Town Council Regular Session


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  Item # 2.       
Meeting Date: 12/17/2014  
Requested by: Stacey Lemos Submitted By: Stacey Lemos, Finance
Department: Finance  

Staff recommends approval.
At the December 3, 2014, regular Town Council meeting, staff presented an opportunity for the Town to acquire the Hilton El Conquistador Country Club, golf courses and tennis facilities from HSL Properties, the anticipated buyer of the Hilton El Conquistador Resort and Hotel. If purchased, it is expected that the operation of these facilities will generate revenues to cover a portion of the annual operating expenses; however, an additional revenue source is necessary to subsidize the operating costs and fund the capital needs of the facility over time. 

It is estimated that the facility operations will result in an estimated operating deficit of approximately $1.2 million in the first year; however, it is anticipated that this deficit lowers each year and turns positive by FY 2018/19 as a result of increased capital investment and marketing of the facility, and quality management aimed at improving the user experience. Capital investment needs at the facility total about $5.5 million over the next five fiscal years and address accessibility and life safety improvements at the facility, replacement of aging equipment and golf course upgrades. 

To fund these needs, staff proposes an additional revenue source in the form of a 0.5% transaction privilege tax (TPT) increase, raising our current TPT tax rate from 2% to 2.5% to generate approximately $2.0 million annually in additional revenues to be dedicated to funding the operating subsidy and capital costs of this facility over time.

Should the Town Council approve the ordinance to amend the tax code as presented, the Town is required to provide this information to the Arizona Department of Revenue and the Municipal Tax Code Commission within 10 days. The Arizona Department of Revenue requires an additional 60 days to notify the businesses in Oro Valley and update their monthly tax forms with the new tax rate. Therefore, the effective date of the tax rate increase from 2% to 2.5% would be March 1, 2015.
At the December 3, 2014, regular Town Council meeting, staff presented an opportunity for the Town to acquire the Hilton El Conquistador Country Club and Golf Courses from HSL Properties, the anticipated buyer of the Hilton El Conquistador Resort and Hotel. The Country Club facility provides the following uses:  31 tennis courts, restaurant/café/banquet facilities, a fitness center, 2 swimming pools, and 45 holes of golf. The proposed acquisition cost of the Country Club facility and related golf courses is $1 million to be paid in cash over the next three fiscal years.

During the presentation, staff indicated that the Town would work with a management company, Troon Golf, to manage the golf courses, a portion of the tennis facilities and the food and beverage operations. Troon would hire their own employees to operate this segment of the operations. HSL Properties, working closely with Town staff, is currently in contract negotiations with Troon for these areas. Should the Town purchase the designated property, the oversight of this management contract would be assigned to the Town of Oro Valley from HSL Properties.

In addition, the fitness center space, swimming pools and 15 tennis courts located at the Country Club site on La Canada Drive would be converted into a Town Community and Recreation Center to be managed and operated by Oro Valley Parks and Recreation employees. 

Estimated revenue and expense projections, along with 5-year capital improvement plans, were prepared for both management scenarios. The table below depicts the estimated revenues, expenses and related operating deficits for the first full year of operations of the facility:
  Community & Rec Center
(Operated by Oro Valley
Parks & Recreation)
Golf and Food &
Beverage Operations
(Operated by Troon)

Estimated Revenues $ 1,025,000 $ 4,400,000 $ 5,425,000
Estimated Expenses <$ 1,050,000> <$ 5,600,000> <$ 6,650,000>
Estimated Loss   <$   25,000> <$ 1,200,000>  <$ 1,225,000>         

Capital investment needs at the facility total approximately $5.5 million over the next five (5) years and address accessibility and life saving improvements, replacement of aging equipment and golf course upgrades.

Critical to the purchase of the facilities is the approval of a dedicated additional revenue source to fund the operating subsidy and the capital needs of the facility over time. To fund these needs, a 0.5% increase to the Town's current TPT tax rate of 2% is proposed. It is estimated that this TPT rate increase will generate approximately $2.0 million annually. These revenues could also be used to pay bond debt service should the Town desire to issue debt in order to complete some of the capital projects on an accelerated pace.
Approval of Ordinance No. (O)14-17, increasing the TPT tax rate from 2% to 2.5% would generate approximately $2.0 million in additional revenues annually. These revenues would be specifically dedicated to funding the operating subsidy and capital needs of the Community and Recreation Center and golf and tennis facilities. It is assumed that this additional revenue would be generated by both Town residents and non-residents who shop within the Town. Based on the estimate that approximately 2/3 of our local tax revenues are generated by Town residents, it is estimated that approximately $1.3 million of the total increase would be paid by Town residents. This additional tax equates to approximately $2.60 per person, per month based on the Town's estimated population of 42,000 residents.
I MOVE to approve Ordinance No. (O)14-17, amending the Tax Code of the Town of Oro Valley to increase the local transaction privilege tax (TPT) rate from 2% to 2.5% in the various categories outlined in the Ordinance in Exhibit "A".



O14-17 Amending Tax Code - Increase TPT


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