Informal Minutes of July 13, 2009 Finance Committee Discussion of Ice Rink Project

Prior to the meeting, had a conversation with Martin Pastucha, head of Public Works.

• Learned that plans now do not include any pedestrian access between the Ice Rink Project and Viña Vieja Park.
• As neighbors, we had hoped that dog park patrons would be able to use the Ice Rink facilities parking except during special events since there was supposedly no need for most of it most of the time.  This would take the parking pressure off our neighborhood with the pedestrian entrance moved such that it will be a much shorter distance then Orange Grove.
• However, with no access between the rinks and parks, this relief valve will not happen.  Further it makes the ice rink facility even more difficult to get to for bicyclists and public transit riders.
• The reason given for no access is that the proposed ice rink operator has concerns about liability and also it would supposedly be a violation of zoning (each project is supposed to have its own sufficient parking).  Mr Pastucha said they don't want to increase parking for the park because that would invite even more patrons for the already overused dog park.
• The proposed management company, Polar Ice Ventures is a corporation which runs a number of rink facilities nationwide,  including a "Toyota Sports Center" facility in El Segundo where the Los Angeles Kings practice.
• The company supposedly has a web site (but a Google search finds only a holding web site address that says to "Come back later").

Ice Rink item presentation started about 4:30 pm.
Committee members Holden (chairman), McAustin, and Haderlein present.
Gordo showed up during initial portion of presentation.

Madison came in at the same time as Gordo although he isn't on the committee.  After a short time at his usual Council dias seat Madison proceeded into the audience to greet and chit chat with Luc Robitaille (famous former hockey player now LA Kings president of business operations).  This was rude and somewhat disruptive to the audience.  Sometime after Madison disappeared.

Summary by Richard Bruckner.

• Pro:  Plans set to go.  Good cost environment.  Desire to convert existing facility back to ballroom.  Existing facility lease expires in 2011.  If start now there would be just a couple months of operating overlap.
• Cons:  30 year pro forma is very inexact science. Fiscal uncertainty.  City revenue unstable, no state budget. Adding debt to balance shet could be bad for city's bond rating.
• Contractor has agreed to extend his bid through August 16 so have a little time for Council to ask questions and get answers.
• Management agreement instead of lease because of proposed use of public bonds. Would rather due a lease agreement due to risk vs. rewards.  Federal laws on tax exempt funding require doing management agreement.  It is possible thru the stimulus bill to look back at the lease situation.  Investigating that now. (more on this later)
  
• 10 year agreement paying Polar Ice Ventures (PIV) a fee with bonus provisions.
  
• PIV has agreed to public benefits including $1 discount on fee for residents and to give an hour or so of ice time each Monday and Friday to the City's Parks & Recreation for public programs.
• Details of management agreement are in staff report.
• Discussed major factors of cost.  Undergrounding of utilities, design, construction, etc.

Martin Pastucha

• Introduced the site plan.  Driveway from Foothill through PCC and Edison properties.
  
• Mis-stated that the site plan had been to Design Commission and that it had "approved it".
  (Design Commission was presented only the plan for the city owned property itself, none of the access plan.  Design of the access road or anything else outside of the city property line has to date never been made public.   The city planner told them that because that wasn't on the city property it was not part of the project but was rather work being done by a city civil engineer, and was outside of their purview.  Further, it wasn't finished yet and could not be made public anyway because agreements with Edison and PCC were not complete.  The Design Commission had no authority to approve/disapprove any of the design, only to make comments to be delivered to the City Council at the time of the final decision on the entire package including the design, construction contract, etc.)

Richard Bruckner

• Fair amount of research to ensure assumptions on revenue and expenses are reasonable and match up with other existing facilities.  Assumptions about expenses and revenue were run past other operation such as Disney Ice in Anaheim and they said the numbers were within range.
• First 5 years the numbers bounce around.
• Big concern is utility costs as the years go on.  Factored in a 6% per year increase.
• Factored revenue as increasing at 4% per year, expenditures other then utilities at 3%.
• Capital expenditures vary based on expected needs to replace major equipment.
• Repairs and maintenance ramp up over years as facility ages.
  
• Said based on "reasonable cash flow over the 30 years".

Andrew Green, city's finance director

• Net 21 million to complete the project.
• Preferred finance plan is bond issue of almost 26 million with final maturity in 32 years but 28 years of amortization.  Would need a couple years of capitalization while ramp up, interest only.  Level debt service.
  
• Although city currently has S&P AAA rating, projections assume a AA rating.
• Annual debt service of 1.84 million.
  
• Assumed a 5.6% interest rate, which they think is a conservative estimate.
• Pro forma shows would start to break even 10 years out, with city general fund making up the difference each year until then, maxing out at $3 million.
  
• Looked at some alternative revenue scenarios to see how it would work out. 10% and 20% reductions in revenues vs the Pro forma.   See the Staff Presentation powerpoint.
• Discussed briefly some of the other less preferred financing options.
• Decided bond markets have improved enough that don't need to try to use internal financing option presented in December.
  

Bruckner

• Concludes formal presentation.
• Waiting for regulations on stimulus funding to be published to see if could instead do ground lease with tax exempt financing.  Project is extremely interest rate sensitive.  Ground lease would provide some cost savings.  Whether doable is a long shot.  (Never explained when this evaluation could occur and how it would be handled if management agreement and bond financing has already taken place.)

Holden

• Staff report written as if it is a complete recommendation, but committee is only looking at financing.
• Asked question about "no go" option.
  

Bruckner

• Did provide "no go" as option and assumed Council would then want to look at what it would take to make ongoing operation of current site feasible.

Holden

• What are financial implications for PCOC of "no go"?
• What happens to PCOC at end of ice rink lease in 2011?

Bruckner

• Net to PCOC of current ice rink operation is about $100,000 per year.  That would go away at end of lease. 
  

Mike, head of PCOC

• 90 to 100,000 per year.
• Do not know when would be able to renovate the ballroom.  Do not have current cost estimate.  In 2001 the estimate was about $5 million.  PCOC does not have that money to spend now and don't know when will.  Hotel rates etc are down.
  

Haderlein

• Is there value to this space for other uses? 
  

Mike, head of PCOC

• It would have lots of potential uses beyond "ballroom".  17,000 sq ft space could accomodate much larger gatherings then any other room.
  
• Back when convention center expansion was planned always planned to get the space back.  There is demand and there would always be uses for it.
  
• Confident could make substantially more then the 100K per year.
• But need $5 million to get there - restored back to 1931 design.  Alternatives could lower cost substantially.
• Would need new specific study to understand what the space could bring in now.
  

Haderlein

• Sees three options:  staff recommendation, no-go, or just let skating end in 2011.
• Exploring no-go.  What would it cost to rehabilitate the current facility?

City Manager

• Guess.  Estimate $500,000 to 1 million.  Very conceptual.  Would need to "Pasadenaify" it because it is not reflective of Pasadena standards.

Haderlein

• Asked Green to confirm estimates are conservative.  He did.
  
• Is current ice skating facility making a profit?

Bruckner

• Thinks current ice skating facility is just about breaking even.

Haderlein

• Current facility has parking issues.  Any reason to believe those issues could be resolved? That free parking would be available, as it would be at the new facility?  Important from a user's cost standpoint.
  

Bruckner

• Does not see fee to park situation changing.  Made a comparison of skating rates, did not study parking but believe most facilities have free parking.
  

Haderlein

• How many outside reviews?

Bruckner

• Disney Ice looking at it for reasonableness.  Ice Skating Institute does research and consultant did comparison with some of their numbers.  Used existing rink for some comparisons. Asked operator to compare to current facility.  Are looking out quite a few years, so does become increasing difficult.
  

Haderlein

• First year revenue of 2.7 million.  How does that compare to revenue of existing facility?

Bruckner

• Don't have that.  Remember existing facility is not NHL sized.  Two rinks have more then twice the revenue of one rink.  Also greater expense efficiency.

Haderlein

• Wasn't aware of revenue synergies.
• Public benefit quantified, how is it factored in?

Bruckner

• Public benefit not included in revenue. Operator expected to do it but not be paid for it.  Included in analysis. Obligation but not an expense.

Haderlein

• Emphasizing benefit to community.
• Current rate for bonds going out to bid on?
  

Green

• Looking at variety of types of bonds.
• 4.5 to 5% is what would actually expect to get for bonds currently.
• Reserve is less then normal if go by total project cost.  Standard would be 10%

Haderlein

• Contingency.  What percentage of overall project does that represent and is that reasonable?

Green

• It's about 6 1/2 to 7%.  Depends if base on total, or just bond cost.  Typically it is 10%.

Haderlein

• Timing of PCC agreement? Ability to access via Foothill.  Killer if can't do it.

Pastucha

• Have not had any current discussions.  Had tentative deal last summer, including traffic signal, traffic controls during construction, improvements to/investment in the Jackie Robinson field.

Haderlein

• Requested follow up to be sure still a go for both operational and construction traffic.

Gordo

• Where is Edison?

Pastucha

• Met with Edison last week and went over final site plans.  Thinks worked out for site plan.  Should have formal answer later this week.
  

Gordo

• What are the conditions, costs?  Did not see market rate in pro forma.
  

Bruckner

• There is an allowance for that in the pro forma based on very preliminary discussions a couple years ago.    They have not shared with us what their market rate is yet.

Pastucha

• Edison primary concern is access to their facilities.

Gordo

• What is PISC's responsibility with returning ballroom?

Bruckner

• Similar to condition received it in.  Not sure though that it is well documented what state it was in in 1976.

McAustin

• Scenario 1 looking at $3 million subsidy, is that right?
  
• Looking at range of risk to general fund.
• If bond rate was to be degraded, what impacts could that have on other projects?

Green

• Would impact go forward financings.

McAustin

• What projects are we not doing if we use our bond capacity for this project?

City Manager

• Rose Bowl, other unfunded projects.  But this one is offset by revenue stream.

Vic ..., Treasurer

• Relying on revenue stream with general fund as backstop.  Regular capital projects are not revenue generating.

McAustin

• Has Toyota Center been examined and how comparable is it?

Bruckner

• It is comparable.

McAustin

• Why is PIV contract only 10 years?

Bruckner

• Because of tax exampt rules and city interest in not locking it in for longer.  But also not in PIV interest because their upside declines over time.

McAustin

• Could bond insurers come back and require larger reserve?

Green

• Yes they could.

Gordo

• What are the terms and conditionsof the aquatic center?

Bruckner

• Could get that to you for next meeting.

Haderlein

• Management agreement. Question for PIV.  Why would you want to operate with just a fee.

Luc Robitaille

• Upside is 20% of gravy. Goes hand in hand with promoting Kings and Toyota Center.

Haderlein

• Asked questions, had exchange, that seemed to indicate he had a fundamental misunderstanding of the contract terms.
• Asked degree of confidence in numbers.
  

Luc R

• Very confident in numbers.

Holden

• Outstanding questions on PCC access, model of aquatic center.
• Goal to come back together on 27th for committee review and then go to Council that evening.

Public Comment

• Fritz Pulicher - scared project will bury us if it doesn't work the way they think it will.  Economic difficulties likely to get much worse.  Benefit to just a few, 3% of population uses ice skating.  (Some other complaints did not capture.)
  
• Holden responded that he thinks it has been framed properly.
• Fred Culick - (owned/run current ice rink operator from beginning in 1976.)  Requested "clerk of the works" (that is what it sounded like he said) to coordinate with city when they decomission the ice rink.  Said had one in '76 and really helped a lot.  Also asked for copy of Powerpoint presentation.
• John Brownell - one of those few Pasadenans who would use facility. Brought kids with him. Asset to city. Best time to build due to costs. Reinvesting in current rink - no way to expand to standard size or make room for spectators.
• Monique Orr - West Covina resident.  Urged go forward.
• John Dudley - Pasadena resident.  VP of Pasadena Hockey Assoc. Extolled Luc R.  Decades of skating. Kids should have right to choose sport.
• April Hicks - resident of Pasadena with girl in skating.  Represents Build the Rink, which she claims has hundreds of people in it.  Assumes that not used only be rich kids.

Meeting ended just before 6 pm