In General
a. Parties. City of Chula Vista (“City”), and The Point Loma Trust, a California trust, or a wholly owned subsidiary thereof (“PLT”), acting as an independent contractor.
b. Basic Agreement. PLT shall have the exclusive right and duty to operate and maintain the Chula Vista Elite Athlete Training Center (“CVTC”) consistent with (1) the terms set forth in this Agreement; (2) City’s Core Agreement with the United States Olympic Committee (“USOC”); and (3) the initial CVTC Business Plan approved by both parties (“Business Plan”), described in Section 3, below. City’s rights and obligations under the Core Agreement will be assigned to PLT except as expressly provided in the Agreement.
c. Additional Standards of Performance/Duties. In the performance of its duties, PLT shall also be required to: (1) comply with all laws; (2) maintain an adequate and effective work force; (3) maintain the CVTC facilities and equipment per agreed upon schedules and standards; (4) maintain records and accounting system(s) in accordance with GAAP; (5) propose and comply with an annual budget approved by the City Manager with quarterly reports demonstrating adherence to the budget and the Core Agreement.
2. Term
a. Term. After a transition period from April 1, 2016 until December 31, 2016, commencing January 1, 2017, PLT shall have the right and obligation to operate the Agreement for a period of up to ten (10) years (until December 31, 2026). This includes an eight (8) year initial term and a two (2) year extension at PLT’s discretion. Extension terms beyond 10 years are possible, up to an additional ten (10) years, subject to each party’s approval in its sole discretion.
b. PLT’s Early Termination Right. PLT may initiate a potential early termination of the Agreement in the event of substantial operating deficits by providing written notice after four (4) years of operation. In such event, the parties agree to meet and confer in good faith for at least three (3) months in order to determine if there are mutually agreeable terms to continue PLT’s operations for the remainder of the Term, or beyond. In the event that the parties are unable to reach agreement, PLT can elect to terminate the Agreement with adequate notice to City to allow City to transition operations to another provider, or terminate (City is proposing 9 to 12 months).
Note: The parties are discussing other possible “early termination” or “re-negotiation” events, but have not yet reached agreement. Any such provisions will be presented to the City Council in the final agreement.
3. Business Plan
a. Initial Business Plan. PLT shall prepare a draft Business Plan that does not conflict with the Core Agreement for City review/approval. The draft Business Plan shall include, at a minimum, the following elements: (a) mission/vision statement, (b) transition plan, (c) list of the targeted types and desired mix of users, (d) marketing plan summary, (e) principles for rate setting and/or a proposed preliminary rate structure for facility users, (f) principles for budget development and compliance, including operational and capital reserves, (g) community outreach plan summary, (h) special event plan summary, (i) staffing plan, (j) retail store proposal, and (k) plan for identifying/funding capital enhancements, and (l) plan for identifying potential business opportunities, including without limitation, the addition of on-site retail operations such as restaurant and/or coffee retailers.
b. USOC Review. The City-approved draft Business Plan shall be submitted to USOC for review and input, with reasonable consideration by Operator given to USOC proposed adjustments.
c. Comprehensive Business Plan. Based upon and consistent with the draft Business Plan, PLT shall develop a more detailed and comprehensive Business Plan and shall submit that plan for City Manager review and approval by no later than July 1, 2016.
d. Annual Review Process. The parties shall meet and confer each year of the term starting March 1st to discuss possible updates and modifications to the Business Plan. PLT shall submit its updated plan to the City Manager for review and input, with reasonable consideration given to the City Manager’s proposed modifications.
4. Staffing/Oversight
a. In General. PLT shall have the right and responsibility to hire/manage and terminate employees as necessary to operate/maintain the CVTC per the standards required by the Agreement.
b. Key Positions. Initially, City Manager (or designee) and PLT shall confer to identify key existing CVTC employees that may be offered positions with PLT. Until December 31, 2021, PLT shall continue to consult with City Manager (or designee) in advance of hiring, material changes in employment or termination of these individuals/positions. Notwithstanding the foregoing, the ultimate decisions regarding hiring, managing or terminating PLT employees shall be at PLT’s sole discretion.
c. City CVTC Coordinator/Liaison. There shall be a CVTC “Coordinator/Liaison” to be employed by City, or a non-profit created thereby (“City Coordinator/Liaison”). The City Coordinator/Liaison shall be responsible for City’s obligations with respect to CVTC operations, shall assist with marketing of the CVTC, and shall be PLT’s point of contact with the City. PLT shall provide the City Coordinator Liaison with full access to the CVTC, along with reasonable office space and reasonable office support services at Operator’s cost. Until December 31, 2021, City shall consult with PLT in advance of hiring, material changes in employment or termination of this position. Notwithstanding the foregoing, the ultimate decisions regarding hiring, managing or terminating the City Coordinator/Liaison shall be at City’s discretion.
d. Facility Operations Advisory Committee (“FOAC”). City envisions representative(s) from USOC, Easton, PLT, City and CVTC coaches/athletes to share ideas and issues relative to CVTC operations. This entity shall have no decision making or governance function but shall be consulted from time to time for its input on CVTC operations and policy. This entity shall have not less than 20% CVTC resident athlete representation. The FOAC could potentially serve as the agent for administering the annual review process [Section 11], and/or the “athlete representative” function [Section 30] required under the Core Agreement.
5. Revenues/Compensation
a. In General. All CVTC revenues generated by PLT’s operations of CVTC shall go to CVTC operations and maintenance as PLT shall direct, consistent with terms of Business Plan and Budget, except as otherwise expressly provided herein.
b. Operator Fee. In consideration of PLT’s provision of services under the Agreement, PLT shall be entitled to a fee equal to the greater of a fixed dollar amount (current amount proposed is $300,000), or a percentage of CVTC gross revenues (current percentage proposed is 10%) (“Operator Fee”). The Operator Fee shall be payable out of CVTC revenues on an annual basis, in arrears (“Operator Fee”). Starting in calendar year 2018, and each year of the term thereafter, the Operator Fee shall be payable monthly out of CVTC revenues based upon PLT’s revenue projections for that calendar year, subject to a year-end reconciliation.
Note: Still under negotiation is what happens if adequate revenues are not available to pay PLT its “Operator Fee” without creating an operating deficit. PLT has proposed carrying forward and accruing interest on any unpaid “Operator Fee” amounts, with priority payment of such amounts out of future “Surplus Revenues” (see below).
c. Special Revenues. City receive all revenues from certain special events sponsored/co-sponsored by City at the CVTC to be defined in the Agreement provided that City shall manage, pay all expenses, including applicable insurance costs, and.
d. Surplus Revenues. To extent any “surplus revenues” are generated from PLT’s operations of the CVTC (to be defined) (“Surplus Revenues”), then (a) 20% of such Surplus Revenues shall be dedicated towards agreed upon “CVTC Special Projects” (to be defined by the parties mutually, but generally CVTC facility additions or enhancements) and (b) 80% of such Surplus Revenues shall be paid to PLT as an additional fee for PLT’s services under the Agreement. Some portion of the 80% of “Surplus Revenues” payable to PLT shall be dedicated by PLT towards enhancing or adding to existing PLT projects or programs benefitting Chula Vista residents or students. PLT is currently proposing 10%. “Surplus Revenues” shall be determined annually, in arrears, based upon a reconciliation of revenues generated and costs incurred for that budget year, after funding required operational and capital reserves, and paying off, in order, any operational/capital costs for the current year under the approved Budget, and any “Deferred Operator Expenses” (defined below) that may have been carried forward from any previous year(s).
Note: These percentages may change in the final agreement depending upon the outcome of other items pending resolution.
e. Loss Recovery. The Operator shall be responsible for the payment of all losses resulting from the operation of the CVTC except to the extent that such losses are caused by costs expressly allocated to the City under the Agreement (the “Deferred Operator Losses”). The amount of Deferred Operator Losses from each year of operations, plus interest to accrue on the outstanding balance of such losses at a rate based on PLT’s cost of funds per annum, shall be recovered by the Operator from subsequent year’s revenues from operations after first paying all required operating expenses.
Note: A key element of this provision is that except as expressly provided in the Agreement, PLT is bearing the responsibility for any CVTC operating deficit. The interest factor and the priority of this payment relative to other CVTC expenses are still being negotiated.
f. City Responsibility for Certain Costs. City shall be solely responsible for payment of each of the following expenses on a timely basis, and the Operator shall have no obligation at any time to pay any of the following expenses: (1) all costs to investigate and/or remediate any environmentally sensitive materials and/or hazardous materials or substances at the CVTC existing prior to the Transfer, (2) City’s violation of any and all obligations under the Core Agreement that expressly remain City’s responsibilities under the Agreement, (3) events hosted, sponsored or organized by the City and agreed to by the Operator to be held at the CVTC, (4) all costs necessary to change the signage at the CVTC, or on any off-site locations including on public streets, and (5) any taxes or fees imposed on City directly.
Note: City and PLT are still negotiating terms for what happens if there is an “uninsured event” that causes the need for major repairs to the CVTC, that are not due to the fault of Operator or City, or recoverable from a third party, but are necessary to the functioning of all are any key component of the CVTC. Currently under discussion is a provision for the Operator and the City to meet and confer to discuss a reasonably allocation of the cost of commencing and completing such repairs, and possible modifications to the terms of the Agreement (e.g., special reimbursement provisions or extension of the term). City is also considering proposing City responsibility for maintenance of the facility private sewer system.
g. Records/Audit Rights. PLT shall maintain records in accordance with GAAP. City shall have the right to access and review CVTC books, financial statements and records. PLT shall pay for one complete independent audit per year, with any additional audit work required at City’s cost. PLT proprietary records shall be kept confidential, but otherwise records shall be subject to disclosure under applicable public records act laws.
h. Budget Process. A process similar to that used for the Business Plan shall be used for budget preparation and annual review.
6. City Reservation of Access/Events
a. General Reservation of Access for Designated City Staff/Consultants. City Coordinator Liaison may reasonably designate additional City staff/consultants to have access to the CVTC, at City’s cost, to assist with CVTC oversight and assessments.
b. Special Rights for City Officials and City Sponsored Events. PLT shall provide City a certain number passes to special CVTC events to be distributed by City under City policies at no cost, subject to reasonable restrictions. City to have access to the CVTC (time/space permitting) for a certain number and type of City events. E.g., a certain number of City staff/official retreats/meetings would be at cost only, with preferred rates on a certain number of additional events (e.g., the City Library Foundation, Friends of Parks and Rec. and Police Activities League). Any such City events shall be scheduled with approval of Operator.
7. Creation of Fundraising Non-Profit
The parties shall meet and confer with intent of creating a separate non-profit to fund-raise and otherwise support CVTC facilities and programs. It is intended for both parties to have a role and representation, with potential addition of USOC and/or Easton.
8. Security for Performance
PLNU (or some other appropriate entity/affiliate of PLT) shall provide City with security satisfactory to City to assure PLT’s performance of its financial and other obligations under the Agreement.
9. Insurance and Indemnity.
a. Insurance. Insurance will be required of both parties, patterned after the requirements under the Core Agreement unless additional/special coverages are deemed necessary/appropriate.
b. Mutual Indemnities. The parties will indemnify each other in accordance with customary practice in commercial agreements, including without limitation for breach of the Agreement and for either party’s negligence or willful misconduct.
Note: PLT has proposed a number of special indemnities for its benefit that are still under discussion.
10. Special City Covenants.
City covenants to the Operator as follows: (a) unless required by the Core Agreement, City shall not make material alterations to any existing facilities or improvements at the CVTC or to any new facilities at the CVTC if Operator will be required to maintain and operate such facility without first receiving Operator’s prior written approval, (b) City shall not take any actions to violate any use restrictions applicable to the Property, (c) City shall use reasonable efforts to work with PLT to explore cost savings and reduced utility rates for the facility, (d) City shall explore legal ways to reduce or mitigate costs or fees imposed by City related to the operation and use of the CVTC.
Next Steps:
This item presents these terms to the City Council for its consideration and approval. If the City Council so directs, staff will proceed to finalize its negotiations with PLT consistent with these terms, and bring back a final agreement for City Council consideration at the April 5th Council meeting.
Concurrently, staff will be completing its “due diligence” of the CVTC facility, working on negotiations with the Easton Foundation for transfer of the Easton Archery Center lease, finalizing the contracts for the development of the new athlete housing project consistent with terms previously approved by the Council, and working on an “interim” agreement with the USOC designed to facilitate the transition and address issues that might arise during the transition period.
DECISION-MAKER CONFLICT
Staff has reviewed the property holdings of the City Council members and has found no property holdings within 500 feet of the boundaries of the property which is the subject of this action. Consequently, this item does not present a disqualifying real property-related financial conflict of interest under California Code of Regulations Title 2, section 18702.2(a)(11), for purposes of the Political Reform Act (Cal. Gov’t Code §87100,et seq.).
Staff is not independently aware, and has not been informed by any City Council member, of any other fact that may constitute a basis for a decision maker conflict of interest in this matter.
LINK TO STRATEGIC GOALS
The City’s Strategic Plan has five major goals: Operational Excellence, Economic Vitality, Healthy Community, Strong and Secure Neighborhoods and a Connected Community. The operations of the Olympic Training Center support the Economic Vitality goal as the City will be able to maximize the use of this valuable asset as an economic driver. Continued operations will also support the Healthy Community goal because it will provide the highest level of fitness, training and nutrition for elite athletes (both resident and visiting). Fitness, training and nutrition education and activities are also expected to be continued and expanded for local residents and programs.
CURRENT YEAR FISCAL IMPACT
Staff does not anticipate any impacts to the General Fund reserves in the current fiscal year as a result of this item. There may be in-kind services from Public Works to perform some minor capital repairs at the OTC. The capital cost of these repairs are expected to be borne by the USOC out of its budget.
ONGOING FISCAL IMPACT
The ongoing fiscal impacts related to the terms of the agreement with Point Loma Trust will depend on the final agreement. Based on the terms noted in the staff report, there may be some City responsibility for certain costs as noted in Section 5 (f) as follows: “City shall be solely responsible for payment of each of the following expenses on a timely basis, and the Operator shall have no obligation at any time to pay any of the following expenses: (1) all costs to investigate and/or remediate any environmentally sensitive materials and/or hazardous materials or substances at the CVTC existing prior to the Transfer, (2) City’s violation of any and all obligations under the Core Agreement that expressly remain City’s responsibilities under the Agreement, (3) events hosted, sponsored or organized by the City and agreed to by the Operator to be held at the CVTC, (4) all costs necessary to change the signage at the CVTC, or on any off-site locations including on public streets, and (5) any taxes or fees imposed on City directly.” Most of these items are potential costs as opposed to projected certain costs. As noted above, there are also discussions regarding potential City contributions to “uninsured” capital repairs. The terms for this item are still being negotiated.
ATTACHMENTS
Staff report from February 23, 2016 regarding City Council approval of the Transfer Agreement and Core Agreement with the USOC.