TO:	Honorable mayor and city council	FROM:	Kay Winer Scott P. Johnson Paul Krutko
SUBJECT:	ANALYSIS OF COSTS ASSOCIATED WITH THE management of hayes mansion conference center	DATE:	August 7, 2003

Council District: City-Wide

SNI: N/A

Recommendation

Accept report on analysis of the cost of the City of San Jose to take over management of the Hayes Mansion Conference Center, including any additional management options that would achieve fiscal stability. The report also includes financial actuals, showing the fiscal condition of the facility with projections.

Background

On September 24, 2002 the City Council and City of San Jose Financing Authority (the “Authority”) authorized various actions to facilitate short term economic relief of $4.85 million for HRLP. The short term relief was conditioned on HRLP diligently marketing the assignment of the Lease Agreement to effect an assignment no later than June 30, 2003.

On June 24, 2003 the City Council and the Authority extended the economic relief for 60 days with month-to-month extensions through December 31, 2003. In conjunction with this action, staff was directed to present to the City Council on August 19, 2003, an analysis of the cost for the City of San José to take over management of the facility, including any additional management options that would achieve fiscal stability. The report includes financial actuals, showing the fiscal condition of the facility with projections.

On July 1, 2003 HVS, the City’s hospitality consultant, distributed a Request for Information (RFI). The City and HVS have reviewed the RFI packets received and have determined the firms that will be invited to respond to the request for proposal (RFP). An oral status report of the process will be given at the August 13, 2003 rules committee. The responses will be due by the end of August. Based on the proposals to be received, staff anticipates providing a summary of interviews with recommendations to Council on September 30, 2003.

ANALYSIS

The attached revenue and expense analysis worksheets for the Hayes Mansion Conference Center are based on the most current information available through June 30, 2003. The revenue projections are based on information provided by HRLP considering the most recent bookings for events at the Hayes. The analysis provides prior year actuals for calendar year 2002, year to date actuals through June 30, 2003 and forecasted revenues and expenses through December 31, 2003. Expenditures for 2003 reflect increases resulting from opening Phase III of the facility.

The following assumptions were made in developing the analysis:

If it becomes necessary for the City to assume management responsibility prior to the implementation of a new agreement under the existing RFP process, the City’s hospitality consultant has confirmed that at least one firm with wide experience managing conference centers would be prepared to step in immediately on an interim basis, for a period up to 90 days, at a flat monthly management fee of $15,000. The management fee covers corporate services; salaries of on-site managers are included in the expense projections. This is a favorable fee; the City’s current agreement with HRLP provides a 5% management fee. In June 2003, the fee paid to HRLP was $34,000. It should be noted that on a permanent basis, the City’s consultant estimates that the standard management fee would range from 4% to 8% of gross revenues.

Management options to achieve fiscal stability will be incorporated in the responses to the RFP. Such options may include a management agreement, lease arrangement or a franchise agreement.

Existing staff at the Hayes would be retained under current bargaining agreement.

Monthly Comerica line of credit and miscellaneous equipment lease agreement payments would be assumed by the City and funded through Hayes operating revenues upon termination of existing lease.

Existing monthly lease obligations are assumed to be equal to the City’s debt service related costs and would be funded through Hayes operating revenues.

Coordination

This report has been prepared by the Finance Department in coordination with the City Manager’s Office, the Office of Economic Development, and the City Attorney’s Office.

CEQA

Negative Declaration.

KAY WINER	SCOTT P. JOHNSON	PAUL KRUTKO
Deputy City Manager	Director, Finance Department	Director, Office of Economic Development