LEGISLATIVE ANALYST REPORT

TO: The Honorable Board of Supervisors

FROM: Clarice Duma, Sr. Legislative Analyst

Elaine Forbes, Legislative Analyst

HEARING: Not Scheduled

DATE: July 6, 2001

FILE NO.: 011081 - Municipal Golf Courses

Summary of Request

On June 11, 2001, the Board of Supervisors asked the Office of the Legislative Analyst (OLA) to perform a jurisdictional comparison of municipal golf courses, primarily in terms of funding. In response, this report compares San Francisco"s municipal golf courses to the following: Alameda Municipal Golf Course, De La Veaga Golf Course in Santa Cruz, Palo Alto Municipal Golf Course, Poplar Creek in San Mateo, and the Shoreline Golf Course in Mountain View.

Background

Municipal golf courses are city owned entities that typically provide public access to golf at a price substantially lower than private courses. Public golf courses, unlike `private" golf courses, are open to the public; however, they are not always municipal courses. The key factor of whether a golf course is a municipal course is determined by ownership. The management and operational practices of municipal courses vary. Some municipal courses are managed and operated entirely by city employees, while others contract out the management of services, such as concessions and the pro shop. Generally, golf course operations include the maintenance of the facility, "starter operations" (scheduling of tee times), concessions, a driving range, golf cart rentals and a pro shop.

The funding strategies of municipal course also vary. Some municipal courses are supported by general funds, while others are operated as enterprise funds¹. Courses that are supported by general funds, generally return revenues to the municipality, and receive annual appropriations for their operating budgets from the general fund. Enterprise fund courses generally retain revenues from their golf course operations.

San Francisco

According to the Department of Recreation and Park (DRP), the City"s municipal golf system consists of 6 facilities: Harding Park, Lincoln Park, and Sharp Park are 18-hole golf courses; and Fleming, Golden Gate and McLaren Park are 9-hole courses. All, except McLaren Park, are maintained and operated by the City, with pro-shop, scheduling and concessions managed by private contractors. Since 1980, all of McLaren Park"s operations, including management, concessions and maintenance were contracted to a private company.

In an earlier analysis conducted by the Office of the Legislative Analyst (OLA) in January 7, 1999, DRP staff, as well as the U.S. Golf Association, reported that, due to lack of capital investment, the City"s golf courses were in poor condition.² At that time, DRP had not determined the level of capital investment needed to upgrade its courses. The Department then commissioned ERA, a financial consulting firm, to develop financial models necessary to improve Harding Park. DRP had indicated at the time that, based on the consultant"s projections, they anticipated making recommendations, which could include some rate increases for both residents and non-residents, in order to raise revenue for Harding"s needed capital improvements. Because DRP staff believed these improvements could not be efficiently phased over time, and instead should be done through a complete renovation, they had previously considered retaining one or more private contractors on a long term basis (over 30 years) to fund all capital improvements and operations, except maintenance. A Request for Qualifications/Request for Proposals (RFQ/RFP) approved by the Recreation and Park Commission was issued for the Harding Park/Fleming Golf Courses on July 16, 1999. According to DRP staff, due to lack of manpower and delays in the Harding Park/Fleming Golf Course project, DRP was also been unable to issue RFQ/RFP for 3 other expired long-term contracts at Lincoln Park, Golden Gate, and McLaren Park golf courses. All five courses are currently operated on a month-to-month basis by a variety of local contractors. An existing long-term contract for Sharp Park will expire in 2003. The department is currently considering using municipal financing to pay for needed improvements at its golf courses.

CURRENT PRACTICE: Funding

Currently, all golf course revenues are deposited in the general fund, and returned, in whole, to DRP for appropriation into golf and various departmental programs. The City also augments golf course revenues with an additional annual General Fund Facilities Maintenance subsidy of approximately $400,000, according to the Controller"s Office. DRP does not have a golf course special fund, which would enable all golf course revenues to be appropriated for golf course uses.

ISSUE ANALYSIS: San Francisco

The information described below is also summarized in an attached table, "The City"s Municipal Golf Courses: Funding and Operations."

Annual Revenue

In the 1999 OLA report cited earlier, the Legislative Analyst reported that the City"s golf courses had been generating surplus revenue, which was appropriated to fund other DRP programs. According to DRP staff, golf course revenue originates primarily from green fees. The department also receives a percentage of revenue generated by concessionaires - about 10 percent.

Concessions, per golf course, generally gross below $1 million, except at Sharp Park where sales reached almost $1.5 million in FY 1999-00. Concessions include merchandise, lessons, rentals, food and beverage sales, and cart rentals. Some facilities also generate revenue from range fees, banquets, and lottery tickets, although a majority of the income is drawn from merchandise, food and beverage sales, and cart rentals. While FY 2000-01 actual revenue figures are not currently available, they are expected to mirror those of previous years, since DRP"s golf course operations have remained essentially the same. In terms of golf course revenue, approximately 10 percent of DPR"s income generally originates from concessions. In FY 1999-00, DRP received, in total, about $423,000 from concessions - a percentage of revenue generated by concessionaires.

Green fees continue to generate more revenue than concessions, particularly in the larger 18-hole golf courses - Harding, Lincoln and Sharp. These courses gross over $1 million annually in green fees (see attachment). In FY 1999-00, total annual revenue from green fees for all courses was slightly over $4.7 million. Therefore, during this period, revenues from green fees and concessions totaled approximately $5.1 million, compared to $5.5 million reported the previous fiscal year.³

Annual Appropriations & Budget Allocations

DRP utilizes a different budgeting mechanism for the five courses it operates. According to DRP staff, Harding and Fleming share the same budget because the Fleming facility is surrounded by Harding. Additionally, these courses share the same pro shop and restaurant, and are also maintained by the same DRP staff. Lincoln and Golden Gate also share the same budget, and that is due to these courses being in close proximity to each other, according to DRP staff. Even though these courses share the same budget, their revenues are reported separately by DRP.

DRP"s FY 2000-01 budget for the City"s golf courses was approximately $3.4 million (see attached "Golf Budget information FY 00-01). Budget items include salaries, benefits, contractual services, materials and supplies, services of other departments, facility maintenance, as well as $13,259, which, according to DRP staff, was expended on maintenance equipment for Harding Park/Fleming golf courses. A majority of the budget is expended on salaries and benefits - about 77 percent. Regarding these high personnel costs, DRP staff says that the hourly labor costs for golf course positions are consistent with comparable positions in the City. They add that total labor costs are higher than other parks under DRP"s jurisdiction, because of the higher ratio of staff to acreage required to maintain a golf course. Comparatively, almost 12 percent of DRP"s golf course budget is allocated to facility maintenance - about $400,000, based on the FY 2000-01 budget.⁴

Staff and Duties

Currently, private contractors handle all golf course operations, except maintenance functions. DRP currently assigns 46 employees (full time equivalents) to 10 positions related to golf course operations (see attached "Golf Course Position Information"). About 35 full time employees are each assigned to different golf courses. Another 10 positions are shared among the five golf courses. For example, the Golf Program Director works in all five courses, and so do the 2 Pest Control Specialists and the General Laborer. DRP staff has indicated that, while they support contracting the starter, pro shop, and restaurant functions of the golf courses to outside operators, the Department would still continue to maintain its golf courses.

Resident and non-resident players

In all City golf courses, except Harding Park, the overall number of players increased slightly in

FY 1999-00 from the previous fiscal year. Harding Park, which was once regarded as a championship course, experienced a slight decrease in the total number of rounds - from almost 86,000 in FY 1998-99 to approximately 85,000 in FY 1999-00.

The 1999 OLA report indicated that "although estimates vary widely, seniors and City residents make up, collectively, at least two thirds of players at City golf courses." This trend has carried over to FY 1999-00, according to DRP staff. In terms of golf course fees, San Francisco"s resident players continue to pay lower fees than non-residents. For example, currently, the weekday rate for residents is $17 compared to $26 charged under the standard rate. However, if DRP proceeds with its golf course renovations, both residents and non-residents could be subject to higher fees.

Data compiled by the Office of the Legislative Analyst, July 2001.

*--- Harding and Fleming combined.

**- Golden Gate combined with Lincoln

*** Green Fees are charged as follows: Resident (Weekday/Weekend); Non-resident (Weekday/Weekend); Junior (Weekday/Weekend); Senior (Weekday/Weekend/ After 1pm/back 9/); Back 9 (Weekday/Weekend); Twilight (Weekday 1pm/Weekend 1pm/ Weekday 2pm/Weekend 2pm; Weekday 4pm/Weekend 4pm); and Student

****McLaren Park (a.k.a. Gleneagles) is entirely operated by a private contractor.

N/A = Not Applicable

Analysis: Municipal Golf Courses in Other Jurisdictions

The following section discusses municipal golf course operations and funding in Alameda Municipal Golf Course, De La Veaga in Santa Cruz, Palo Alto Municipal Golf Course, Poplar Creek in San Mateo, and Shoreline Golf Links in Mountain View.

Alameda Municipal Golf Course. The Alameda Municipal Golf Courses consists of two 18-hole courses, and one 9-hole course, totaling 330 acres. The City manages and operates all aspects of the courses, including the pro shop. The course operates as an enterprise fund and reimburses the City of Alameda $692,000 per year for administrative and other costs, which in FY 2000-01 was 12 percent of the courses budget. Generally, the course"s revenues exceed expenditures but a $1,400,000 capital improvement project in FY 2000-01 caused a $164,824 shortfall. As an enterprise course, this facility retains all of its revenues for the course and also retains unspent funds from one fiscal year to the next. For example, the course"s FY 2000-01 budget was 107 percent of its FY 1999-00 revenues.

De La Veaga, Santa Cruz. De La Veaga is an 18-hole, 125-acre course with 75 irrigated acres. Private firms operate the golf school and pro shop. The City operates all other aspects of the course"s operations. The course operates as an enterprise fund and the City of Santa Cruz is reimbursed for administrative and other services. The facility had net revenues of $234,352 in FY 2000-01. These revenues were retained for course operations and capital improvement projects. The FY 2000-01 budget was 97 percent of FY 1999-00 revenues.

Palo Alto Municipal Golf Course. The Palo Alto Municipal course is an 18-hole, 170-acre course. The City maintains the course and other aspects of course operations, and private firms manage the golf and pro shop operations. City general fund appropriations finance the golf course and all revenues generated are returned to the general fund. According to City of Palo Alto staff, the course generated net revenues of between $500,000 and $800,000 per year before a $5,000,000 capital improvement project in FY 1999-00. In FY 2000-01, expenditures exceeded revenues by $615,000. The FY 2000-01 budget was 125 percent of FY 1999-00 revenues, which necessitates a City of Palo Alto subsidy for the course.

Poplar Creek, San Mateo. The Poplar Creek course is an 18-hole, 105-acre course. Private firms manage the pro shop and concessions operations. The City manages all other aspects of the course. This facility operates as an enterprise fund. In FY 2000-01, the City of San Mateo received a $485,000 payment to the general fund from Poplar primarily in lieu of taxes. The course retains all of its revenues for the course and retains unspent funds from one fiscal year to the next. The course was closed due to construction in FY 1999-2000. However, an appropriation from the City was not needed for FY 2000-01 costs, rather residuals in the enterprise fund were used to finance the course. In FY 2000-01, net revenues realized were $200,000.

Shoreline Golf Links, City of Mountain View. Shoreline is an 18 hole, 182-acre course. Shoreline was developed from 1981 to 1983 over landfill that was imported from the City and County of San Francisco. For its first 14 years, Shoreline Golf Links was leased out to a series of golf management entities. Landfill maintenance issues together with deferred maintenance of the golf course"s irrigation system resulted in costly litigation with the lessees. Approximately $7,000,000 was expended in litigation and golf course infrastructure improvements between 1983 and 1995. Since assuming control and operation of the course in late 1995, the City of Mountain View has expended over $4,000,000 on upgrading and improving subsurface drainage and replacing the entire irrigation system.

Currently, city employees staff all aspects of the course"s operations (including the pro shop, customer service counter, golf carts, and practice greens), except for Michaels Restaurant, which is operated by a private lessee. The course is financed with a special fund, which functions like an enterprise fund. The course reimburses the City of Mountain View approximately $300,000 per year for services rendered, and retains the remainder of revenues in the special fund. For any capital improvement projects, the course pays the City a 6.5 percent fee. The course has been operated for the past four years in a manner designed to fund capital improvements out of operating revenues. Upon completion of these improvements, the City of Mountain View intends to operate the course more profitably so that its revenues can exceed expenditures (including payments to the General Fund for City services, payments for insurance, and equipment replacement fund allocations) by a significant margin. A rate increase was approved by the City Council in May 2001 to achieve this financial objective.

Course Comparisons

Revenues and Expenditures

The revenues and expenditures of municipal golf courses are not directly comparable due to varying capital needs. The capital improvement needs of some courses are much higher as a result of landfill, irrigation, settlement and other issues. Consequently, the following table shows net revenues or losses with and without capital improvements. The table below shows that in FY 2000-2001, four of the five courses surveyed realized net revenues when excluding capital improvement costs. Additionally, most of the courses returned 100% or above of the course revenues to the course.

Table 1: Revenues and Expenses

Funding Strategies

The funding strategies of the municipal courses surveyed vary. Two of the six courses surveyed (San Francisco Courses and the Palo Alto Municipal Golf Course) are supported by general funds, while the remainder (Alameda Municipal Golf Course, Poplar Creek in San Mateo, Shoreline Golf and De La Veaga in Santa Cruz) are supported by enterprise or special funds.

Enterprise-funded courses. Enterprise-funded courses separate funds and operations from other City operations. Cities may charge such courses "administrative costs," which the General Fund incurs for services rendered to the golf facility. Similarly, rent or a similar charge may be assessed if another fund provided the original investment that created the enterprise fund (see attached OLA 98-1746 for more information). The benefit of the enterprise fund is that revenues from the course are retained in the course. Additionally, courses are allowed to save money from year to year to fund capital improvements. However, because enterprise funds separate funds from the rest of City government, they impose limits on the flexibility with which departments and policymakers can shift funding priorities from one program to another.

Fees

Differing markets, objectives, and course design influence the fees courses charge and the services they provide. In evaluating fees, course quality should be considered. However, no objective rating of the courses that includes factors other than course difficulty is available. Drawing comparisons based strictly on fees is difficult because the courses served vary in difficulty and aesthetic quality.

In terms of rates, at $17 weekday and $20 weekend and holiday, the Harding Course in San Francisco charges resident fees that are lower than those charged by other surveyed jurisdictions. With the exception of Palo Alto Municipal, courses generally provide resident, senior, and junior discounts. In the surveyed jurisdictions, the range of fees for residents is $19.00 to $29.00 on weekdays and $22.00 to $39.00 on weekends. Whereas weekend and holiday fees on average are $10.00 higher for residents in these jurisdictions, weekend rates for residents in San Francisco"s municipal courses increase by no more than $3.00. On the other hand, nonresident fees in all jurisdictions, including San Francisco, range from $26.00 to $35.00 on the weekday and $27.00 to $50.00 on weekends. While San Francisco"s non-resident green fees are not the lowest, they are also not the highest, compared to other jurisdictions.

Table 2: Fees

Budget Allocation, Staff, Players (resident versus nonresident), and Acreage. The budgets and percentage allocations are summarized in detail for each course in Attachment 1. A comparison of staff size to players and course acreage is also available in Attachment 2. As shown, courses with larger acreage, generally hire more maintenance staff. For example, San Francisco, which operates 5 golf courses, hires more staff (46 FTEs), compared to other surveyed jurisdictions, which operate fewer courses.

CONCLUSION

This report shows that when it comes to the operations and funding of municipal golf courses, cities utilize various mechanisms to manage their facilities. Operations of golf courses range from the Alameda model, whereby the City operates all golf course operations, to the more common model, also utilized in San Francisco, whereby the city"s golf course operations are partially contracted out to one or more private companies.

In regard to funding, most surveyed jurisdictions utilize enterprise funds to support their golf course operations. The ability of golf facilities to retain their revenues rather than depositing them in the general fund, enables greater flexibility in terms of funding capital improvements and for setting other budget priorities. However, as also noted, such special funds also limit the ability of departments or policymakers to use surplus revenues generated by a municipal entity to set department-wide or citywide budget priorities.

Attachment 1: Course Budgets

Attachment 2: Comparison Table

¹ Enterprise funds are created for municipal operations that produce an income based on the sale of a tangible good, for example public utilities and airports. In San Francisco, the Airport, Hetch-Hetchy and the Water Department operate as enterprise departments.

² The OLA report, titled "Privatizing City Golf Courses" (File No. 98-1746) was published in January 7, 1999, and is available on the OLA website at ci.sf.ca.us/bdsupvrs/leganalyst/reports.

³ NOTE: McLaren Park"s Golf revenues reflect rent paid not revenue from green fees.

⁴ During the 2001-01 budget process, the operating budget was decreased by $111,509 and mandatory attrition savings were increased by $98,662 based on the anticipated closure of Harding Park/Fleming Golf Courses.

⁵ Shoreline Golf Links underwent significant capital expense in the past two-years, which skews operating data.

⁶ McLaren golf course is exclude from this table.