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1993-0316_J & W FARMS_G4a_Agenda ReportAGENDA ITEM TO: FROM: SUBJECT: 0 George Scarborough, City Manager Ronald c. Sievers, Director Public Lands and Facilities March 16, 1993 Agreement for Operation of Kinoshita Farms (J & W Farms) ================================================================== RECOMMENDATION By motion, approve the agreement between the city of San Juan Capistrano, the San Juan Capistrano Community Redevelopment Agency and J & W Farms for the management of the Kinoshita. Farms property. =================================~=======~========================= SITUATION Background -In March of 1991, the C.ity of San Juan Capistrano and the San Juan Capistrano Redevelopment Agency purchased a parcel of land known as Kinoshita Farms. This 56.45 acre parcel .of land, located at the corner of Camino Del Avion and Alipaz street, was the first acquisition made by the city with proceeds from the Measure "D" bond issue. Measure "D" was approved by the citizen$ of 9an Juan Capistrano in April of 1990 to purchase open space and agricultural lands and to design and· construct recreational facilities on some of those lands. Prior to the purchase by the City, Kinoshita Farms had been a family owned and operated agricultural farm. The farm was purchased by the Kinoshita family in the 1950 's and had been continuously operated by the Kinoshita's since that time. Over the years, the farm has been used to produce a variety of crops including corn, strawberries, peppers, beans, tomatoes and other vegetables. These crops have been ·sold primarily through wholesale distributors and also at the roadside stand located on the farm. When the City acquired the farm in 1991, it was-not known what the ultimate use would be for the land. Until the future use could be determined, the city decided to continue the farm operation in a "status quo" mode. An agreement was entered into between the City, the City Redevelopment Agency and Kinoshita Farms, Inc. to provide for the management of the farm. This agreement·' retained the FOR CITY COUNCIL AGEN~ .Agenda · Item March 16, 1993 Page 2 0 services of Shig and Bobby Kinoshita, representing Kinoshita Farms, Inc. , to continue the traditional farming operation. This agreement provided Kinosh:i,.ta Farms, lnc with a $100,000 per year management fe~ to oversee the operation of the farm. Since tbe time "that the City purchased the Kinoshita Farm in March of 1991, ther.e have been several significant events which have occurred, requiring substant;ial financial assistance by the City to keep the farm in operation. Unusually -wet weather, a poor produce market, rapidly increasing water costs and other factors have contributed to the economic problems. As a result, the city has contributed approximately · $290, 000 from tbe Agricultural Preservation Fund into the farm operation from March 1, 1991 through January 31, 1993. This money was part of the 1992-93 City budget approved by the City Council. Proposal -Several al teimati ves have been explored to reduce the cost to the City for continuing the operation of :I<inoshita Farms. These alternatives have included discussions with the Cal-Poly School System, private _individuals and existing farming operations. Due to the current economic difficulties state wide, most alternatives have not proven to be feasible. The Cal-Poly School System, is suffering extreme financial constraints and cannot work with the City at this time. We will continue to work with Cal-Poly on possible future involvement. The private individuals we have spoken with do not have sufficient financial support to take over the operation without continued City financial support. The most feasible alternative is the proposal you have before you tonight between the City and J & W Farms. Under the-terms of this agreement, the City will have no financial obligation,to subsidize the farming operation. J & W Farms will be .responsible for all operating costs associated with Kinoshita Farms. This includes all utilities, supplies, labor, maintenance and any other operating costs. There will be no management fee paid to J & W Farms, unlike the current $100, ooo paid to Kinoshita Farms, Inc •• In addition, the City will receive 3% of the total gr,oss sales of the farm produce. This includes both wholesale distributor sales and retail sales at the roadside t I \, I I I I stand, which will cpntinue in operation. Based on proJected sales amounts by J & W, this should produce $15,000 to $20,000 per year- in revenue to the City. The total dollar value to the City under the terms of this agreement is projected to be approximately $150,000 per year savings in subsidies, plus the $15,000 to $20,000 revenue projected, for a total of $165,000 to $170,000 per year. J & w Farms has a solid track record in farming. They currently have a similar agreement for farming portions of the Honeyman Farms in San Juan Capistrano. They also have several other agricultural .Agenda Item March 16, 1993 Page 3 operations throughout Southern California. J & W understands that the Open Space Master Plan recently approved by the City Council will reduce the agricultural acreage at Kinoshita farms to approximately 3·0 acres in the near future. They also realize that they may only have the management agreement for three years, as other alternatives may be chosen after that period of time. Also, this agr~ement may be·terminated by the City at any time provided six months notice is given to J & W Farms. We feel that this agreement between the City and J & W Farms will provide for the ongoing operations of the farm, which is an important tradition in the City. It will also save the City between $165, ooo and, $170, ooo per year. Finally, it allows· for the implementation of the Open Space Master Plan to proceed without suspending the farm operations. J & W Farms has stated that it is imp~rative for them to take over the management of the farm inunedia~ely. This allows J & W the lead time necessary for ordering plants, seed, fertilizer, packing materials, etc. in anticipation o.f the Spring, Summer and .Fall seasons. . It must be noted that the current management agreement between the City and Kinoshita Farms, Inc. provides that either party may terminate the existing agreement with written notice of not less than six (6) months. Due to the need to implement the new agreement with J & w. Farms as soon as possibl.e ,· to prevent on-going losses, the current contract with Kinoshita Farms, Inc. will be bought out for the six (6) month period noted above for $50, 000. This represents the value of the existing contract between the City and Kinoshita Farms, Inc. for six (6) months. Kinoshita Farms, Inc. has agreed to this buy out and have signed documents. releasing the City from the six (6) month written notification clause of the existing contract. A formal agenda item on this· issue will be brought to the City Council at the next meeting on April 6, 1993. Mr. John Kotake, representing J & W Farms, will be present at the City Council meeting to answer any questions· you may have regarding this agreement. COMMISSION/BOARD REVIEW. RECOMMENDATIONS N/A FINANCIAL CONSIDERATIONS- Actual financial impact will be dependent upon the fa.rm' s gross sales. However, combined savings and revenue are projected to be approximately $165,000·-$170,000 per year. There will be a one time charge to the City Agricultural Preservation Fund for $50,000 to buy out the existing contract between the City and Kinoshita Farms, Inc. .Agenda Item March 16, 1993 Page 4 NOTIFICATION 0 Kinoshita Farms, Inc. J & W Farms ALTERNATE ACTIONS 0 1. By motion, approve the agreement between the City of San Juan Capistrano, the San Juan Capistrano Community Redevelopment Agency and J & W Farms for the management of the Kinoshita Farms property. 2. Do not approve the agreement. 3. Refer to staff for additional information. RECOMMENDATION By motion, approve the agreement between the City of San Juan Capistrano, the San Juan Capistrano Community Redevelopment Agency and J & W Farms for the management of the Kinoshita Farms Property. =================================================================== Respectfully submitted, / Ronald c. sievers RCS:sc 0 0 MEMORANDUM February 19, 1993 TO: Ron Sievers, Director of Public Lands & Facilities FROM: Cynthia L. Pendleton, Interim Director o( Administrative Services SUBJECT: Kinoshita Farms Income and Expenditures March 1, 1991 -January 31, 1993 The following is the information requested: Period Revenues Ex2enditures March 1, 1991 '.'"June 30, 1991 $ 6,614 $ 77,216 July 1, 1991 -June 30, 1992 325,850 417 ,092 July 1, 1992 -January 31, 1993 118 2324 245 2974 $ l/.50 2788 $ 7l/.0 2282 Please contact me if you need any additional information. ) Profit (Loss) $ (70,602) (91,242) (127 2650) $ (289 2l/.9l/.) AYES: Council Members Campbell, Hausdorfer, Nash, Vasquez, and Mayor Jones NOES: None ABSENT: None DIRECTQR OF PUBLIC IANDS AND FACILITIE.5 --)-1. W FARM ( (o00 . 30 ~!:MI;;~ ~Ml:fil FOR QPERATIQN QF KJNQ~HITA FARM 1' Written Communication: Report dated March 16, 1993, from the Director of Public Lands and Facilities, recommending that the City, CRA, and J & W Farms enter into a three-year agreement for the management of the Kinoshita Farm in order to reduce the cost to the City for continuing the operation of the Kinoshita Farm. Under the terms of the new agreement, the City will have no financial obligation to subsidize the farming operation; J & W Farms will be responsible for all operating costs, including all utilities, supplies, labor, maintenance and any other operating costs. In addition, the City will receive 3% of the total gross sales of the farm produce up to an annual cap of $47,500. Because of the immediate need for the new operators to begin managing the farm, the present operators have agreed to accept a six-month buy-out in the amount of $50,000, which represents the required notification period for termination of the contract with Shig and Bobby Kinoshita. Mr. Sievers made an oral presentation and introduced John Kotalce and his family of J & W Farms. Mayor Jones noted that the agreement did not include the cleanup of the pallets and other unsightly conditions at the site. Mr. Sievers stated that bids had been received for the purchase of the pallets, which are expected to be removed within ten working days . In addition, Mr. Kotalce will assess the existing equipment at the farm , which may be restored and displayed to show the farm's history. Landscaping will be installed along the fence. He noted that the Congden House is excluded from the agreement since it may be restored in the future . With regard to the annual cap of $47,000 for revenue to the City, he explained that the City must stay within a 3% profit margin to retain the tax-exempt status of the bonds. Approval of A~eement with J & W Farms: It was moved by Council Member Hausdorfer, seconded by Council Member Campbell, and unanimously carried that the Management and Operation Agreement between the City, the Community Redevelopment Agency, and J & W Farms, for the for the management of the Kinoshita Farm property be approved for a three-year period ending March 1996. Compensation to the Agency shall not exceed the $47,500 annual cap. The Mayor was authorized to execute the agreement on behalf of the City. Staff was directed to prepare a Resolution/Letter of Appreciation to the Kinoshita family for their service. The Council welcomed Mr. Kotalce and expressed appreciation to the Kinoshita family for their contributions to the community. CQUNCllMANIC ITEMS 1. ACCEPIANCE OF RESIGNATION AND DECLARATION OF VACANCY (JAMES E. ERICKSON. PLANNING COMMISSION) {110 .20) Written Communication: Report dated March 16, 1993, from the Council Services Manager, forwarding the letter of resignation. City Council Minutes -8-3/16/93