November 13, 2020
A challenging recommendation to the City Commission is included on the agenda for next Tuesday’s meeting. The management agreement for the City’s Golf Course between the City and Billy Casper Golf (BCG, but recently re-branded as Indigo Golf Partners, IGP) expires on December 13, 2020. I have recommended that the City Commission not renew the management agreement.
The original management agreement dates to 2010. The City solicited proposals for Golf Course management and, following a review of submissions and an Evaluation Committee recommendation, the City Commission, through Resolution No. 2010-148, executed a five-year Municipal Golf Course and Amenities Management Agreement (December 13, 2010).
The introductory paragraphs of the agreement stated: “It is the intention of the City that BCG operate and maintain all operations and amenities of the Golf Course in a fiscally responsible manner so that users (rounds of play, sale of merchandise, food, beverages, etc.) of the Golf Course can fully support the daily operational and maintenance, costs, debt service and also the long -term capital improvements needed to keep the facility attractive, functional and competitive with the local golf market up to today’s standards for golf courses.”
The agreement included an $84,000 management fee (with annual price index increases not to exceed three percent). The City remained responsible for personnel, operational, and capital costs.
In 2015, BCG offered a contribution of $50,000 to improve the West Course greens in exchange for a five-year extension to the original agreement. The City Commission, on February 17, 2015, adopted Resolution No. 2015-30, accepting the offer of BCG and extending the agreement.
The challenges associated with operating a golf course are industry-wide, so the management and efforts of BCG (IGP) should be viewed through a broader perspective. The explosive growth of golf in the early 2000s has been followed by a significant contraction in the 2010s. As the 2020s begin, the current pandemic will continue to impact golf (and much more).
The financial challenges of the City Marina and Golf Course have been well-documented: both facilities have struggled financially, accumulating significant cash flow deficits. These deficits are internal to City operations, not to outside creditors: the City, using other funds (most notably the Wastewater Fund), “loans” money to the Marina and Golf Course at the end of each year to “balance” the budget. The cumulative deficit for the Golf Course as a result of these “year-end loans” is approximately $1,250,000.
The ongoing growth of the deficit was notable enough that the City auditors urged the City to develop a plan to address the deficits. The City retained Stantec to conduct an analysis of the City’s General Fund, Marina Fund, and Golf Course Fund. Stantec’s Integrated Financial Sustainability Analysis was published last year. In summary, the Stantec report recommended that the City’s strong financial General Fund pay back the deficit with additional sizeable contributions over the course of the next five years. At the conclusion of the five years, the deficits would be anticipated to be eliminated (but, it must be noted, continued contributions from the General Fund to both the Marina and Golf Course would continue). The Stantec recommendation was incorporated into the draft 2021 budget.
The most critical component of the Stantec recommendation, however, was to maintain the existing millage rate. By maintaining the millage rate, the reserves used to diminish the Marina and Golf Course deficits would be sufficiently replenished annually to continue the deficit elimination effort. With the subsequent adoption of a lower millage rate, the Stantec model was rendered unsustainable and discarded.
With “Plan A” now shelved, what could be “Plan B”? Any plan at the Golf Course will be first helped with the elimination of the Golf Course’s only external debt: the full repayment of a note (which renovated the clubhouse) will be completed this year, immediately eliminating an annual expense of $180,000. That alone will improve the annual cash flow for the Golf Course, even moving the Golf Course to financial independence within several years. It does not, however, address the cumulative deficit (it will likely only keep the deficit from growing more).
With the anticipated revenues associated with Toptracer (scheduled to be functional by the end of the calendar year and generate approximately $90,000 annually), those funds can be used to pay down the deficit. The elimination of the management fee and other costs associated with the management agreement, should provide relief on the expense side of the Golf Course and expedite the elimination of the long-term deficit.
The City has had a satisfactory relationship with BCG/IGP and I have enjoyed a professional relationship with national and regional IGP staff. Addressing the financial challenge of the Golf Course, however, is my first responsibility to the community, and it is solely for financial reasons that I have made the recommendation to the City Commission to not renew the management agreement with IGP. The City Commission will consider that recommendation on Tuesday evening.