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BACKGROUND At the time the City was planning for the initial maintenance of the Callippe Preserve Golf Course, it determined that maintenance equipment acquisition could be best achieved through a lease purchase option as this mechanism allowed lease payments to be made consistent with on-going golf course revenues. To that end, the City entered into a five-year lease purchase agreement in 2010 and final payment on that lease was to be made in January 2016. In anticipation of the need to replace equipment acquired in 2005, staff and CourseCo prepared an equipment replacement list representing the type and cost of the new equipment required and determined it was best to replace the equipment over time rather than all in one year. Phase I replacement equipment was acquired in December 2010. Phase II equipment was acquired in November 2015. Attachment 3 presents the equipment that is proposed to be replaced over the next year (Phase 3). Staff reviewed various options for acquiring the equipment, including purchasing the equipment with financing from the manufacturer, paying cash, and a lease/purchase agreement. A lease/purchase agreement was determined to be the most advantageous because (1) it provides a match of the equipment expense with the years of usage; (2) it is a cost- efficient and common practice in the golf industry to lease this type of equipment; and (3) it provides the City with the extra advantage of securing low-cost financing, and (4) it is exempt from State of California requirements for voter approval of incurred debt. DISCUSSION City Staff solicited lease purchase rates from master lease holder US Bancorp to finance the proposed equipment. As a result, staff is recommending that the City enter into a five year lease with US Bancorp. A summary of lease payments and terms are as follows. Summary of Equipment Lease/Purchase Financing Principal Interest Total Interest Total Principal and Amount Payments Interest $119,596.53 3.78% $12,220.21 $131,816.74 Equipment lease payments will be an operating expense of the golf course and are a part of the annual operating budget for Callippe Preserve. Although revenues of the golf course are expected to pay for the annual equipment lease payments, the General Fund will provide the pledge for repayment. This means that the General Fund is obligated to make the payment if there are insufficient funds in the golf enterprise fund which is consistent with the terms and conditions of the previous lease. At the end of the lease the equipment becomes the property of the City. Page 2 of 3