To: HONORABLE MAYOR AND From: Kay
Winer
CITY COUNCIL
Subject: CONVENTION CENTER RFP Date: September 20, 2003
TIMELINE
RECOMMENDATION
BACKGROUND
In May 2003, Councilmembers were asked to submit proposals
for balancing the FY 03-04 Budget. One of these proposals was related to the
management of the San Jose Convention Center and other cultural
facilities. Subsequently, on June 10,
2003, the City Council adopted the Mayor’s Budget Message, which directed the
City Manager to address several items related to the arts and cultural
community. One of these items related
directly to the Convention Center, and directed the City Manager to implement
the following:
The information in this memorandum, in addition to
detailing the timeline, provides an explanation of the Competition Policy,
Council Policies, and the RFP structure.
ANALYSIS
The recommended timeline detailed below is based on the
implementation of a modified version of the Competition Process, and will take
approximately nine months to complete.
Date
|
Action |
|
September 30, 2003
|
Recommendation to Council of the RFP timeline: Convention
Center and Cultural Facilities |
|
|
Month of October
2003 |
CAE staff prepares for the RFP process; resources provided
to facilitate competitiveness |
|
|
October 24, 2003 |
Issue Request for Proposal (RFP) |
|
|
November 6, 2003 |
Hold Mandatory Pre-proposal Conference |
|
|
December 5, 2003 |
RFPs due to City Evaluate and screen proposals |
|
|
January 7, 2004 |
Hold interviews with proposers |
|
|
March 9, 2004 |
Recommendation to Council of preferred proposer for 30 day
exclusive right to negotiate |
|
|
April 13, 2004 |
Execute agreement |
|
|
July 1, 2004 |
Implementation of proposal |
|
Competition Policy
The Competition Policy states that it is the policy of the
City of San Jose to deliver quality services in the most cost-effective and
efficient manner, and that the City shall use a public-private competition
process, where appropriate, to determine the most competitive service delivery
method. If implemented in its full
version, the Competition Process takes approximately 2 years, and entails the
completion of a competitive assessment.
A competitive assessment refers to a process used to determine the
competitiveness of in-house delivery of services, and is used to determine
whether or not to issue an RFP. Based
on the directive in the Mayor’s June Budget Message, as approved by the City
Council, an RFP is to be pursued immediately, thereby eliminating the
competitive assessment component of the Competition Process. Accordingly, staff has developed this
modified version of the Competition Policy and timeline to use in this process.
It is important to note that the Competition Policy contains
a “no lay-off” provision. In the event that this process results in
the decision to have an outside contractor manage the Convention Center and/or
other cultural facilities, the City will be responsible for facilitating the
transition of approximately 130 employees to either the new private contractor
or to other employment opportunities within the City with no reduction in
current pay. Staff is aware of this and
will begin to develop the necessary plans in the event that the transition of
these employees is needed.
Council Policies
The timeline also assumes the retention of current Council
policies and service contracts as they relate to the Convention Center and
other cultural facilities. These
include the following:
·
Theater booking guidelines (outlines what groups
receive priority in selecting dates)
The
purpose of the Theater Guidelines is to establish criteria for scheduling
events at the Center for the Performing Arts, and Montgomery Theater. The Guidelines provide: (1) the eligibility
and production requirements for each tier, and (2) the scheduling timeframes for
each tier. For example, a Tier 1 group
at the Center for the Performing Arts may tentatively book dates as far as 3
years in advance of the Performing Arts Season (September - August), and must
confirm the dates no later than 9 months in advance of the Performing Arts
Season. Tier 2 groups may submit
tentative bookings beginning 15 months in advance of each Performing Arts
Season, and may challenge Tier 1 groups for dates they are holding on a
tentative basis up to 15 months in advance of each Performing Arts Season.
The California
Theatre is primarily designed as the home of Opera San Jose, which has first
choice of dates for its productions.
The guidelines are currently being drafted, and will establish criteria
for booking the remaining dates based on the number of production days and performances.
·
Convention Center Booking Policy (outlines what
types of events can book long-term dates and short-term dates) - The booking
policy for the Convention Facilities offers long-term priority dates to
conventions and tradeshows that are international, national or regional in
nature, have a significant impact in terms of hotel tax generated, and use a
minimum of 500 peak or 1,500 total hotel room nights. These events attract out-of-town attendees that boost the local
economy by bringing new dollars to San Jose.
Second priority for date selection is offered within 18 months of the
event based on the potential economic benefit and operating revenue to the
City. Second priority events include
conventions and tradeshows that use a minimum of 500 total hotel room nights,
and multiple event-day, multiple-hall, local trade shows, consumer shows and
community events. Single event-day
and/or single hall local trade shows, consumer shows, and community events will
be given third priority on dates and can be booked up to 12 months in advance
for the Civic Auditorium and Parkside Hall, and up to 9 months in advance for
the Convention Center. Dance concerts
at the Convention Center can be booked up to 9 months prior to the event. All other events will be given dates on a
space-available basis.
·
Rates Resolutions (establishes rental,
equipment, parking and service rates) - City Council reviews recommended rates
for the Convention & Cultural Facilities, including the Convention Center
Garage rates. The current Convention & Cultural Facilities rate resolution
establishes fees for different types of events and services at the five
facilities. For example, the Convention
Center, Civic Auditorium, and Parkside Hall (jointly, the "Convention
Facilities") have use rates for conventions and tradeshows, consumer
shows, and banquets. The Center for the
Performing Arts has use rates for resident groups, other performing art groups,
conventions, commercial events, and non-performance days. The Montgomery Theater and Civic Auditorium
have standard performance day and non-performance day use rates. Other rates include equipment rental, labor,
services, and utility commissions.
Parking rates are approved in the Master Parking Rate Resolution.
Current Service
Contracts
·
Concessionaire contract
The first 5-year term of the City's concessionaire
agreement expires January 2, 2005. The
City has the option to extend the agreement for an additional 5-year term, or
search competitively for another concessionaire. The concessionaire is the exclusive provider for all food,
beverage, and novelty services at the facilities.
·
Network services contract
The network services
agreement expires January 31, 2006.
The network services contractor has the exclusive right to use the existing
network infrastructure, but clients have the right to install and manage their
own temporary networks. The network
services agreement includes all network infrastructure, systems, and services
necessary to provide high-speed local and wide-area network connectivity
services that are made available for a fee to clients at or from the facilities
through the SJCC Network.
RFP Options
In order to facilitate, simplify,
and expedite the evaluation process, the RFP will provide different proposal
options for which firms may submit proposals.
The options are as follows:
1.
Convention Center with Auditorium and Parkside Hall
2.
Performing Arts Facilities – individually or as a group
(Montgomery, CPA, California/Fox)
3.
All of the above
Structure
of the RFP – Private Activity
The RFP will need to take into account the “private
activity” regulations of the IRS. In
general, when the City issues bonds for the purpose of constructing a
governmental improvement or facility, the interest earned on those bonds is tax
exempt. Since this results in less tax
revenues for the federal government, the IRS has promulgated regulations to
ensure that facilities built with tax-exempt bond proceeds, like the Convention
Center, are truly used for a governmental purpose, and not for private use
during the term of the bonds. Examples
of “private use” include leases and management agreements.
The IRS, however, does recognize certain exceptions for
qualified management agreements. In
order to be a qualified management agreement, none of the compensation paid to
the operator can be based on the profitability of the facility. Rather, the operator’s compensation must be
based either solely on a fixed fee or upon a fixed fee and a percentage of gross
revenues. The percentage of gross revenues
varies depending upon the length of the agreement. For example:
ü
Term is limited to lesser of 15 years or 80% of the
useful life of the facility.
Ø
At least 95% of the compensation is a fixed fee.
ü
Term is limited to lesser of 10 years or 80% of useful
life of facility.
Ø
At least 80% of the compensation is a fixed fee.
ü
Term is limited to 5 years and City must have right to
terminate without penalty after 3 years.
Ø
At least 50% of the compensation is a fixed fee.
These limitations will be highlighted in the RFP with
respect to the Convention Center. Staff will work with the City Attorney’s
Office and Bond Counsel to determine whether these restrictions will also apply
to the California/Fox Theatre which was financed with the Redevelopment Agency’s
tax increment bonds and the Center for Performing Arts which is a pledge asset
for the outstanding City of San Jose Financing Authority’s Lease Revenue Bonds,
Series 1993B. The other facilities do
not have bonds outstanding and are not subject to these restrictions.
PUBLIC OUTREACH
N/A
COORDINATION
This memorandum has been
coordinated with the Department of Cultural Arts and Entertainment, the
Department of Finance, and the City Attorney’s Office.
CEQA
Not a Project
Kay Winer
Deputy City Manager