HomeMy WebLinkAbout17 - Donation Agreement with Crystal Cove Conservancy for Cottage RestorationQ SEW Pp�T
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c�<,FORN'P City Council Staff Report
August 14, 2018
Agenda Item No. 17
TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: Dave Kiff, City Manager — 949-644-3001,
dkiff@newportbeachca.gov
PREPARED BY: Dave Kiff, City Manager
PHONE: 949-644-3001
TITLE: Donation Agreement with Crystal Cove Conservancy for Cottage
Restoration
ABSTRACT:
In 2013, the City entered into an agreement with the non-profit public benefit organization
(formerly the Crystal Cove Alliance, now the Crystal Cove Conservancy at
www.crystalcove.org) that operates the master concession contract (cottage rentals and
food service) through its for profit subsidiary, Crystal Cove Management Company, at the
Crystal Cove State Park Historic District.
The 2013-2018 agreement provided that a general fund contribution of $20,000 per year
for five years would be provided to the Conservancy to help the Conservancy to restore
more of the cottages. As a result, overall transient occupancy taxes (TOT) to the City
would grow and produce more general fund revenue, as more cottages came on line for
rental. This Agreement expired in 2018. At the conclusion of this contract, The
Conservancy was paying $130,000 annually in TOT to the City of Newport Beach. The
Conservancy wishes to extend the donation agreement for five more years at a larger
dollar amount ($50,000 per year) to allow the Conservancy to add to its funding package
with a goal of restoring the last seventeen (17) "North Beach" cottages.
Nx0101LhI TT I=10117_111[a]►F
a) Find this action is not subject to the California Environmental Quality Act ("CEQA")
pursuant to Sections 15060(c)(2) (the activity will not result in a direct or reasonably
foreseeable indirect physical change in the environment) and 15060(c)(3) (the activity
is not a project as defined in Section 15378) of the CEQA Guidelines, California Code
of Regulations, Title 14, Chapter 3, because it has no potential for resulting in physical
change to the environment, directly or indirectly; and
b) Authorize the City Manager to execute the proposed Agreement between the City and
the Crystal Cove Conservancy to assist the Conservancy with Phase III cottage
restoration efforts by providing $50,000 to the Conservancy (solely for infrastructure
and restoration purposes) for each of five (5) years.
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Donation Agreement with Crystal Cove Conservancy for Cottage Restoration
August 14, 2018
Page 2
FUNDING REQUIREMENTS:
The first $50,000 installment will be due and paid on July 1, 2019. As such, it should be
budgeted in FY19-20 and each year after that for a total of five years. It should be
expensed to the City Council's Special Department Expense account, 01005005-841046.
DISCUSSION:
In May 2013, the City Council entered into a five-year agreement with the Crystal Cove
Conservancy to donate general funds to The Conservancy. The Conservancy has a
unique business model where revenue from the existing concession contract reinvests
earned revenue back into the park to create a self-sustaining model. Currently, Crystal
Cove Conservancy maintains all the historic structures and common areas within the
historic district through this funding mechanism.
The concept was to consider the TOT impacts of adding more cottages to the rental
reservation system, but instead of a direct TOT rebate, the Council and the Finance
Department decided upon a simpler General Fund contribution (all TOT revenue goes
into the General Fund).
The agreement stated that The Conservancy was then to invest the funds into cottage
renovation (including this Phase III program), helping The Conservancy bring more
cottages on-line and therefore creating more TOT in the long run. This agreement ended
in 2018, and the Conservancy seeks to extend and expand it, again with the goal of
restoring more cottages. Seventeen (17) cottages along "North Beach" remain to be
restored, in what would be the final phase of the Crystal Cove cottage restoration effort.
About TOT. Generally, the City collects a 10% Transient Occupancy Tax (TOT) on stays
of thirty (30) days or less in the community. The City then returns about 18% of the TOT
revenue collected to Visit Newport Beach (VNB), the domestic marketing organization for
the community. VNB uses the revenue to promote Newport Beach and its hotels and
short-term residential rentals.
The City's adopted FY 2018-19 budget estimates that the City will receive about $27
million in hotel -related TOT, with another $2.7 million coming from residential vacation
rentals. VNB would then receive about $4.8M of the hotel TOT, and $578K of the
residential TOT. The net to the City is then $24.3M in TOT. This becomes a General
Fund revenue source, available for any general government purpose.
About the Crystal Cove Historic District. The Crystal Cove Historic District lies in the
southeastern part of Newport Beach within Crystal Cove State Park. It consists of 46
cottages that are listed on the National Register of Historic Places and are owned by
California State Parks but managed by the non-profit Crystal Cove Conservancy (formerly
the Crystal Cove Alliance). Since June 2006 certain restored cottages have been open
to the public at a relatively low rate for overnight rentals. The rentals are subject to the
City's TOT collection.
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Donation Agreement with Crystal Cove Conservancy for Cottage Restoration
August 14, 2018
Page 3
Today, 24 accommodations are open and reservable at CCSP (these range from
separate cottages to dorm -style accommodations and rooms in larger units). Prices
today range from $36/night for dorm -style accommodations to $251 /night for an individual
cottage that can house up to nine (9) people. All reservations for cottage rentals are
managed by ReserveCalifornia.com.
Rentals have consistently stayed at about 98% occupancy, even during weekdays in
wintertime. This high occupancy is driven in part because of the location and in part
because the stays are relatively affordable, as directed by the California Coastal
Commission. In addition, Crystal Cove Conservancy was the organization that
spearheaded getting the Luxury Resort Plan stopped in 2001 and has held at their core
mission to provide low cost overnight accommodations in an authentically restored
Historic District.
The Phase III Effort. Restoring the remaining seventeen (17) cottages is estimated to
cost about $35,000,000. More specifically and as shown in Table 1 (amounts provided
by the CC Conservancy):
Table 1
Estimated Expenses:
Revenue Assumptions:
"Early Commitments"
Sitework, utilities, fiftstations, bluff
- Infrastructure
$
17,756,646
stabilization, boardwalkfpubficaccess path,
17 cottages, foundations, wrung, period-
- Historic Restoration
$
16,046,646
appropriate furnishings
Educational Endowment
$
1,066,646
(Achieved)
Campaign Costs
$
256,666
5 -year capital campaign C@ $50ftifyear
Subtotal
$
35,066,666
Revenue Assumptions:
"Early Commitments"
$ &,666,666
"Anticipated Credits"
$ 4,666,666
Subtotal
$ 12,666,666
Note: Packard Fdn offers $10M construction
Campaign Goal $ 23,666,666 loanatl%if$SMisraisedorcommittedby9-1-
2015
Upon completion of the final 17 cottages on the North Beach, all cottages will be
maintained in this same manner as the cottages and other infrastructure today. No
funding from the state's general fund will be needed to maintain all 46 cottages.
On June 8, 2018, the Packard Foundation approved a $10M low interest loan with $5M
tied to pledges that The Conservancy is currently working to obtain. As of the time of this
staff report, about $1.2M in pledges have been secured, leaving a balance of $3.8M still
to achieve.
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Donation Agreement with Crystal Cove Conservancy for Cottage Restoration
August 14, 2018
Page 4
If approved, the $50,000/year donation for the next 5 years will satisfy an additional
$250,000 towards this pledge requirement.
About TOT today, and TOT estimates into the future. The cottages produce about
$129,000 in TOT each year to the City (including the amount that the City sends to VNB
and net of the City's General Fund contribution to the Conservancy). With small room
rental rate increases as well as increasing the amount of Phase III cottages that may
come online and be ready for reservation, the Conservancy projects that TOT may grow
to over $330K per year by 2024/25 (see Table 2, again with amounts provided by The
CC Conservancy).
To reach that higher amount on the timeline shown below, The Conservancy has asked
that the City enter into a new agreement with The Conservancy that would contribute
$50,000 in City General Funds for each of five years (for a total of $250,000). The
intention is to use the funds for restoration but also to help secure the Packard Foundation
1 % construction loan and other commitments. Again, with the additional cottages brought
online for rental, the City could expect to see increased TOT overall from the cottages as
well as encouraging and supporting this unique low-cost visitor -serving amenity in our city
and region. Our Local Coastal Program and the California Coastal Act all encourage
additional low-cost visitor -serving accommodations where practicable (NBMC
§21.048.025[C]).
In addition, the City of Newport Beach will be recognized on the Donor Recognition Panel
located at the project site.
Table 2
Crystal Cove Conservancy and Crystal Cove Beach Cottages
City of Newport Beach
Transient Occupancy Tax Projections
Actual
Actual
Years
2016/17
2017/18
Revenue
$ 1,297,412
$ 1,306,712
10% TOT
$ 129,745
$ 130,671
Projection
2418/19
$ 1,385,000
$ 138,500
Projection
2019/20
$ 1,426,000
$ 142,600
Projection
2020/21
$ 1,468,000
$ 146,800
Projection
2021/22
$ 1,512,000
$ 151,200
Projection
2022/23
$ 1,557,000
$ 155,700
Projection
2023/24
$ 2,404,000
$ 240,400
50% of Phase III online
Projection
2024/25
$ 3,301,000
$ 330,100
100% of Phase III online
Projection
2025/26
$ 3,400,000
$ 340,000
Projection
2026/27
$ 3,502,000
$ 350,200
Projection
2027/28
$ 3,607,000
$ 360,700
`Note: Revenues are escalated at the rate of 3% per year.
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Donation Agreement with Crystal Cove Conservancy for Cottage Restoration
August 14, 2018
Page 5
As in 2013, should the Council wish to pursue this, the recommendation before the City
Council today would not involve the rebating of TOT, but rather a contribution from the
General Fund. The proposed agreement that would enact this contribution is
Attachment A.
ENVIRONMENTAL REVIEW:
Staff recommends the City Council find this action is not subject to the California
Environmental Quality Act ("CEQA") pursuant to Sections 15060(c)(2) (the activity will not
result in a direct or reasonably foreseeable indirect physical change in the environment)
and 15060(c)(3) (the activity is not a project as defined in Section 15378) of the CEQA
Guidelines, California Code of Regulations, Title 14, Chapter 3, because it has no
potential for resulting in physical change to the environment, directly or indirectly.
NOTICING:
This agenda item has been noticed according to the Brown Act (72 hours in advance of
the meeting at which the Council considers the item).
ATTACHMENT:
Attachment A — Proposed Agreement
17-5
ATTACHMENT A
DONATION AGREEMENT
BETWEEN THE CITY OF NEWPORT BEACH AND
CRYSTAL COVE CONSERVANCY
This Donation Agreement ("Agreement") is entered into this day of August,
2018 ("Effective Date"), by and between the City of Newport Beach, a California
municipal corporation and Charter City ("City"), and Crystal Cove Conservancy, a
California non-profit corporation located at #5 Crystal Cove, Newport Coast, California
92657 ("The Conservancy"). City and The Conservancy are at all times individually
referred to as "Party" and collectively as "Parties" herein.
RECITALS
A. The Newport Beach City Council has a positive history of directing
revenue towards non-profit organizations, community groups, community events,
enhancement projects or worthy programs which the City Council deems beneficial to
residents' quality of life.
B. The Conservancy is a non-profit organization that oversees the
management, operation and restoration of the beach cottages in the Crystal Cove
Historic District.
C. The City and The Conservancy previously had an agreement in place
whereby the City contributed twenty thousand dollars ($20,000) a year to assist The
Conservancy with the restoration of historic cottages in Crystal Cove.
D. The Conservancy intends to embark upon Phase III restoration work to
restore the remaining seventeen (17) cottages located in the Crystal Cove Historic
District, restoration is anticipated to cost thirty-five million dollars ($35,000,000) and take
five (5) years to complete ("Project").
E. The Conservancy is actively seeking contributions and requested a
donation from the City to fund a portion of the Project.
F. The City Council determined that the Project will benefit the City's
residents' quality of life by providing additional coastal recreational opportunities.
NOW, THEREFORE, in exchange for valuable consideration, the Parties agree
as follows:
1. DONATION
The City agrees to donate to The Conservancy up to Two Hundred Fifty Thousand
Dollars and 00/100 ($250,000.00) over a five (5) year period paid out in five (5) equal
installments of Fifty Thousand Dollars and 00/100 ($50,000.00) a year ("Donated
Funds"). The Donated Funds shall be disbursed in Fifty Thousand Dollar and 00/100
17-6
($50,000.00) increments by City to The Conservancy on July 1 of each calendar year
this Agreement is in effect, beginning on July 1, 2019.
2. TERM
The term of this Agreement shall commence on the Effective Date and shall continue in
full force and effect until July 2, 2023, unless terminated earlier as provided herein.
3. RESTRICTIONS ON USE OF DONATED FUNDS
The Donated Funds are subject to the following expenditure conditions ("Approved
Uses"):
(a) The Donated Funds shall be expended solely for the purposes provided in
Exhibit 'A" which is attached hereto and incorporated herein by reference;
and
(b) The Donated Funds shall not be used for any activity that would violate
City, state or federal statutory or decisional law such as regulations
affecting non-profit or tax exempt organizations exempt from taxation
pursuant to the Internal Revenue Code.
The Conservancy further warrants to City that the Donated Funds will be spent solely
for the Approved Uses and the Donated Funds shall be used by The Conservancy
during this Agreement's term otherwise the Donated Funds shall be returned to City, as
provided in Section 5 below.
4. REPORTING AND ACCOUNTING REQUIREMENTS
(a) At all times during the term of this Agreement, The Conservancy shall
maintain true, proper, and complete books, records, and accounts
(collectively, "Books and Records") in which shall be entered fully and
accurately all transactions taken with respect to the operations of The
Conservancy under the Project and the expenditure of the Donated
Funds. The Conservancy shall maintain the Books and Records in
accordance with generally accepted accounting principles.
(b) City reserves the right to designate its own employee representative(s) or
its contracted representative(s) with a Certified Public Accounting firm who
shall have the right to audit The Conservancy's accounting procedures
and internal controls of The Conservancy's financial systems as they
relate to the Project and to examine any cost, revenue, payment, claim,
other records or supporting documentation resulting from any items set
forth in this Agreement. Any such audit(s) shall be undertaken by City or
its representative(s) at mutually agreed upon reasonable times and in
conformance with generally accepted auditing standards. The
Conservancy agrees to fully cooperate with any such audit(s).
Donation Agreement Page 2
17-7
This right to audit shall extend during the length of this Agreement and for
a period of three (3) years or longer, if required by law, following the date
of any Donated Funds tendered under this Agreement. The Conservancy
agrees to retain all necessary records/documentation for the entire length
of this audit period.
(c) The Conservancy shall, on May 1 of each calendar year of the term of this
Agreement, furnish the City with a Balance Sheet and Income Statement
describing the receipt and disbursement activities of The Conservancy
with respect to the Donated Funds. In its sole and absolute discretion the
City may also require The Conservancy to submit: (i) quarterly check
registers and descriptions of each disbursement; (ii) budget -to -actual -
results; and (iii) a statement of position describing the assets and liabilities
of The Conservancy. In the event that an independent audit is conducted,
The Conservancy shall forward a copy of the audited report to the City for
review, including any Management Letter, Report on Internal Controls, or
Reportable Conditions letter generated during the course of the audit. The
purpose of this requirement is to ensure The Conservancy has expended
the Donated Funds on Approved Uses and not to require a dollar -for -dollar
accounting with a particular invoice.
(d) The Conservancy agrees to exercise prudent financial management
processes including proper oversight of all assets, budget preparation,
and timely reporting including budget -to -actual -comparisons.
(e) All Approved Uses shall be performed by The Conservancy or under The
Conservancy's supervision. The Conservancy represents that it
possesses the professional and technical skills required to perform the
services required by this Agreement, and that it will perform all services
with a standard of care and in a manner commensurate with the
community professional standards.
5. USE OF DONATED FUNDS
The Donated Funds shall be used solely by The Conservancy for the Approved Uses
and for no other use. In the event that the Donated Funds are not used for the
Approved Uses or are not expended by or before the expiration or earlier termination of
this Agreement, The Conservancy shall notify the City in writing, and shall be obligated
to return the remaining Donated Funds to City within thirty (30) calendar days.
6. INDEMNIFICATION
To the fullest extent permitted by law, The Conservancy shall indemnify, defend and
hold harmless City, its City Council, boards, committees and commissions, officers,
agents, volunteers and employees (collectively, the "Indemnified Parties") from and
against any and all claims (including, without limitation, claims for bodily injury, death or
Donation Agreement
Page 3
17-8
damage to property), demands, obligations, damages, actions, causes of action, suits,
losses, judgments, fines, penalties, liabilities, costs and expenses (including, without
limitation, attorney's fees, disbursements and court costs) of every kind and nature
whatsoever (individually, a Claim; collectively, "Claims"), which may arise from or in any
manner relate (directly or indirectly) to this Agreement (including the negligent and/or
willful acts, errors and/or omissions of The Conservancy, its principals, officers, agents,
employees, vendors, suppliers, consultants, subcontractors, anyone employed directly
or indirectly by any of them or for whose acts they may be liable or any or all of them).
Notwithstanding the foregoing, nothing herein shall be construed to require The
Conservancy to indemnify the Indemnified Parties from any Claim arising from the sole
negligence or willful misconduct of the Indemnified Parties. Nothing in this indemnity
shall be construed as authorizing any award of attorney's fees in any action on or to
enforce the terms of this Agreement. This indemnity shall apply to all claims and liability
regardless of whether any insurance policies are applicable. The policy limits do not act
as a limitation upon the amount of indemnification to be provided by The Conservancy.
7. INDEPENDENT CONTRACTOR
In the performance of this Agreement, The Conservancy, and the agents, volunteers
and employees of The Conservancy, shall act in an independent capacity and are not
officers, employees, volunteers or agents of the City. The manner and means of
performing the Approved Uses are under the control of The Conservancy, except to the
extent they are limited by statute, rule or regulation and the expressed terms of this
Agreement. Nothing in this Agreement shall be deemed to constitute approval for The
Conservancy or any of The Conservancy's employees, volunteers or agents, to be the
agents, volunteers or employees of City. The Conservancy shall have the responsibility
for and control over the means of performing the Approved Uses, provided that The
Conservancy is in compliance with the terms of this Agreement. Anything in this
Agreement that may appear to give City the right to direct The Conservancy as to the
details of the performance or to exercise a measure of control over The Conservancy
shall mean only that The Conservancy shall follow the desires of City with respect to the
results of the Approved Uses.
8. PROHIBITION AGAINST TRANSFERS
The Conservancy shall not assign, hypothecate or transfer this Agreement or any of the
services to be performed under this Agreement, directly or indirectly, by operation of law
or otherwise without prior written consent of City. Any attempt to do so without written
consent of City shall be null and void.
9. NOTICES
All notices, demands, requests or approvals to be given under this Agreement shall be
given in writing and conclusively shall be deemed served when delivered personally or
on the third (31) business day after the deposit thereof in the United States mail,
postage prepaid, first class mail, addressed as hereinafter provided.
Donation Agreement Page 4
17-9
All notices, demands, requests or approvals from The Conservancy to City shall be
addressed to the City at:
Attn: City Manager
City of Newport Beach
100 Civic Center Drive
P.O. Box 1768
Newport Beach, CA 92658-8915
(949) 644-3000
All notices, demands, requests or approvals from City to The Conservancy shall be
addressed to The Conservancy at:
Attn: Alix Dunn, President & CEO
Crystal Cove Conservancy
#5 Crystal Cove
Newport Coast, CA 92657
(949) 376-6200
i 11 11 :1 N J, I I Z, r -A AIC II
(a) Termination for Cause. The Conservancy shall be in default under this
Agreement if The Conservancy fails or refuses to perform any duty
required by the Agreement or performs in a manner inconsistent with the
terms, conditions and restrictions in this Agreement. In such event, City
shall give The Conservancy thirty (30) calendar days written notice to
cure, if the default can be cured and City shall be entitled to terminate this
Agreement if The Conservancy has not cured the default within the thirty
(30) calendar day cure period. City shall be entitled to immediately
terminate this Agreement if the default cannot be cured through corrective
action. If terminated under this section, remaining Donated Funds shall be
returned to the City pursuant to Section 5.
(b) Termination without Cause. City may terminate this Agreement at anytime
with or without cause upon seven (7) calendar days written notice to The
Conservancy, any remaining Donated Funds in The Conservancy's
possession at the time of termination shall be returned to City pursuant to
Section 5. Upon termination, City shall have no obligation to provide any
further Donated Funds to The Conservancy.
(c) Specific Performance. The Conservancy agrees that the City has the
legal right, and all necessary conditions have been satisfied, to specifically
enforce The Conservancy's obligations pursuant to this Agreement.
Donation Agreement Page 5
17-10
iEi I _11y/4:t
A waiver by either Party of any breach, of any term, covenant or condition contained
herein shall not be deemed to be a waiver of any subsequent breach of the same or any
other term, covenant or condition contained herein, whether of the same or a different
character.
12. INTEGRATED CONTRACT
This Agreement represents the full and complete understanding of every kind or nature
whatsoever between the Parties hereto, and all preliminary negotiations and
agreements of whatsoever kind or nature are merged herein. No verbal agreement or
implied covenant shall be held to vary the provisions herein.
IiI.1111=1:7:JNAIF-AIEel L,I
The terms of this Agreement shall be construed in accordance with the meaning of the
language used and shall not be construed for or against either Party by reason of the
authorship of the Agreement or any other rule of construction which might otherwise
apply.
14. AMENDMENTS
This Agreement may be modified or amended only by a written document executed by
both The Conservancy and the City and approved as to form by the City Attorney.
15. SEVERABILITY
If any term or portion of this Agreement is held to be invalid, illegal, or otherwise
unenforceable by a court of competent jurisdiction, the remaining provisions of this
Agreement shall continue in full force and effect.
16. CONTROLLING LAW AND VENUE
The laws of the State of California shall govern this Agreement and all matters relating
to it and any action brought relating to this Agreement shall be adjudicated in a court of
competent jurisdiction in the County of Orange.
17. EQUAL OPPORTUNITY EMPLOYMENT
The Conservancy represents that it is an equal opportunity employer and it shall not
discriminate against any subcontractor, employee or applicant for employment because
of race, religion, color, national origin, handicap, ancestry, sex, age or any other
impermissible basis under law.
Donation Agreement Page 6
17-11
18. COMPLIANCE WITH ALL LAWS
The Conservancy shall, at its own cost and expense, comply with all statutes,
ordinances, regulations and requirements of all governmental entities, including federal,
state, county or municipal, whether now in force or hereinafter enacted.
19. NO ATTORNEYS' FEES
In the event of any legal dispute arising out of this Agreement the prevailing Party shall
not be entitled to attorneys' fees.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
on the day and year first above written.
APPROVED AS TO FORM:
THE CITY AT Y'S OFFICE
By: C �
Aaron C. Harp
City Attorney
ATTEST:
Leilani I. Brown
City Clerk
CITY OF NEWPORT BEACH
a California municipal corporation
David Kiff
City Manager
CRYSTAL COVE CONSERVANCY
a California non-profit corporation
Alix Dunn
President
Secretary
Attachment: Exhibit "A"—The Conservancy's Phase III Restoration Proposal
Donation Agreement
Page 7
17-12
Exhibit "A"
The Conservancy's Phase III Restoration Proposal
Scope of the Project:
• Seventeen (17) Cottages- all scheduled to be overnight rentals;
• Complete infrastructure including roads, water supply, wastewater removal,
electrical, fire protection, retaining walls, and boardwalk for pedestrian and
electric cart access; and
• CDP permit (Coastal Development Permit).
Estimated Cost:
$ 35.0 million.
Estimated Additional Annual Revenues Upon Completion:
$1.2 million - all from overnight cottage rentals.
Estimated time to complete the entire project:
5 years depending on fund raising results.
Scope of Improvements:
• Construct 100% new infrastructure including soil stabilization walls, access
roadway, water system, sewer system and new electrical supply system;
• Restore seventeen (17) historic cottages including 100% new utilities and life
safety systems; and
• Restore the landscape of the entire site.
Donation Agreement
Page A-1
17-13