Oro Valley answers frequently-asked questions about the El Conquistador Country Club acquisition.
Oro Valley, Arizona (January 22, 2015) -Although last week’s petitions for referendum were invalidated because they did not comply with state law (ARS) 19-111 (B), they were a clear indication that some residents in Oro Valley still have questions about the acquisition of the El Conquistador Country Club and its planned conversion into a community and recreation center.Town leadership is working to raise awareness of the information that has already been made available to the public, as well as provide opportunities to answer questions and meet with members of the community in a series of open house events that will soon be announced.Below is the first round of frequently-asked questions (FAQs). Additional FAQs will be shared in the coming days, based on constituent inquiries and public discussions.
Why is the Town purchasing the El Conquistador Country Club?
Oro Valley residents have been requesting a community center for many years. In the latter part of 2014, the Hilton El Conquistador Resort and Country Club was sold, and the new owner did not want to own and operate the Country Club; therefore, discussions took place about the Town purchasing the property for the purpose of turning it into a community and recreation center. The property includes 324 acres of land, a 31,475-square-foot building, restaurant, 31 tennis courts, 45 holes of golf and two swimming pools.
What is the purchase price of the property, and what is the value?
An appraisal was completed and the property is valued at $3.25 million. The purchase price is $1 million, to be paid in cash over three years. The appraisal also estimates a replacement value of $42 million, which includes the cost to rebuild the golf courses, tennis courts, buildings, etc.
Has an analysis of the property been completed?
Yes. The Town’s building official has inspected all of the structures. The report was then provided to architects and construction experts in order to prepare cost estimates of needed upgrades. Additionally, Troon management inspected all the golf course facilities. It is estimated that $5.5 million is needed to improve the property over the next five years; therefore, the acquisition cost ($1 million), plus the needed capital investment ($5.5 million), result in a total “all-in” capital cost of $6.5 million. These improvements, along with strong management, will drive revenues up.
Why doesn’t the Town build a new community center?
The cost of building a new facility will cost much more than acquiring the existing facility. Based on an analysis of the Northwest YMCA’s unit construction costs, a new facility, comparable to the country club, could cost approximately $20 million. The Town does not have $20 million in reserves, and therefore, would have to bond (or finance) the cost of the project. Interest on a $20 million facility would cost an additional $7 million dollars over the 20-year life of the bonds. The total cost of the facility would therefore be approximately $27 million. Additionally, a new facility would likely incur an annual operational “loss.” Community center operational costs often exceed revenues by $500,000 to $1.5 million annually.
If the Hilton couldn’t make money on the Country Club, how can the Town make money?
Hilton’s primary focus was always the resort property (hotel). When capital resources were available, the funding was usually dedicated to the resort instead of the country club. The Troon golf management company has been contracted to manage the golf, restaurant and much of the facility. In 65% of the public facilities that Troon manages, the properties break even or are profitable.
The golf industry seems to be struggling. Why acquire a golf course?
The Town is not able to acquire the community and recreation center facility without also taking ownership of the golf courses. The number of golfers nationwide has followed the downturn in the economy. Many industry experts believe golf courses were “over built” during the real estate expansion in the last 20 years. Many golf courses went out of business due to the large amount of debt they carried. The Town is purchasing the property with cash and will carry zero debt. Similar to any operation, it will take good management and capital investment in order to be successful. There are numerous golf courses across the country that are profitable.
Haven’t the El Conquistador golf courses operated at a financial loss?
Yes. In recent years, the expenditures have exceeded the revenues by approximately $1.2 to $1.5 million per year. Under private ownership by the Hilton, the country club and golf course expenses included the annual payment of property taxes. Because the Town does not pay property tax, this is an immediate savings that will be realized when the Town takes ownership; therefore, the Town’s annual loss in the beginning years is expected to be approximately $1.2 to$1.3 million. This anticipated shortfall is the reason for the $2 million additional revenue generated by the increase in sales tax. It is not uncommon for a community center to have expenditures exceed revenues by $1 million annually. The revenue shortfall occurs because municipalities strive to keep rates affordable, which therefore creates a situation where the broader revenue sources help fund the operations costs (this occurs in numerous government functions).
The financial projections on the golf operations seem overly optimistic. How does the Town think these numbers will be achieved?
Town staff worked very closely with Troon to analyze and scrutinize all golf operation projections provided by Troon on golf round projections, revenues and expenses. A number of measures will be implemented to achieve increased interest in golf and the other activities and programs that will be offered at the Community and Recreation Center. First, the golf operations will now be professionally managed by Troon, an internationally-recognized, premier leader in the industry. Troon manages more than 230 golf courses around the world and can leverage their purchasing power to significantly lower operations and equipment costs at the facility. Secondly, Troon will implement unique and creative programs to spur increased interest in golf for all ages, including youth and school programs. Finally, the Town and Troon will partner to significantly increase the marketing and advertising efforts to promote the courses and restaurant facilities to a greater degree than under past management.
What is the estimated cost per household, per month of the 0.5% sales tax increase?
Because sales taxes are paid by both Town residents and non-residents, it is estimated that approximately 2/3 of local tax revenues are generated by Town residents. If we apply this 2/3 to the total annual estimated collections of $2 million from the 0.5% sales tax increase, it results in approximately $1.3 million of this total paid by Town residents. If we divide $1.3 million by the approximately 18,500 households in Town and divide by 12, the result is $5.85 per household per month.
How will the additional revenue (from the sales tax) be utilized?
Two million dollars in new revenue will be generated from the half-cent sales tax, which will become effective March 1, 2015. In the first two years of operations, the average revenue shortfall is approximately $1.2 to $1.3 million. The remainder of the $2 million will be used for capital investment. The investments in the property, golf and restaurant facilities will help to increase operational revenue. By year three, the operation shortfall dramatically decreases to approximately $200,000, and in year four, is decreased entirely.
Will other planned Town projects be delayed because of this purchase?
No. The Town has authorized dedicated funding for this facility. The increase in the sales tax from 2% to 2.5% will allow the Town to fund the operations and the capital improvements for the facility. All other Town operations and capital projects are moving forward as planned.
Will the Town pay for the use of water?
Yes. The Town’s Water Utility operates as an “enterprise,” which means that it is fully supported by user fees. The Town pays for its water use as any other customer would. The Town is currently a water customer. The Town currently pays for irrigation in Town parks.
How will the Town pay for the water costs?
Like any public or private operation, there are revenues and expenses. The cost of water is one of the expected expenditures to operate the facility. The El Conquistador receives revenues from customers of the facility for golf, tennis, fitness, restaurant, etc. The revenues from these sources will be used to pay for the water expenses.
For more details on this project, click here or visit: http://www.orovalleyaz.gov/town/news/community-invited-give-input-proposed-country-club-acquisition.