Cities that operate
golf courses don’t intend them to drain resources, but because of the state
revenue sharing system, cities can see state payments lowered because of golf
course operations. Ann Arbor recently escaped this predicament.
The city of Ann Arbor
owns two golf courses, Leslie Park and Huron Hills. The courses’ financial
situation is dire. The city essentially lost money on the courses each year for
the past decade. Last year was the worst yet — the city had expenses for the
courses of $1,001,702 and revenues of $858,126, or a loss of $243,576. Over the
decade, the number of rounds played at the courses decreased by 60 percent.
Golfers probably
didn’t notice, but Lansing did. To ensure that cities balance their budgets each
year, they are required to send their annual financial report to the state
treasurer. When the state saw that Ann Arbor’s golf course fund was operating at
a deficit, it sent a letter to the city threatening to withhold 25 percent of
its revenue sharing until the city filed a plan to eliminate the deficit. While
the department of treasury sent out 53 similar letters to local units of
government for 2007 audit reports, it is worth noting that more than a quarter
of them — 15 — were because of enterprise funds like golf.
Ann Arbor hired a golf
consultant — Golf Convergence — to study the city’s options. It found many areas
of improvement. "The combination of being overpriced and underfunded is a
perilous mix that will lead to long-term losses," the consultant
wrote. But even with proper implementation of the recommendations, the
consultant added, "there is no assurance of success, losses will inevitably
occur over the next three to five years." And while the courses have room for
improvement, the consultants conclude that only 22 percent of the decrease in
rounds played is attributable to "internal and correctable factors."
The consultant also
recommended that the city obtain liquor licenses for the courses, which are a
commodity in this state. There are only so many that are allocated for each
community and they are typically apportioned by population. A municipality or
business can buy an existing license, but that can be costly. If a business
doesn’t pay the annual fee to renew its license, the city government is allowed
a say in who should get it.
When this happened in
Ann Arbor, the city saw it as an opportunity to get a cheap license. Rather than
recommend the license be given to the business that has been waiting the
longest, or would have the most use for the license, or any other criteria to
judge fairness, the city council voted 6-5 to recommend the license be given to
the Leslie course.
Theoretically, a
government golf course can offer lower rates than private courses because of the
absence of property taxes and the lack of a profit necessity. No one goes hungry
if a government course fails to make money. But that’s not been the case in Ann
Arbor. According to its consultant, plenty of competitors offer lower rates for
the same or better quality of course.
In Ann Arbor’s case,
there are no public welfare gains by the city owning and operating the course.
There are already 14 other golf courses in the area that are open to the public.
The city considers seven of them to be in direct competition for the quality and
price of the courses it owns. Indeed, the golf consultant found that the Ann
Arbor area has an overcapacity of golf facilities.
The city’s deficit
elimination plan calls for increasing the number of rounds played at the courses
by 36.5 percent over three years. With an overcapacity of courses in the area
and the market expected to be stagnant, this expansion comes at a cost to the
local course owners. "Basically, they’re trying to take golfers from us," said
Gilda Johnson, owner of the local Lake Forest Golf Club.
It’s usually not a
matter of public concern over whether one business gains at another’s loss, but
these aren’t competing businesses — it’s government versus private business
owners, and government plays on an uneven field. "It’s very hard to compete with
people that don’t have to pay taxes," said Kathy Aznavorian, co-owner of the Fox
Hills Golf & Banquet Center in Plymouth.
Cities can concentrate
those losses into specific persons in the public — in this case, the business
owners that weren’t awarded the liquor license or the competing private courses.
And if the courses fail further, they will become a bigger drain on city
finances. In fact, the consultant concluded that the courses were caught in what
they termed a "death spiral." The golf courses have not been keeping up with
payments to the city for the services received (The courses "owe" the city $1.1
million according to the city’s latest financial report). The city may determine
that this liability is unrecoverable, which could lead to cuts in other areas of
city services.
And this problem is
likely to occur. The golf consultant stated that the city could not turn around
the courses "without substantial risk" and "significant investment." Since the
city council is continuing to operate the courses, the risk is borne by Ann
Arbor taxpayers.
Government simply
should not be in the golf business. This is something that is already adequately
provided in the private sector, especially in Ann Arbor, and the competition is
unfair to private competitors. Government golf promotes a private good to only a
small segment of the population, but is a liability on the entire population.
And, as Ann Arbor’s courses show, it can be a drain on government finances.
#####
James M. Hohman is a fiscal policy research assistant
at the Mackinac Center for Public Policy, a research and educational institute
headquartered in Midland, Mich. Permission to reprint in whole or in part is
hereby granted, provided that the author and the Center are properly cited.
Post a public comment on this.
View all comments on Mackinac Center articles.
