City Enterprise Funds – What to do?

Submitted by Dave Lott
July 17, 2017 2:19 p.m.

Ah, it’s budget planning time again and there is always the discussion about Enterprise Funds (EFs). Enterprise Funds are a governmental accounting creation where funds are established to account for governmental activities that provide goods or services primarily to the public at large on a consumer fee basis. In theory, an EF is to be operated as if it were a private business with no financial support from the general fund. Be self-sufficient or fail just like a private business. But we know that rarely is the case for governmental EFs; especially in the case of our city’s EFs.

One issue always raised in EF accounting is how the general fund should be compensated for resources used by EF activities such as finance/accounting, human resources, legal and facility maintenance services. There are no hard and fast detailed accounting rules and it appears most local governmental agencies take a fairly relaxed approach to the issue. It is an extremely difficult task in determining a formula for such cost allocation where, in a number of cases, the cost of the record keeping required to track all the support expenses potentially costs more than the value of the services themselves. The task is further complicated when an EF is structured under a management services contract such as the city’s marina and golf operations where the management company is responsible for most of these functions, but some level of interaction and oversight by various city departments is still required.

For those EFs that are financially sound, the approach seems to have been to transfer from them to the general fund as much as they can bear – the cash cows if you will. In the current budget, the sanitation, wastewater and water funds are expected to provide the General Fund with $480,000 in revenue. Do you really believe these EFs used almost half a million dollars in city staff resources? Of course, it helps greatly to have an EF that has a virtual monopoly on its services. As City Manager Dale Martin noted in his July 14th weekly article, the golf course and marina have failed over the last 5+ (10+ ??) years to make an operating profit and have, with a few small exceptions, made no reimbursement to the general fund. Let’s look at these two funds in more detail; as well as the Airport EF since its lack of financial contribution to the general fund seems to be of particular concern to Commissioner Roy Smith.

First, the Airport EF. All of the airport’s revenue comes from grants from the FAA or Florida Department of Transportation (FDOT), ground and building lease payments, fuel sales, hangar rentals and other miscellaneous revenue sources. NO general taxpayer funds are used to support the airport. Under FAA rules, if airport property is released for non-aeronautical purposes either through sale or lease, the airport enterprise fund must be the recipient of those revenues. This includes property that is released to the city for the use by other departments. The soccer/ballfield property is an example of such a release; although the FAA appears to have graciously permitted the release to be treated for “civic benefit purposes” and waived the requirement for any lease payment to the Airport EF. However, the FAA does expect there to be formal leases and rental payments with regards to the dog park (Nassau Humane Society), mulch yard (Sanitation Dept.) and water plant (Utilities Dept.) on released airport property. In the past, the city has informally agreed to “zero net out” such lease payments with the Airport EF in exchange for city department resources support. The continuation of such practice appears to be at an end which will require the development of a formula for determining the value of the resources used by the Airport EF for transfer to the general fund.

The golf course has been saddled with a large debt load and deteriorating course conditions due to a lack of maintenance and upgrades during the 80s and 90s when its financial performance was much brighter and there was little competition. In a classic case of how one EF can compete to the detriment of another EF, the City Commission agreed to a long term lease with a golf course developer to have 300 acres of the airport property be released for non-aeronautical purposes. Plans initially were for the development of a 36-hole golf course virtually across the road from the existing 27-hole city course. After the first 18-hole course was developed, the original developers went bankrupt. The property is currently operating as Amelia River Golf Club by the Sheffield family. The land for the other 18 holes on the SW side of the airport (adjacent to Crane Island) has never been developed but still covered by the lease agreement. The current year’s budget projects lease income of just under $200,000 for this property. Again, by regulation, this revenue goes to the airport enterprise fund. By its action, I believe that most will agree that the City’s supported the creation of a major competitor to its own municipal golf course. Airport EF wins and the Golf Course EF loses through reduced rounds and pressure to keep green and cart fee pricing down. This represents the dilemma of truly letting an EF operate independently from other EFs.

From the beginning, the marina has been plagued by the heavy costs of dredging and then by capital debt due to some major repair expenses. The plans to “resurrect” the marina operation will take at least a couple of years and is estimated to cost millions of dollars. While hopefully most of those costs will come from FEMA reimbursements and other grants, what to be done in the meantime when the southern end siltation level is as high as I have ever seen it since coming to Fernandina Beach in 2001.
While the City Manager’s announced goal to come off the City’s general fund life support within 5 years is an admirable one, is it really realistic? Do we not think that the management companies operating the golf course (Billy Casper) and marina (WestRec) already are doing their best to seek additional revenue opportunities and decrease expenses? BC says that the current area’s golf market is very competitive and fees can’t really be raised or there will be a resulting decline in golf rounds resulting in a net decrease in revenue. Will cutting expenses result in course condition deterioration or lower customer satisfaction and they will to elsewhere? So 2022-23 comes along and these EFs are still dependent on the general fund to some level, what is the City going to do? Close down the golf course and marina?

I personally believe that a sound argument can be made that both the golf course and marina are general amenities of the City and should be supported by the general fund to the minimum extent necessary. The golf course property contains some adjacent land along AI Parkway that could be sold for commercial development. While such a sale would require voter approval, it could result in an endowment for the golf course to cure its financial woes for the longer term. For the marina, the northern expansion plan seems to be the best solution to the constant dredging expense on the south end. Just my opinion.

Editor’s Note: Dave and his wife Debbie resided in the City from 2001 – 2013 where he served on a number of boards and committees as well as the Interim City Manager for six months in 2012. A job relocation took them to the metro-Atlanta area where they work hard to spoil their five (and sixth on the way) grandchildren, but visit Fernandina Beach as often as possible.