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Oro Valley explains financial projections for proposed community and recreation center

January 27, 2015

A significant benefit to acquiring the El Conquistador Country Club (country club) for use as a community and recreation center is the fact that it is an existing facility with known revenues and operating expenses. With this information, it is easier to predict future revenues and operating costs than with a brand new facility having no prior operating experience in the community.

Under the prior management, the country club operated at an annual net loss ranging from $1.2 to $1.5 million. Part of what drove these annual losses was the lack of investment in the facility, its aging condition, lack of marketing and promoting the facility, and absence of any effort to generate additional community interest in the golf, fitness or restaurant amenities offered by the facility.

With the Town as owners of this facility as a community and recreation center, we have a unique opportunity to focus dedicated resources in the amount of $2 million annually, generated from a 0.5% increase in the sales tax rate, to invest in significant improvements and upgrades to the facility, increase marketing and promotion of the facility and work with Troon on the development of new, innovative programs to grow interest in golf and tennis for all ages.

Considering that under previous management, the annual losses were $1.2 to $1.5 million with minimal efforts to improve or promote the facility, the Town will leverage the dedicated $2 million in revenues to fund the necessary improvements in order to decrease expenses, increase revenues and eliminate the annual operating loss over time.

Multi-year cost projections for the operations of the facility have been prepared by Town staff and Troon. During the first two years of operation, the estimated annual loss is approximately $1.2 to $1.3 million. The $2 million in dedicated revenues will cover this net loss, and the remainder of this revenue will be used for annual capital investment in the facility. These capital investments in the fitness, golf and restaurant facilities, estimated at $5.5 to $5.6 million over the next five years, will help to increase the service levels provided in these areas. By the third year, the annual estimated loss decreases significantly to approximately $180,000 to 200,000. By year four, the operations (both golf and the community and recreation center) are expected to turn a slight profit.

A summary of the forecast is presented in the table below.

                                           FY 2015/16             FY 2016/17             FY 2017/18                 FY 2018/19
Estimated Revenues            $ 5,135,666             $ 6,251,670             $6,966,119                  $ 7,577,665
Estimated Expenses                6,365,508               6,914,187                7,142,828                    7,386,205
Est. Profit/(Loss)               ($ 1,229,842)          ($   662,517)            ($   176,709)                $    191,460

Over the next five years, the total cost of capital investment plus the annual operating subsidy needed at the facility totals approximately $8.1 million. Over that same timeframe, it is estimated that the 0.5% sales tax increase will generate about $10 million in dedicated revenues to fund these areas. The excess funding will be used to continue making necessary capital investments and upgrades at the facility beyond this five-year timeframe.