Getting Greens in the Black: Golf-Course Privatization Trends and Practices

Getting Greens
The Reason Foundation Study Getting Greens in the Black: Golf-Course Privatization Trends and Practices is available from the Reason Foundation for $15.00 post-paid by calling 310-391-2245.

By Lisa Snell

From Los Angeles county to Michigan to New York City, local officials are showing increasing interest in privatizing what Governing magazine called "perhaps the most non-essential of the non-essential public services": public golf courses.

Between 1987 and 1995, the number of cities contracting out to private firms for golf-course services increased by 67%. Today, 25 % of U.S. cities with golf operations contract out for maintenance and service.

Privatization of municipal golf facilities can mean anything from turning over the operation of whole facilities to a private vendor to contracting out for a particular service or services, so that government can focus more resources on core essential services. Cities benefit from higher revenues and citizens benefit from the more customer-oriented service that comes with privatization.

Reasons why public officials are turning to golf-course privatization include

Cost Savings. Government-run golf courses operate according to self-imposed rules and practices that drive up costs. On the other hand, private golf-management firms aren't hampered by such rules; and because they typically operate many more golf courses than local governments, they enjoy discounts on everything from fertilizer to insurance. City-run courses typically operate with payrolls roughly 13% higher than private operations.

Increased Revenues. From better advertising to facilitating greater use of the course, private operators often institute management practices that increase revenues. Five of six privatized courses in Los Angeles and Long Beach, California were able to increase revenues between 24% to 400% in the first year of private operation.

Increased Quality. Most golf-course privatizations require the private contractor to make capital investments in the course to improve its quality. The incentive to improve the owner's product is clear: Better courses mean more golfers and more profits. Contracting out to private managers at four Detroit courses has earned the city about $250,000 per year for eight years of its 10-year contract.

Risk Minimization. In many golf course privatizations the city gets a guaranteed rent even if course revenues do not increase. This ensures that during the term of the contract, non-golfing taxpayers will not be subsidizing their golf-playing neighbors.

Community Outreach and Expanded Access. Most private operators can afford to expand a city's community golf programs and are required to strategically plan these programs as part of the privatization contract. These programs include, junior and senior golf programs, disadvantaged-youth programs and disabled- persons programs.

Objections to golf course privatization run the gamut. Unfortunately, there remains a notion that people should have access to "affordable" golf that only public courses can offer. There are several ways local leaders can overcome this prejudice: tie fee increases to course improvements; emphasize that the course is being privatized—not made private; focus on ways to generate revenue without increasing fees; and, if fees are hiked, making sure they do not exceed rates at other courses in the area.

A commonly asked question is how private contractors deliver better services at lower costs than the public sector and make a profit all at the same time. The answer: By increasing the number of rounds played; cutting overhead costs; purchasing materials and supplies in volume; improving golf-course management techniques; and reinvesting revenues in capital improvements.

While government-run golf courses can make these kinds of improvements, they face many competing demands for scarce government resources and lack financial incentives to maintain a high level of excellence. By contrast, a private management company is completely focused on generating revenue and has an economic incentive to reinvest in the quality of the golf course, attract more players, host more tournaments, sell more merchandise, and in general increase golf revenues.

With a well-thought-out privatization process that includes a cautious and competitive bidding process with clear performance measures written into the privatization contract, communities can have access to affordable, top-quality municipal golf courses.

Lisa Snell is a policy analyst at Reason Public Policy Institute, where she is responsible for research on state and local privatization issues, social services, and education. She is the editor of Privatization Watch.