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Archive for June, 2009

When self-operating municipal golf courses, public sector agencies have two basic ways of accounting for the golf facilities: Enterprise Fund and General Fund accounting. In working as much as I have with public sector golf operations, I have found that the vast majority are presently using the Enterprise Fund method, although I am having my first glimpse that this may be changing in 2009 as economic conditions worsen at municipal golf courses. Traditionally (before 1980) it was common to have municipal golf courses operated out of the General Fund. However, in the 1980’s and 1990’s there was a definite shift towards creating separate Enterprise Funds for golf courses. Now, as many municipal golf enterprise funds are depleted, there may be a new shift back in the other direction – towards General Fund Accounting.

Enterprise Funds

As I work with municipal golf facilities, I have come across two main problems with municipal golf course Enterprise Funds: (1) siphoning of profits; and (2) administrative charges and transfers. Here are some thoughts on each:

1. Siphoning of Profits. Throughout much of the late 1980’s and 1990’s many municipal golf enterprise funds were doing well and had excess cash on their balance sheets. As most of you know, this money was supposed to be saved for future replacement and upgrades (equipment, new greens, new irrigation, etc.). However, what seemed to happen in many cases was the municipality used these funds for other park and recreation purposes and even other City (County) purposes. Then, when the golf course really did need an upgrade, the money was no longer there. This was then further compounded when golf revenues started to decline in the early 2000’s and many golf Enterprise Funds are now at zero, or negative balances.

2. Administrative Charges and/or Transfers. Another problem I often see in municipal golf Enterprise Funds is the continued use of internal transfers and charges. These are the excess charges often added to a golf operation that are paid directly to the municipality. Some are appropriate (administrative oversight, maintenance assistance, etc.), but some are not directly tied to the operation of a golf facility. Two issues I have observed with internal transfers in golf enterprise funds:

  • With several of my clients I have noticed that absent these internal transfers, the Enterprise Fund might actually be profitable! That is, the add-on internal municipal charges are often the cause of depleted enterprise funds.
  • Also, I have noticed that these internal transfers are not a variable cost and they come right off the top line of revenue. So even if the golf facility has a particularly bad year, the golf enterprise fund still has to pay the transfer BEFORE any other expense is paid. As a result we often will see golf maintenance costs being reduced to cover the transfers, a definitely undesirable situation often leading to diminished quality of golf service.

General Fund

As the economy has worsened in the last year or so, the fiscal condition of many municipal golf facilities has also worsened, and those with enterprise funds have seen mounting losses. This has led the public sector agencies to consider alternatives to the golf enterprise fund. One such option is some form of privatization method, which I will discuss more in future blog postings. A second option that many of my clients are now considering is returning the golf course to the General Fund, and operating the facility as a public recreation amenity not unlike other recreation assets that have lower fee recovery such as soccer fields and swimming pools. Ultimately, this is a policy decision for the elected policy-makers to decide, but I believe this idea has merit.

The benefit is the golf facility can be maintained to high standards without having a profitability motive hanging over the golf course. However, the biggest drawback is often the political ramifications of having the 88% of taxpayers who do not participate in golf supporting (subsidizing) the 12% who are active in the sport. Still, I find that by adding a strong “public purpose” aspect to a General Fund golf operation this objection can be overcome by demonstrating that the golf course is valuable to the community in many ways that can not be measured in dollars and cents. This includes the extensive programming, player development programs, camps for at-risk youth, charity events and other uses of the facility. Further, the overall quality of life in a community is enhanced by municipal golf courses, and communities with high-quality municipal golf courses are more desirable locations for new residents and industries. I hope these things will be considered before municipalities have that “privatize” knee-jerk reaction.

In my next posting I will begin to discuss the various methods of municipal golf privatization, as I often find a lot of confusion on the subject. So until then – keep hitting ‘em straight!

Richard Singer

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In working as much as I have with public sector golf operations, it is often that I encounter the inevitable cry from councils and boards to “privatize” municipal golf courses and “outsource” the operation to a third party vendor. This is becoming even more common in 2009 with shrinking budgets and added pressure to eliminate municipal programs. In hearing these cries over the years I have found that more often than not this basic request is rooted in a general lack of understanding about just what form of “privatization” or “outsourcing” would be best for a particular municipality given the specific issues faced, and more importantly what the move will actually mean to the bottom line of the municipal budget. Privatizing or outsourcing the municipal golf operation is not a ‘magic bullet” that will instantly solve the fiscal troubles of municipal golf, and the term is broad and covers several alternatives for municipalities. In this and the next few blog editions, I will attempt to organize the basic options of municipal golf operations, and identify strengths and weaknesses of each option.  The options are presented in order of most direct involvement of the municipality to least involvement of the municipality. A summary of the options available to municipalities include:

1. Self Operation. Under this scenario, the municipality operates its golf course with all revenues, expenses, employees, etc. belonging to the municipality. This is often the “status quo” of municipal golf courses and has two basic accounting methods:

  • General Fund Accounting – the golf course operates as any other line item in the municipality’s budget. Losses are often masked by this method.
  • Enterprise Fund Accounting. The municipality sets up a separate “enterprise fund” for the golf operation. In theory, excess revenue is returned to the enterprise for future improvements.

2. Concession Agreements. This involves granting a license to operate a portion of a facility rather than the right to occupy the premises. These can come in several types or combinations, the most common include:

  • Self Operate Maintenance and Contract for Pro Shop (may or may not include Food / Beverage) Operations involves direct municipal control of maintenance while contracting for management of pro shop and food / beverage operations.
  • Self Operate Pro Shop (may or may not incl. F & B) operations and Contract for Maintenance involves direct municipal control of pro shop and food / beverage operations, while contracting for maintenance.
  • Multiple Concessions would involve creating multiple contract agreements for separate entities for each facet of the golf operation (pro shop, food / beverage and maintenance).

3. Full-Service Management Contract. Hire a single management entity (company) to operate all aspects of the municipal golf facility, usually for an established fee paid to the management company.

4. Operating Lease(s). Lease the golf facility to a private operator in exchange for an annual (or monthly / quarterly) lease payment to the municipality. The lease could be established to include certain lessee requirements, including capital investment in facility improvements, minimum standards if maintenance, green fee restrictions, etc.

5. Selling the Golf Course. Takes the operation completely off the books of the municipality. However, in some cases there may not be a market for the facility.

In the coming weeks, I will attempt to offer some insight into each of these options, specific examples and the strengths and weaknesses of each from the perspective of the municipality. I hope you will find the information useful in understanding the different types of municipal golf outsourcing.

 

Richard Singer

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Hello world!

Hello World and welcome to Richard Singer’s blog of current events in the world of golf facility consulting. Over the next few weeks I will be providing some detail on topics my golf facility clients are telling me is important to them, and I am hoping that you can gain insight that is helpful to you as well.

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