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DOWNTOWN STOCKTON MARINA OPERATOR CONSIDERATIONS
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RECOMMENDATION
This is an informational and discussion item and does not require Council action. Staff requests input and direction regarding Downtown Stockton Marina operations.
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Summary
The Downtown Stockton Marina underwent a major renovation in 2009 and was operated by third-party contractor, Westrec, Inc. (Westrec), until November 2016. Following Westrec’s departure, City staff and temporary agency employees have operated the Marina. In April 2017, an RFP was issued for marina management/operating services and a proposal from SMG, the current operator of other City event venues, was the only proposal received. SMG has offered a stand-alone operating agreement for the marina operation or alternatively, an amendment and extension of the current SMG contract for other event venues, to include the marina. The amendment and extension option includes a capital investment of $500,000 from SMG for each 5-year extension of its current event venue operating agreement. Additionally, the proposals and options to operate the Marina facility will likely increase the subsidy to operate the facility at a suitable level. Discussion and direction is needed to evaluate the potential increase in costs, SMG operating options, and the possibility of abandoning the marina altogether.
DISCUSSION
Background
In 2009 the Downtown Stockton Marina underwent a $27 million renovation which included a $10.8 million loan from the Department of Boating and Waterways (DBAW). Upon completion of the marina renovation, an RFP was issued for day-to-day operation/management and Westrec was selected. As part of the Bankruptcy negotiations, the City entered into a settlement agreement with DBAW that eliminates all interest on the original loan but requires debt service payments only if the City receives net revenues from the marina operations.
In November 2016, Westrec terminated its operating agreement with the City after losing two other accounts in the surrounding area and citing security concerns. The City assumed the day-to-day operations and made improvements in security, policy, maintenance, and operations. Long term, it is expected that permanent staffing of the marina with City staff will be more expensive than contracting with a third-party. The marina has required an ongoing subsidy ranging from $160,000 to $215,000 while being operated by Westrec. For the foreseeable future, it is projected that the subsidies will need to continue and the City contribution will likely need to increase $50,000 to $75,000 under a new contract.
In April 2017, an RFP was issued for marina and management services to fill the gap created by Westrec. After receiving some interest from possible operators, SMG was the only firm to submit a proposal to operate the marina.
Present Situation
SMG was the only vendor to respond to the RFP and submit a proposal to operate the marina. In discussing the proposal with SMG, options were presented to either enter into a stand-alone agreement for the marina or amend the current SMG venue agreement to include marina operation. The amendment and extension option includes a capital investment from SMG of $500,000 for each 5-year extension of its current event venue operating agreement.
The current event venue operating agreement with SMG is set to expire in February 2020. It is unlikely that the Marina will be viable as a stand-alone operation for SMG without the remaining venues. Therefore, if the City chooses the stand-alone agreement options, it is possible that the City could once again find itself looking for an operator in two years. SMG is in good standing with the City and continues to increase events and facility use dates. While still requiring a subsidy, the amount of the subsidy at the event venues has been consistent over the last three years, despite increased costs such as minimum wage. Both the Arena and the Bob Hope Theater are expected to have their highest revenue years in 2017/18 and ice time at Oak Park Ice Rink continues to be busy between youth hockey and figure skating, as well as new adult curling leagues. SMG’s ability to create and promote events at the Marina exclusively or in conjunction with the surrounding event venues has the potential to create an atmosphere that draws visiting boaters to the area.
Alternatively, the City could attempt to give the marina property to the State and abandon responsibility for its operation. The principal loan still owed to DBAW gives the State some incentive to continue operations and recover some of the investment but it is not certain how the State would respond. If no entity takes responsibility to operate the marina it is likely that there will be costs to the City to mitigate because of an increase in vandalism and other criminal activity that might occur if the marina is abandoned. These costs would likely be less than the expected subsidy to continue marina operations.
FINANCIAL SUMMARY
The Marina has required an annual subsidy ranging from $160,000 to $220,000 over the past five years. Areas such as security have been found to be inadequate under the operation of Westrec and as such, has caused the expense budget to increase. Revenues have stabilized with new policies and accounting practices implemented since the city took over marina operations. In the foreseeable future, it is projected that the subsidies will need to continue and the City contribution will likely need to increase $50,000 to $75,000 under the new contract.
All event facilities and the Marina have capital needs that are difficult for the City to fund. The option to extend SMG’s current agreement in the range of 5-10 years would include a capital investment of $500,000 for five years and $1,000,000 for ten years, which could assist in improving the City’s event assets. Capital investment dollars are only available to the City with an extension of the larger event venue agreement.