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#03 Lease with Janesville Youth Baseball for batting cages (File Res. #2009-593) LEISURE SERVICES DEPARTMENT MEMORANDUM April 1, 2009 TO: City Council FROM: Rebecca Smith, Management Assistant SUBJECT: Action on a Proposed Resolution Authorizing the City Manager to Execute a Lease with Janesville Youth Baseball, Inc. for the Operations of the Batting Cages (File Resolution #2009-593) Summary In 2008 the City of Janesville acquired the property located at 937 S. Jackson Street. This property was previously the home of Swinger’s batting cages and the acquisition included the batting facilities. Following the acquisition the City entered into a one-year lease with Janesville Youth Baseball to operate the batting cages. The purpose of this memo is to provide an update on the financial impact of the lease with Janesville Youth Baseball for 2008 and review leasing options for 2009. Staff recommends the Council adopt File Resolution #2009-593 to continue batting cage services by JYB at 937 S. Jackson Street. Request Janesville Youth Baseball, Inc. (JYB) requests the City renew their batting cage lease for 2009. Recommendation Staff recommends the City Council adopt File Resolution #2009-593 to authorize the City Manager to execute an operating lease with Janesville Youth Baseball, Inc. for the batting cage facility at 937 S. Jackson Street. Suggested Motion I move the Council approve File Resolution #2009-593 to authorize the City Manager to execute an operating lease with Janesville Youth Baseball, Inc. for the batting cage facility at 937 S. Jackson Street. City Manager Recommendation The City Manager concurs that option #2 would be the safest option for the City. If option #2 is not chosen, I would recommend option #3. Background In April 2008, the City purchased a batting cage facility located at 937 S. Jackson Street (previously referred to as “Swinger’s”). The original plan for this acquisition was to hold it as public open space or future redevelopment of the South Jackson Street corridor. This facility also included a two-sided LAMAR billboard that was expected to bring in $1,400 annually in revenue to the City with LAMAR’s month-to month lease. However, in November 2008, LAMAR chose to remove the sign, thereby eliminating this stream of revenue to the City. Following the acquisition, the City entered into a lease agreement with Janesville Youth Baseball for the operation of the batting cage facility. The purpose of this partnership was to provide an outlet for batting cages services in the City, while allowing JYB to generate revenue for their Youth Sports Complex expansion and the City to offset its annual expenses for the property. This facility has space for seven batting cage machines; however, only six were in service in 2008. The seventh machine was not repairable and staff chose not to purchase a new machine due to its approximate expense of $3,000. This lease was a one-year trial to determine whether the arrangement would be financially feasible. The lease required the City to be responsible for mowing the grass, utility expenses and property insurance. The City was also responsible for fixing major mechanical breakdowns of the pitching equipment. JYB was responsible for daily site clean-up, repairing small mechanical breakdowns of the pitching equipment, staffing the facility with volunteers/employees, collecting fees and liability and workers compensation insurance. JYB was also required to pay the City 10% of gross revenue. During the course of their lease, JYB also installed a new floor, windows, painted the exterior of the building and constructed a new ramp and deck. Financial Impact When the lease was signed, Leisure Services staff estimated the City’s annual maintenance costs with JYB using the facility to be $3,000 per year ($1,500 for maintenance, $1,200 for utilities, $100 for supplies and $200 for property insurance). Staff estimated receiving $2,000 in revenue from JYB and $1,400 from LAMAR for the billboard space; therefore, staff expected to offset the City’s costs and net $400 in revenue under the lease agreement. With the 2008 season over, the financial impact of the lease is known. The City’s expenses in 2008 were $5,283.71 or $2,283.71 more than estimated. Costs incurred during 2008 are depicted in Table 1 below. An insurance payment for the property was not required until 2009 and the mowing expenses were paid using Parks Division funds. As staff reviewed the 2008 invoices, $1,330 for supplies was charged to the youth sports complex instead of the batting cages and this cost has been included as an expense in the calculations below. Revenue received in 2008 totaled $2,354 or $1,046 less than estimated. Revenue for 2008 is depicted in Table 2 below. 2 Table 1: 2008 Expenses Utilities$ 826.59 Supplies10.68 Equipment Maintenance1504.50 Staff time for Equipment Maintenance 40.84 Water Pipe/Toilet/Sump Pump Installation & Equipment 1571.10 Total $ 3,953.71 Batting Cage supplies charged to a different account $ 1,330.00 Total Expenses$ 5,283.71 Table 2: 2008 Revenue 10% of gross JYB revenue$ 1,571.25 LAMAR billboard $ 682.75 Miscellaneous$ 100.00 Total Revenue$ 2,354.00 Total Profit/(Loss)$ (2,929.71) Overall, the City lost $2,929.71 through this lease agreement. When the Clerk- Treasurer’s Office was closing fiscal year 2008, they assigned the negative balance to the general fund, as there were funds available to cover the expenses. There were several events in 2008 that contributed to the loss. First, there were several broken water pipes that needed replacing. A new sump pump was necessary and a broken toilet required replacing. These events incurred about $1,500 in costs. Second, there were costs associated with fixing the batting cage equipment. These machines are older and annual expenses to repair them are expected. There were times when two or three batting cage machines were unavailable due to mechanical failures, which may have provided less opportunity for JYB to garner revenue. Before JYB could begin their operation, construction and repairs were needed which delayed the start of their batting cage season until June. Additionally, LAMAR chose to remove their billboard from the property in November 2008, thus this revenue stream is no longer available to the city. 2009 Lease Options JYB would like to renew their lease for the 2009 season. Their gross revenue in 2008 from operating the batting cages was $15,712.45 and they found the 3 experience to be productive and profitable. They would like to begin their season in mid-April and expect to earn $19,640.56 in 2009 (a 25% increase in comparison to 2008). Initially, JYB desired the same terms and conditions as 2008. When staff performed analysis to understand the fiscal impact of the lease under this scenario, a loss of about $4,200 was calculated (Option #1 below). When staff shared concerns with JYB about executing a lease that is projecting a loss at this amount, JYB became amenable to other options to make the terms more favorable to the City’s general fund budget. Each option below requires the City to pay insurance, mow and pick up trash. Staff also included a repairs contingency in each scenario given the age of facility and its repair history. Because the City owns this property, these costs would be required whether a lease was executed or not. Utilities, supplies and equipment maintenance are the items that drive the lease costs and their responsibility lies with different parties in the options below. Table 3 on page 6 outlines each option. Option #1 City Responsibility This option would have same terms as the 2008 lease and a loss of about $4,200 is expected. City responsibilities include utilities, insurance, supplies, equipment maintenance, staff time and a repairs contingency. The 2009 supplies budget is estimated at $1,500 to better reflect costs. Also included is $1,500 for repairs to the batting cage equipment, which is in line with 2008 experiences. JYB would pay the City 10% of annual gross revenue, the same percentage as 2008. Option 1: City Responsibility Projected 2009 Expenses Utilities$ 2,026 Insurance50 Supplies1500 Equipment Maintenance1500 Staff time100 Repairs Contingency1000 Expenses$ 6,176 Projected 2009 Revenue 10% of gross JYB revenue$ 1,964.06 LAMAR billboard $ - Miscellaneous$ - Total Revenue$ 1,964.06 Total Profit/(Loss)$ (4,211.94) 4 Pros: 1. Provides the City oversight in equipment maintenance repair and supply purchases 2. Any future supplies purchased would be owned by the City Cons: 1. Projected loss is highest under this scenario Option #2 JYB Responsibility Using this approach, the City would pay insurance, mow and pick up trash and a loss of $1,150 is expected. JYB would be responsible for utilities, supplies and equipment maintenance. JYB would not pay any percentage of annual gross revenue, in comparison to 10% as was required in 2008. Option 2: JYB Responsibility Projected 2009 Expenses Utilities$ - Insurance50 Supplies0 Equipment Maintenance0 Staff time100 Repairs Contingency1000 Expenses$ 1,150 Projected 2009 Revenue 5% of gross JYB revenue$ - LAMAR billboard $ - Miscellaneous$ - Total Revenue$ - Total Profit/(Loss)$ (1,150.00) Pros: 1. Projected loss is lowest in this scenario 2. If facility repairs are not needed, the City’s costs would be negligible Cons: 1. Provides the City less oversight in equipment maintenance repair and supply purchases 2. Any future supplies purchased would be owned by JYB, not the City Option #3: Shared Responsibility Under this approach, the City would pay utilities, insurance, mow and pick up trash and a loss of about $2,200 is expected. JYB would be responsible for any 5 equipment maintenance and all supplies. JYB would pay the City 5% of annual gross revenue, in comparison to 10% as was required in 2008. Pros: 1. Is a “middle ground” for responsibility in comparison to Option 1 and 2 Cons: 1. Provides the City less oversight in equipment maintenance repair and supply purchases 2. Any future supplies purchased would be owned by JYB, not the City Option 3: Shared Responsibility Projected 2009 Expenses Utilities$ 2,026 Insurance50 Supplies0 Equipment Maintenance0 Staff time100 Repairs Contingency1000 Expenses$ 3,176 Projected 2009 Revenue 5% of gross JYB revenue$ 982.03 LAMAR billboard $ - Miscellaneous$ - Total Revenue$ 982.03 Total Profit/(Loss)$ (2,193.97) The following table summarizes the leasing options: Table 3: Overview of Options Lease Component Responsible Party Repair Expected LossUtilitiesInsuranceSuppliesEquip. MntcStaff TimeContingency Option #1$ 4,211.94CityCityCityCityCityCity Option #2$ 1,150.00JYBCityJYBJYBCityCity Option #3$ 2,193.97CityCityJYBJYBCityCity Analysis Leasing the batting cages to JYB in 2008 was a unique opportunity to support this community group, while theoretically recouping our operating expenses. A change in revenue opportunities with the loss of the LAMAR sign and several facility and equipment repairs hampered the City’s ability to recoup expenses. To be fiscally responsible, a change is needed for any future leases. 6 Each lease option has positive attributes, including providing batting cage services to the public that would not otherwise be available; providing JYB an additional opportunity to earn revenue for their expansion plans at the Youth Sports Complex, thus benefitting the community at large; and furthering the City’s partnership with JYB. While there are merits for each option, staff recommends executing a lease under Option #2. JYB would be responsible for utilities, supplies and equipment maintenance and the City would not receive any percentage of their revenues. The City would be responsible for insurance, mowing, trash pick-up and any repairs to the facility. This option is recommended because it provides an opportunity for JYB to continue their fundraising effort at the batting cages, while minimizing the City’s exposure to expenses. The attached contract has been developed using the components of Option #2. Contract Terms The contract would be for a one year lease and allow for a renewal each year until April 2012. JYB would be required to have liability insurance and would need to receive permission from staff prior to doing any improvements to the facility. The City would pay property insurance, mow and pick up trash. JYB would be responsible for utilities, supplies and equipment maintenance. JYB would not pay any percentage of annual gross revenue to the City. Cc: Jay Winzenz, Administrative Services Director 7 Resolution # 2009-593 A Resolution Authorizing the City Manager to Execute a Lease with Janesville Youth Baseball, Inc. to Operate the Batting Cages at 937 S. Jackson Street WHEREAS, the City of Janesville owns the property at 937 S. Jackson Street, Janesville, otherwise known as the Batting Cages, and WHEREAS, the batting cage property includes an outdoor batting cage facility with lights and six pitching stations, a building used for facility operations and a parking lot, and WHEREAS, Janesville Youth Baseball, Inc., a non-profit organization, is interested in executing a lease with the City of Janesville for the operations the batting cages as a public recreational facility for the City of Janesville, and WHEREAS, such lease contract, terms and conditions are permitted by law and the Common Council is empowered to enter into such lease contract, pursuant to section 62.11(5) and 62.22, Wisconsin Statutes, and WHEREAS, it is in the best interest of the City of Janesville, the community and surrounding area to execute and enter into a lease with Janesville Youth baseball, Inc. for the operations of the batting cages, NOW THEREFORE BE IT RESOLVED by the Common Council of the City of Janesville that it hereby authorizes the City Manager or his representative to execute and enter into, on behalf of the City of Janesville, a lease contract to operate the batting cages at 937 S. Jackson Street, Janesville, Wisconsin, BE IT FURTHER RESOLVED by the Common Council that the City Manager or his representative is hereby authorized to negotiate, renew, extend, and execute such documents, papers, agreements, and forms, to take whatever other actions, and to make whatever minor changes to the lease contract and such documents, papers, agreements, and forms as the City Manager or his representative may, from time to time, find necessary, desirable and/or beneficial to effectuate the lease contract and/or the intent of this resolution on the City’s behalf. ADOPTED: Motion by: Second by: APPROVED: Councilmember Aye Nay Pass Absent Brunner Loasching Eric J. Levitt, City Manager McDonald Rashkin ATTEST: Steeber Truman Voskuil Jean Ann Wulf, City Clerk-Treasurer APPROVED AS TO FORM: City Attorney Proposed by: Leisure Services Prepared by: Management Assistant