HomeMy WebLinkAboutMINUTES - 05201997 - C84 C.84
THE BOARD OF SUPERVISORS
OF CONTRA COSTA COUNTY CALIFORNIA
Adopted this Order on May 20, 1997 by the following vote:
AYES: Supervisors Rogers, Uilkema, Canciamilla, DeSaulnier
NOES: None
ABSENT: Supervisor Gerber
ABSTAIN: None
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SUBJECT: Grand Jury Report
IT IS BY THE BOARD ORDERED that the 1996-97 Contra Costa Grand Jury
Report No. 9704, " The Costly Contra Costa Club, " is REFERRED to the County
Administrator and the Internal Operations Committee.
I hereby certify that this is a true
and correct copy of an action taken and
entered on the minutes of the Board of
Supervisors on the date shown.
ATTESTED: May 20, 1997
PHIL BATCHELOR, Clerk of the Board
of Supervisors and County Administrator
B ,Deputy
cc: County Administrator
Internal Operations Committee
„ RECEIVED
MAY 12 W7
A REPORT BY
CLERK BBWDn OF�PERVISOii�
THE 1996-97 CONTRA COSTA COUNTY G
1020 Ward Street
Martinez, California 94553
(510) 646-2345
Report No. 9704
THE COSTLY CONTRA COSTA CLUB
APPROVED BY THE GRAND JURY: /
Date: z 'u fGRAND
JURY FOREMAN
ACCEPTED FOR FILING:
Date: -
-� JOHNF.
F. V N DE POEL
JUDGE OF THE SUPERIOR COURT
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The Costly Contra Costa Club
Background
The County opened its first, and only, exercise club in early 1990. It is housed in a rented
building, specifically renovated for its use, in downtown Martinez.
The 1993-94 Grand Jury issued Report #9401, Employee Wellness Program and Contra
Costa Club Funds Lack Accountability. The report was critical of a number of things
including the increasing operating deficit of the Club.
The report, along with the County Management Audit of the Personnel Department, dated
June 28, 1994, made a number of recommendations about the Health Club. Many of these
recommendations have not been implemented by the Human Resources Department
(formerly Personnel Department) and the Club deficit continues to grow.
Findings
1. The idea for a health club was developed over a couple of years in the late 1980s
by the Personnel Department. Three of the Supervisors then on the Board pushed
hard for the club even though funds were not available to finance it.
2. The Contra Costa Club has never operated profitably or at a break-even level.
Between the time the Club opened in July, 1990, and June 30,1996, it has
accumulated a deficit of$190,000. In the first six months of the current fiscal
year, it lost an additional $30,596. The projected loss for the entire fiscal year is
more than $62,000, which will bring the cumulative deficit above a quarter of
million dollars.
3. The causes of this consistent money-losing mode of operation are: 1) the inability
to attract a sufficient number of members at a sufficient dues level; and 2) the
burden of a very expensive long-term lease.
4. Salaries and benefits of County employees who manage and work within the
Contra Costa Club are not charged to or pro-rated to the Club's expenses.
5. The County is paying a monthly price per square foot that is as high or higher than
that for space in Martinez where insurance for the building, building maintenance,
such as roof, glass, air conditioning, taxes, etc., are included.
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6. The lease for the facilities, signed in 1990, is for 10 years. The County is paying a
very high price for the facilities when all elements of the lease are factored in such
as rent, amortized leasehold improvements (athletic club amenities), all insurance
costs (including coverage of the lessor's building in the amount of$850,000) and
building maintenance, including roof, glass, air conditioning, etc. (See attachment
for lease summary.)
7. The County will have paid out over $400,000 for leasehold improvements for the
Club at the end of this lease year. The total cost to the County of the leasehold
improvements will eventually total almost $600,000.
8. Effective February 28, 1995, as originally signed, the County could have
terminated the lease and vacated the premises by giving 180 days notice, but would
have had to pay off all leasehold improvements. Ten months before that date, on
April 19,1994, the County agreed to amend the lease thusly: in exchange for
giving up its rights to terminate the lease, the County received cancellation of the
clause requiring the payment of an 8% premium to the lessor on membership dues
in excess of 485 members.
9. The leasehold improvements, originally financed through the lessor, were
refinanced with another lender as of December 1993, in order to get a lower
interest rate.
10. The reason for giving up the right to terminate the lease was simply to assist the
lessor in refinancing his loan. This change was approved by the County
Administrator.
11. The present Human Resources Director and the Wellness Program staff profess no
knowledge of any negotiations to modify the lease.
12. The financial viability of the Club and how well it is serving county employees
overall has not been evaluated since the Club opened. Both the Grand Jury Report
#9401 and the County Management Audit of June 28, 1994, recommended
reviews of the program and the Board of Supervisors concurred. These reviews
were not made.
13. The Club actually serves less than 5% of county employees. Only about 14% of
the county's employees work in or near downtown Martinez.
14. Only 65% of the Club members are county employees. County funds are still
subsidizing the Club and those members not employed by the County.
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15. The County has surveyed alternative health club programs and negotiated reduced
rates for county employees at some clubs.
Conclusions
1. The Club was started largely because high ranking County officials wanted it even
though the money was not available. This then required financing which, in itself,
has cost the taxpayers money.
2. The deficit of the Contra Costa Club will continue to grow based on past
performance and the current fiscal year's results. It is highly unlikely the Club can
ever break even, even when the lease improvement payments stop in 2000.
3. The Contra Costa Club's deficit would be much larger if all costs, such as the
salaries of Wellness Program employees involved in the management and operation
of the Club, were included in its financial results.
4. The Contra Costa Club is serving, in an expensive way, only a small part of the
county's employees and is using county funds to subsidize it.
5. Non-county members of the Club are being subsidized with county funds.
6. Little attention is being paid to the viability of the Club and its financial condition
by the Human Resources Department. The Human Resources Department
believes that nothing can be done until the facility lease runs out in 2000.
7. The County is involved in a very expensive lease for the facilities and pays for
items that are normally the responsibility of the lessor, such as fire insurance for
the building, all taxes and assessments, maintenance of the roof, etc.
8. It is wrong for the County to pay such a high rental price when it also pays for all
the items in 7. above. Since the County pays for these items, the rental price
should be much lower.
9. The County gave away the valuable right to terminate the Club's lease for a
worthless cancellation of a requirement to pay a percent of membership fees over
485 members. The membership has never reached 485 since the Club opened and
it never will.
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10. The right to terminate the lease should not have been given up by the County. The
need of the lessor to refinance his loan is of no concern to the County. Agreement
to such a change should be given only when it is in the best interest of the County.
11. The Human Resources Department has ignored recommendations of the Grand
Jury and the County Management Audit as these pertain to the Club. This is also
true of the orders of the Board of Supervisors relating to the Club.
Recommendations
The 1996-97 Contra Cost County Grand Jury recommends that:
A. the Board of Supervisors close the Club and the facilities be sub-let or used
for other County purposes as soon as possible.
B. the Human Resources Department immediately initiate an evaluation to
determine what alternative uses can be made of the Club premises and identify
parties interested in sub-leasing or taking over the space.
C. the Board of Supervisors initiate a review of the County's leasing process to
insure that:
1. the County gets fair and economically reasonable lease conditions on all
leases negotiated with outside parties..
2. the parties using the space be required to review the lease and the use of
the space on a biannual basis.
3. a complete review of the lease and the need for the space always be
done, by the management of the using organization, before any
lease is renewed, extended or amended.
4. any amendment(s) to a lease be reviewed and agreed to by an
appropriate level of management of the user group.
5. a reasonable right to terminate clause be included in each lease.
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Attachment
Summary of Contra Costa Club Lease
Lease period is for 10 years, commencing March 1, 1990, and ending February 29, 2000.
The following was included in the original lease but was given away by the County in
exchange for the cancellation of a % of membership fees provision.
County gave up: Lease can be terminated with 180 days notice and by paying off
remaining amortized costs of tenant improvements paid for by the lessor.
County got cancellation of.- Starting in the second lease year, the County will
pays the lessor 8% of membership fees on membership exceeding 485, with
annual % rent not to exceed$5000.
Monthly rental is as follows:
Years 1 & 2 $4980
Year 3 5230
Year 4 5490
Year 5 5765
Beginning with the 6th year, the monthly rent increases 5% or 5% + 50% of any CPI
increase over 5%, but shall not exceed 10% annually.
The county paid $70,000 up front to the lessor for leasehold improvements plus has
amortized additional leasehold improvements provided by the lessor at a monthly rate as
follows:
Year 1 $3220
Year 2-5 3770
Year 6-10 5020
The remaining cost of leasehold improvements, as of December 1993, were
refinanced with another financing institution at that time in order to get a lower
interest rate. The remaining average annual payment for the leasehold until
February 29, 2000, is $49,617.
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County has the responsibility to maintain the following:
- internal lighting, electrical, water and plumbing systems
- heating, ventilating and air conditioning
- roof, glass, exterior doors, hinges, locks, etc.
County pays gas, electric, sewer and refuse service.
County pays all taxes and assessments levied against the property.
County pays for insurance covering the lessor's building covering fire, vandalism malicious
mischief and extended coverage in the amount of$850,000.
County can sublet portions of the space without lessor approval or assign the lease with
approval of lessor.
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