Muni courses pose fiscal hazards
Monday, May 10, 2010
When the Presidents Cup arrived at Harding Park last fall, there was much talk about the glories of municipal golf. Bethpage Black had just played host to another Open, and now Harding Park was center stage. So what if my pal Bradley Klein recently had discounted Harding as a layout “waiting for something to happen that never quite materializes.” This was municipal golf’s moment to shine.
As the U.S. and International teams were preparing for foursomes play Oct. 8, San Franciscans were waking up to a less cheery story. That day, the Chronicle reported that the city, already saddled with a deficit exceeding $500 million, had provided an $800,000 subsidy to keep the municipal Golf Fund afloat but was unable to pay a penny of debt service on the $16 million loan for the Harding renovations. Cost overruns, which swelled the Harding bill to $23.6 million from a planned $16 million, were exacting a heavy toll.
“Harding Park is bankrupting the San Francisco city parks system,” said Stuart Lindsay, principal at Edgehill Golf Advisors in Mequon, Wis., and a consultant to municipalities and course operators. Indeed, the Chronicle recently reported that the parks department has a $12.4 million deficit on a $117 million budget.
San Francisco’s fiscal folly isn’t unusual. A quick Internet search will produce a long list of failing munis – this despite the fact that they enjoy numerous advantages over privately operated public courses. Lindsay ticked off some of those advantages: favorable financing terms for municipal bonds, no real-estate taxes, the benefits of taxation to cover deficits and no requirement to make a return on investment.
Delinquent munis are contributing mightily to the flood of red ink that has washed over city and state budgets across the country. A few of my personal favorites:
• San Francisco city officials look like pikers compared to their counterparts to the south in Carlsbad, where some $62 million was spent building The Crossings at Carlsbad, ensuring the course would become a fiscal black hole. (One wag refers to it as “The Lossings.”) In fiscal 2010, the city will provide a subsidy of $1.76 million to cover an anticipated annual operating loss of nearly $1.2 million and other expenses associated with the course.
• A December 2009 report to the Rockville, Md., mayor and City Council showed that the city’s aptly named RedGate Golf Fund has been bleeding profusely for the past decade and is projected to lose $1.5 million in fiscal 2010 – on one golf course.
• Currie Municipal in Midland, Mich., population 41,000, has a nearly $1.2 million deficit.
• At Ocean County GC at Atlantis in New Jersey, $14.17 of every $18 resident green fee is subsidized, to no avail. The Press of Atlantic City reported in March that the course lost $346,430 in 2009. At nearby Ocean County GC at Forge Pond, the $7.90 subsidy on $14 resident fees couldn’t prevent a $249,306 loss.
• In Stockton, Calif., which has two money-losing munis, city consultant John De Lorenzo recently said, “Perhaps it’s time for Stockton to get out of the golf business to save millions of dollars it doesn’t have.”
Now there’s a novel idea. But that won’t happen.
“When the economy goes bad, the number of golf courses goes down, which is happening now,” says Cog Hill owner Frank Jemsek. “But municipal courses don’t close.”
Jemsek has to pay $1 million in annual property taxes – a concept foreign to munis – and like every businessman, he passes those costs on to his customers. Yet at three of Cog Hill’s four courses, he’s able to offer green fees that are $9 to $29 less than at Harborside International, one of the hot munis in Chicagoland.
The problems with municipal golf are systemic. When budget munis try to use their subsidies to undercut private-sector competitors, they founder. And when extravagant “munis in name only” (MINOs) such as Chambers Bay charge $100-plus green fees – effectively abandoning any pretense of providing affordable golf – they also founder, only on a grander scale.
Municipal golf is an anachronism from an era when the vast majority of courses were private. These days, more than 70 percent of courses are public, and many cash-strapped private clubs welcome public play. In a world with too many underutilized golf courses chasing too few golfers, munis siphon desperately needed customers away from taxpaying course operators, often at artificially depressed prices.
Rather than trying to compete, unsuccessfully, with the private sector, local governments would be wise to exit the golf business. Their residents, who are footing the bill for this foolishness, will thank them.