Funding of Past golf course Deficits


March 4, 2013

Position Paper:  Golf course debt

Re-examination of plans previously made is a worthwhile undertaking.

In the instance of the Lady Bird Johnson Municipal Golf Course, City Council has acted aggressively to address historic operational deficiencies and deterioration of infrastructure. In 2010, City Council separated golf course operations from the Parks and Recreation Department, establishing a new Golf Department.  In early 2011, the City Manager appointed a new Director of Golf (DOG) who was authorized to develop a long term plan for Golf Department operations.  The Council decisions which led to the Golf Department’s current organizational structure and operational status were based on all the available facts and received unanimous approval.

The historic operational losses within the Golf Fund while the golf course was managed by the Parks and Recreation Department were well known and in fact prompted Council to make the organizational changes previously noted.  These carry over losses include expenses accrued in several different areas of golf course operation:  capital expenses, operational losses, and debt service.  Over the years, City Council annually approved the funding of these expenses/deficits from sources other than the General Fund.  In retrospect, these decisions to transfer monies from other Enterprise Funds rather than the General Fund, though transparent and legal, may have been inadvisable.  However, it is non-productive to second guess what was done in the past even though there are members of the current Council who were part of these earlier decisions.

It is a reality that the golf course, ball and soccer fields, and swimming pools historically cost more to operate than are earned through direct operational revenue.  The same is true for all municipal services other than the utility funds from which the city accrues operational profit.  Recall that the golf course, while having net negative cash flow, still generated over $1M in annual revenues.  Council may do well to recognize this to be the nature of the city’s business and look upon the golf course’s net negative balance as the same as other non-revenue producing facets of city operations which also enhance quality of life for citizens.

Soon after his appointment, the DOG initiated a broad based and inclusive strategic planning process.  The Master Plan offered several alternatives for the future of Lady Bird Golf Course and was appended by several business pro-forma setting forth expense and revenue estimates for each scenario.  After thorough discussion and consideration of the alternatives, City Council unanimously accepted the Master Plan and chose to renovate the entire golf course.  The only issue which did not receive unanimous approval was the mechanism for funding the $1.88M renovation.  The Council majority elected to borrow money from other Enterprise Funds and set forth a financial plan which included repayment to the donor funds of the cost of renovation over 20 years.  When approving the Master Plan and pro forma, Council chose not to include responsibility for the carry over debt from the Parks and Recreation Department.

We believe that the DOG should be accountable to the performance metrics described in the Master Plan and pro forma.  Council risks obscuring the data needed to measure performance of the new Golf Department and its current management by imposing deviations from the Master Plan. Quite simply, Council will find it difficult to know whether the right team and game plan are in place if Council continually moves the goal posts.  Adding debt to the Golf Department would cause serious disruption of the business plan and render useless the previously approved pro forma.   Even the most optimistic projections would not anticipate revenues sufficient to retire long term debt accrued by a prior organizational structure and management team.  It is worth remembering than the most common cause of failure among new businesses is under-capitalization and restrictive debt service requirements.

Going forward, the Golf Department faces the challenge of competing in the retail sector.  In our 2012 Annual Report to City Council, we urged city management and City Council to view the golf course as a business and to allow the DOG sufficient autonomy to pursue the business plan.  The Golf Department has performed well since the golf course re-opened after the 9 month renovation.  Particularly impressive is the increase in visitor rounds.  However, four months is too short a period of time to predict medium and long term financial status.

We are pleased that City Council has adopted FOLB recommendations for the golf course:  professional management, financial controls, managerial accountability, industry standards, a sustainable budget, and effective planning.  We made these recommendations after our careful review of operations to help the city obtain the best possible return from the long term investment in Lady Bird golf course.

Similarly, we appreciate that Council feels the need to resolve the issue of indebtedness to Enterprise Funds.  The problem exists because previous Councils chose not only this funding mechanism despite other available alternatives but also chose not to improve golf course operations. The source of the current debt problem is not current Golf Department organization and management.  While there are a limited number of financial solutions to the prior transfer of funds, each with its own benefits and detractions, Council has already moved forward by providing professional management.

The legacy of City Council will be best served if the Golf Department and Lady Bird Golf Course are a success. The long term goals for the golf course are to attract visitors and support tourism. These goals require a competitive product and aggressive marketing.  The full potential of the investment already made will only be realized when all phases of the Master Plan are implemented. Rather than looking back at decisions made in the past, Council would do well to focus on the future.

We urge City Council to re-affirm the decisions thoughtfully achieved during the past two years:  monitor managerial performance and continue to follow the Master Plan.

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