Trying to Stem Hemorrhage of Green, Palm Coast Studies Patchy Golf Club Take-Over
FlaglerLive | June 28, 2016
So far this year, the city-owned Palm Harbor Golf Club—a hemorrhage of greens that has cost city taxpayers millions of dollars since opening in 2009—has run up a $155,000 deficit, or 30 percent steeper than last year, with a few months to go yet. The tennis center has lost $61,000, or 32 percent more than last year. KemperSports, the contractor running both operations, has not lost any money. It’s been rewarded with its combined management fee of $75,000 so far, on its way to $106,000 for the year.
That $106,000 is in addition to every other dollar the city pays for every other service at the two operations: the city also assumes all costs—payroll, maintenance, supplies. Revenue has never come close to matching expenses. Recurring deficits have been the norm.
“My problem is,” Steven Nobile, one of the council members and its only regular golfer, said, “Kemper continuously gives us numbers that are pie in the sky, and doesn’t come close to hitting them, and they also have sat in this room and said there are no new options. So at that moment I was trying to understand, we’re just paying for management, that’s it.” (Kemper’s officials were not invited to the table this time.)
“They don’t do any other kind of contract,” Chris Quinn, the city’s finance director, said, “other than basically you’re responsible for everything, even our mistakes, and you pay us a management fee. I’m oversimplifying it, but that’s essentially it.”
“It doesn’t make a whole lot of business sense to keep doing the same thing when we’re not happy with the results,” City Manager Jim Landon said as his administration presented four alternative options to the council this morning. Closing the golf course was not—is not—an option to the council. Nor is selling it at a time when golf is sports’ equivalent of the eight-track tape. “Don’t even think about trying to sell it, there’s no market,” said council member Bill McGuire, the most persistent critic of the money-losing operations.
All other options mean keeping both operations going, with likely greater or lesser losses to the city. There is no money-making model. At best, there are loss-limiting models.
Even then, the same lack of clarity and vision that has framed the council’s oversight of the two sports operations since their inception framed its discussion on both today, resulting in a less-than-clear directive to the administration that adds up to this: KemperSports will continue managing the operations on a month-to-month basis for now, giving the administration time to prepare yet another proposal to the council. That proposal would envision yet another pitch for a third-party management company (like Kemper) to take over, but under more strict guidelines. For example, the management fee would not be paid on any given month when a profit or a break-even point isn’t reached. Alternately, another proposal would have the city be more directly in charge of the two operations, while contracting out all essential services to different contractors.
Today’s discussion seemed like a group of amateur golfers struggling to pull themselves out of ill-designed bunkers. The resulting directive to the city manager had the making of a gofer’s idea of landscaping a green. But neither was any different than what caused the city to spend roughly $9 million on its two sports operations since the city got the idea of getting into the golf and tennis business, with plenty of deficits to show for it in return. Indeed, since the tennis and golf operations were ostensibly “folded” into the city’s Parks and Recreation operations in 2014, giving city staff more oversight, the deficits have gotten steeper, and with them dissatisfaction with Kemper, whose contract was renewed that same year.
Quinn and Beau Fagout, the city’s head of economic development, led the presentation on alternatives Tuesday morning.
The only four options presented (the council added none of its own and rarely does): One, the city could keep going with Kemper, with a rich history written in red of what that would mean.
Two, the city could lease the properties, getting the city out of the golf and tennis business, limiting the financial risk to the city, eliminating the management fee and other associated costs. But it would represent a significant risk to the golf and tennis properties, as those properties would be at the mercy of the company running them. It would give the city no control over the properties, or the way the businesses are run. There would be no guarantee of sustainable operations. The recovery of the property, should things go awry with the company leasing it, could be costly.
The city administration is well aware that the golf industry is in trouble. It’s not just in recession: it’s in depression, with golf courses closing by the hundreds each year since the Great Recession. Another one –Cypress Knoll—closed in Palm Coast just this month. Nobile said he would consider leasing only if money was put in escrow to ensure against risks. “Mr. Nobile, if you don’t think a private company could make money on a golf course, you shouldn’t lease it to them,” Landon, who’s not interested in that option, told him.
“I will tell you, if you go this route, I’m done,” Landon snapped moments later, when council member Heidi Shipley cautioned that even if the properties were leased, every complaint call would still return to the council and to City Hall. Four minutes before McGuire asked Landon to clarify: “Does that mean you’ll resign as city manager? That’s what ‘done’ means to me.” Landon backtracked, saying he was just trying to “overemphasize” that leasing would be a problem.
Three, the city could take over, managing and running the two operations. It would have complete control. It would limit the risks to the properties and eliminate the management fee. But it would still be responsible for the deficit, it would have increased labor costs, as it would have to hire additional employees, and it would be in the restaurant business. Landon isn’t interested in that option, either. Nor are council members.
Four, the city could adopt a “hybrid” model, which looks like the city taking over the operations in a half-pregnant way: the city would still need to hire additional employees even as it hires various contractors to run some parts of the operation—marketing, landscaping, some golf and tennis pros who do lessons, the restaurant (the latter being the only truly money-making operation at the golf course, chiefly because of its chef’s creativity and reputation)—but the city would presumably have more flexibility to make changes. McGuire said the end result would be a $50,000 difference from what’s in place now (if that), which he said would not be worth the headaches.
“This would be a halfway point,” Quinn said, giving the city a chance to explore the running of the business “and see what we can do with it” without committing to hiring a large number of employees. (Absent a recession when budgets forcibly shrink, the city may shift or reclassify positions, but it generally does not get rid of positions once it creates them.)
And in the end, the council adopted a hybrid of the hybrid: unable to decide between the two, it sent Landon back to analyze options one and four as possibilities, which means two things: the city will prepare a request for proposal to solicit interest from companies interested in running the entire operations (like Kemper). It will also prepare requests for proposals for a variety of services at the two operations while also preparing a budget and operational plan, putting the city in position to take over the two operations while still keeping the fig leaf of not running them entirely.
It’s not clear when the recast proposals will be brought back to the council, or whether McGuire will even be there to hear them. McGuire is aching to make his exit from town and council.