Disappointing City Staff Proposal for Operations of Resort

City Manager Grant Yates, City of Lake Elsinore, is proposing to the City Council at the May 12th meeting to contract with a Bait & Tackle Shop owner to operate the City’s La Laguna Resort & Boat Launch, with the City accepting all the financial risk and bankrolling operations. See City Council Agenda Item #7 at the link below.

http://legistar.granicus.com/lake-elsinore/meetings/2015/5/1090_A_City_Council_15-05-12_Regular_Agenda.pdf?id=bef8f8fe-d902-4000-8ac6-2c2a4a4324c1

This City Staff proposal is very disappointing on several levels. First, citizens were lead to believe that the hiring of Community Services Director Johnathan Skinner would use his experience to manage the La Laguna Resort & Boat Launch. To quote the City’s Press Release from the hiring of Director Skinner in August 2014:

“While serving as Director of Parks and Recreation in his last job (Santee Lakes), he managed a 190-acre Regional Park and Campground, 19 employees, 60 volunteers. While holding this position, he helped increase park fund revenues by more than $1 million and attracted 25,000 new visitors to the campground in just two years. The campground also received national awards for excellence during his tenure with the organization”.

So given Director Skinner’s extensive experience managing campgrounds, why in the world would the City Council approve an Operations Agreement with an “Independent Contractor” (Ops. Agrmt Sec. 27), who has less applicable experience to manage the Resort for the City? Hey, I’m a big fan of William Johnson, owner of William’s Bait & Tackle. The City is fortunate to have this businessman investing in the lakeside Bait & Tackle Shop. No doubt he’s a hard worker and tireless promoter of Lake Elsinore. However, Mr. Johnson doesn’t have nearly the experience of Director Skinner, nor the financial wherewithal to become the next Concessionaire of the Resort. Mr. Johnson’s lack of sufficient financial resources must be why City Staff is proposing the City bankroll the operations and maintenance of the Resort for Mr. Johnson to manage. Taking away the risk of business failure for an Independent Contractor is a known moral hazard in business and taking away the direct responsibility from a government bureaucrat will be a diffusion of City Director Skinner’s authority and accountability.

If Mr. Johnson is approved as an “Independent Contractor” to operate the Resort, then under the Internal Revenue Service rules, City Staff is not permitted to direct the means and methods of how this Independent Contractor performs his work. So, City Director Skinner will not have direct oversight of operations of the City owned Resort, as stated in his Staff Report. Given the City is accepting all financial risks, does City Manager Grant Yates really think managing the Resort at arms-length is the best use of Director Skinner’s extensive experience? OMG.

If the City wants Mr. Johnson to manage the Resort, then just hire him as an employee, instead of this dodge as an “Independent Contractor”. And I do mean “dodge”, as labeling someone an “Independent Contractor” doesn’t mean the person really functions as an Independent Contractor under IRS rules. I think there is a substantial liability risk to the City if there’s ever a future challenge to Mr. Johnson’s standing as a true Independent Contractor, especially following any serious accident claim. If it’s found that Mr. Johnson is really functioning as an employee of the City, then all workers at the Resort would also be employees of the City that can file for entitlements retroactively. Furthermore, the deep pockets of the City will become vulnerable in a lawsuit.

(See IRS Common Law Rules at http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Independent-Contractor-Self-Employed-or-Employee )

There are a number of omissions and contradictions on key deal points in both the Staff Report and Operations Agreement, including...

1. What compensation, in the form of an “Operating Fee”, will the City pay to Mr. Johnson, owner of Williams Bait & Tackle? (See sections 4.3 & 25 of the Operations Agreement). This is the most basic deal point and one in which the City’s professional staff should at least mention in the Staff Report and make a recommendation to the Councilmembers. Instead City Manager Yates and Director Skinner are ducking the difficult issues by inserting in parentheses under Section 4.0 of the Agreement...[Terms to be finalized consistent with City Council approval]. This obfuscation is totally unacceptable from City Management.

2. The Staff Report states…”Expenses for campground operations will be borne by the City of Lake Elsinore”: however, this contradicts Sec. 6.10 of the Agreement that states the Operator…“shall provide and pay for any necessary utilities, including telephone, water and electricity”. The cost of water and electricity will be substantial for the Operator. Under Sec. 4.1 of the Agreement it states “Operator shall pay and remit to City 100 percent (100%) of the Campground and Boat Launch Operations Revenues”, which means all “Gross Receipts” (Sec.25). So, my question is…how can the Operator afford to pay these costly utilities if he has to give 100% of the Gross Receipts to the City? This doesn’t make sense folks and we should expect more from the City’s professional staff.

3. Under Sec. 6.12 Maintenance – the City’s professional staff leaves this important aspect unfinished by stating in parentheses…”subject to final review as to division of labor”. Again, I don’t think City Manager Yates & Director Skinner should be recommending approval by the City Council of such a half-baked agreement.

The Staff Report submitted by Jonathan Skinner, Director of Community Services, sure looks like smoke & mirrors, as he attempts to use the right buzz words (Vision, World Class, Think outside the box, etc.) to turn the heads of some Councilmembers, but it’s short on substance. In general terms he writes…”various improvements with direct onsite supervision would maximize opportunities for additional revenue generation and “problem solving” to improve operations”. I don’t think anyone knows what that means. Please tell us what improvements you foresee? Please show us a line item budget with the additional revenue you plan to generate, instead of rolling over last year’s revenue figure? Please tell us how you are going to be personally involved in problem solving to improve operations when you’re contracting out the onsite supervision to an Independent Contractor?

Included in Director Skinner’s Staff Report is an outline of his 3-Phase Plan to create a “world class facility”. His plan is embarrassingly inadequate and should never have been included in the Staff Report.

For example, Phase-I starts with his weak recommendation to contract with the Bait & Tackle Shop to operate and manage the Resort for a period of 1 to 3 years. However, he shifts into high gear with a strong bullet point to “Think outside the box”. Maybe some Councilmembers will buy into this gibberish, but I hope the majority have better sense. I’d rather Director Skinner tell us the concrete measures he’s going to implement to make the Resort a family friendly and safe urban campground in order to build future clientele. Tell us how you’ll improve the screening of users to reduce troublemakers. Tell us how you’ll improve nighttime security on Friday & Saturday nights and holidays. Tell us how you’ll prevent drownings if the City Council approves swimming off the Resort. Tell us about the higher standard of care requirements for a commercial facility and what a Life Guard Program will entail and cost to support swimming. Tell us how you’ll attract clientele during the off-season to increase revenue. Tell us the true cost to operate the Resort and Boat Launch to a standard acceptable to the City.

After reading the Phase-I outline, I can’t wait to hear about the “Rodent Challenge” contained in Phase-2 Planning for the Future. I guess I don’t have this type of long range planning forethought, as I think a pest management plan should be implement in the next two weeks to deal with the rodent challenge now, instead of following the 1-3 years of Phase-I.

Director Skinner’s Phase-2 ends with “identify funding sources”, which means he hasn’t identified any, even potential funding sources. I plan to write more about this topic after the Council meeting.

Pat Kilroy (22 year resident)