City Council on Ice Rink
Attempt to Make Decision
August 3, 2009

Item 7A1 on the City Council Agenda for August 2, 2009.

Streaming video of meeting
About 3 1/2 hours of discussion.  Once it starts playing you can go directly to the ice rink item by choosing "7.A.(1) PROPOSED ICE RINK FACILITY"  from the list underneath the picture.


Staff Report explaining what the Council was being asked to decide
Note, all of the Attachments were prepared for the alternative recommendation of go forward and build it now.

Attachments A, B, C
A - Terms of Proposed Management Agreement
B - 30 year pro forma with 4% revenue growth, 3% expense growth
C - 30 year pro forma with 3% revenue growth, 3% expense growth
Attachment D
Bond sizing based on Year 5 stabilized revenues
Attachments E, F
E - Reimbursement resolution - for city to reimburse itself from bonds once they are issued
F - Responses to some previous questions by City Council
Attachment G, Part 1
Attachment G, Part 2
G - Draft management agreement between Polar Ice Ventures and City
Correspondence
official subset of letters to Council which is just those sent to City Clerk by July 30


Summary

The City Council was asked to make a decision on whether to:

     1. Spend up to 5 more months studying and negotiating a different financial structure for the Ice Rink project to be located next to us, (the City Manager's new recommendation)

Or
     2. Go forward and construct the new rink facility next to us immediately (as previously recommended),

Or
     3. Give up on it (for now) and proceed to looking into renovating the current rink at the Civic Center.

The new financial structure that would be studied and negotiated would have the City grant a "ground lease" for the land to Polar Ice Ventures (PIV) under which PIV would take responsibility for building and running the facility.  The city would issue a combination of $11.1 million in special tax-exempt and $7.4 million of bonds with federally subsidized interest.  These are new types of "Recovery Zone" bonds authorized under the federal stimulus bill.  Those amounts are the total issuance amounts allocated to the city.  The responsiblity for paying the bonds back would be passed through to Polar Ice Ventures instead of remaining with the city.  This would relieve the city of the risk of revenues being less then, or costs being higher then, expected.  Instead Polar Ice Ventures would take on that risk in return for the reward of the anticipated profits.  The city would still take responsibility for the PCC and Edison agreements and the considerable upfront cost (as much as $1.5 million) for the access route from Foothill through PCC's lot and Edison land and for getting the utility connections to the site. Because the total value of those bonds does not add up to the funding needed, staff would also approach the County to see if it would be willing to cede some of its authority for issung such bonds.  Staff indicated an additional upfront cash investment from the city to make up the difference.  This financing proposal is sometimes referred to as either the "ground lease" option or the "public/private partnership".  The goal would be to complete negotiations on this proposal by the end of the year.

The alternative recommendation was what had been proposed at the July 13 Finance Committee meeting.  In that proposal the city would issue 30 year bonds and be responsible for paying them back.  Polar Ice Ventures would operate the rink under a 10 year management agreement.  The favored financial projection released July 13 and repeated in this Staff Report is that over the first 10 years the city's general fund would have to put in about $3.2 million to cover the difference between revenues and expenses, but after that revenues would exceed expenses, and by year 17 the city would supposedly make its money back (sans interest) and continue making money for the remainder of the bond's life.  However, the city would bear the entire risk of higher then expected construction or operating costs and/or lower revenues then projected.  This is sometimes referred to as the original recommendation or the management agreement option.

A major turning point of the Council's deliberation was the realization (not stated in the staff report) that the recommended ground lease option would likely cost considerably more upfront then the original recommendation.  The advantage would be the reduction of risk to the city. An additional disadvantage (if you believe the project will ultimately be profitable) would be that the city would not get that profit.

Council member McAustin was not present at the meeting. 

Council members Madison and Haderlein strongly favored the original recommendation for the city to build the facility now, issue bonds, and operate the facility via management agreement.

Council member Madison suggested yet another redesign to save construction cost.  He said he thinks it is over designed, that what it looks like on the outside does not matter, only the inside.  (Note however, the Council has never been presented the current design.)  Staff tried to explain why there is very little likelihood of saving more because the soil conditions preclude the normal least expensive construction methods (pre-fab tilt up), reduction of energy efficiency raises long term costs, and every change costs time and money to run the numbers to figure out the results.

Council members Holden, Gordo, and Robinson were not willing to commit funds now given the difficult financial environment for the city.

Council member Tornek said he initially was pleased to see the recommendation for shifting risk, but after learning of the costs could not support it.  He was the only Council member to state he was in favor of turning the project down.  Bad site, bad soil, industrial building in middle of residential area, awful access, great ongoing financial risk, does not share optimism of ultimate benefit.  He said he has made a living evaluating long term pro formas.  Thinks there is extraordinary risk even under the best circumstances.  Moving this to the head of the list of unfunded capital improvements does not make sense.  He said he would like to maintain recreational skating in the city and would support rehabbing the existing location.

Council member Holden suggested looking into a joint project with other nearby cities, maybe another city had a good location.  Other council members said they either didn't want to share what they believe will be profit with another city (Madison & Haderlein) or they didn't believe another city would want to commit funds to a project in Pasadena (missing the notion of a different location).  Councilman Holden indicated he had initially thought he would support the ground lease alternative, but after hearing Tornek's perspective he could not.  Then he said he would abstain from the compromise resolution that was being put together, but after the others agreed to include looking for collaboration from other communities, he agreed to support it.

Twenty-two people spoke at public comment.
The majority, sixteen, were ice or hockey skaters or coaches in favor of going forward immediately.  Eleven of those were from outside the city.
Six speakers urged not building the facility for a variety of reasons, among them
Unable to obtain five votes for any of the options presented in the Staff Report, the Council eventually voted 6 to 1 for a compromise option.  Essentially holding open and further investigating the ground lease investigation option but not yet foreclosing the possibility of the original management agreement proposal.  The thought seemed to be if they could just wring out the projected general fund spending in the first 10 years, or at least reduce and delay it, they might be able to get sufficient support for going ahead now with the management agreement proposal. 

Next steps Additional documents

Mayor's letter summarizing his take on the meeting result

Letters of comment/question to City Council members
E-mail of July 28, 2009
E-mail of August 2, 2009