"The Golf Fund Report" - A Financial Analysis and Critique

By: Barbara Arietta
     Correspondent 
    

In what appeared to be a scathing rebuke of the San Francisco Recreation and Parks Dept (RPD) Accounting methods, Nancy Wuerfel, Vice Chair of the San Francisco Parks, Recreation and Open Space Committee (PROSAC), delivered a written detailed financial analysis and critique of the RPD's Golf Fund to the PROSAC Committee on Wednesday evening, November 4, 2009.

In her opening explanatory remarks to the Committee Ms. Wuerfel, a Fiscal Analyst, reminded the PROSAC Committee that although it was true that they have received many consultant reports in the past years examining San Francisco's municipal golf situation, none have provided a thorough analysis of the Golf Fund's accounting, going back to original documents, ordinances and expectations, and comparing the Fund's accounting with standard revenue and expenditure management practices. Ms. Wuerfel stated that her report has done just that.

 "For the better part of the past year, I have studied the accounting for the first six years of the Golf Fund's existence. I have found both procedural and accounting problems in the Recreation and Park Department (RPD) that have distorted the fiscal realities of municipal golf in San Francisco. The Golf Fund Ordinance sets out very specific spending priorities, with Operations and Management expenses paid first, however, RPD has ignored these priorities, resulting in the accounting problems demonstrated in this report," alleged Wuerfel.

According to Wuerfel's report, it appears that the problem of the San Francisco golf course's financial woes begins back in 2002 when San Francisco began making renovation plans for the 2005 AmEx PGA Championship Tournament held at San Francisco's Harding Park Municipal Golf Course.  Wuerfel wrote in her report that by March 2004, the total capital cost overruns for Harding Park's renovation for the 2005 AmEx Tournament amounted to $8.2 million! She enumerated several findings including the allegation that capital and non-operating expenses related to the Harding Park renovations were incorrectly recorded as and charged to everyday Operations and Maintenance. She alleges that by doing such approaches to the golf course accounting methods resulted in the effect of overstating operating account expenses, while hiding capital costs by $1.9 million. Wuerfel contends that the golf revenue was understated due to internal practices that allowed operating expenses to be paid off the top.

"When this bad accounting is corrected, it is evident that revenue has been sufficient every year to pay the first priority cost of golf operations and maintenance for the golf courses," Wuerfel reported."When the bad accounting that has been used to promote Prop J privatization of the golf courses and, potentially, the give away of Sharp Park to the federal government, is corrected, different questions emerge as to why these actions are even considered."

Wuerfel also stated that the General Fund subsidy to the Golf Fund was needed in part to cover third priority loan repayments to the Open Space Fund and fourth priority Capital cost overruns. One of her most thought-provoking statements was her allegation that when the accounting methods were corrected, in line with the Golf Fund Ordinance guidelines, it was shown that the entire $1.3 million subsidy in FY 2007-08 was not needed for use that year, but was still kept inside the Golf Fund and carried forward.

Other findings allege that the Kemper-Sports bank loan secured for the 2005 AmEx Championship Tournament was authorized to be used to pay for pre-opening costs and to furnish the Harding Park clubhouse, but was used instead to build the clubhouse. Additionally, the 2005 PGA Tour payment was intended to reimburse lost revenue and the gardener overtime and supply expenses at Harding Park, in preparation for the 2005 AmEx Championship Tournament, but instead was used to build the clubhouse, according to Wuerfel.

"Funds intended to repay the Open Space Fund loan are being used for excessive, unanticipated RPD overhead costs," Wuerfel claims."Paying fourth priority capital costs before third priority loan repayments with available revenue has resulted in breaking the promise to repay the Prop 12 bond funds to the Open Space Fund. And, another disturbing fact is that yearly public hearings by the Commission to report on expenses and revenues in the Golf Fund, as required by the Golf Fund Ordinance, have never been held."

Wuerfel noted that the question of whether or not the land currently occupied by golf courses should continue as golf courses or be converted to another use is a policy issue and is not addressed in her report. However, those decisions, she said, should be based on good, accurate accounting of the real expenses and revenues generated by the courses. Wuerfel alleges that the RPD's current accounting practices do not provide policy makers with the information they need to make these decisions.

"This report began as an examination of the accounting of the Golf Fund to answer the question: "Does the Golf Fund make or lose money?" The short answer is that the Fund does pay its operating expenses (without General Fund subsidy) when Golf Fund Ordinance guidelines are followed," Wuerfel stated.

What does she recommend for future golf course administration? "I wish to propose an alternative approach in which RPD retains operational control of the municipal course, but runs golf like a business with responsible revenue and cost management within the Department, as was always the intention. The model for this is the City of San Diego", said Wuerfel."Its main virtue is its structure...it has one...with a Golf Operations Manager in charge. There are a number of similarities between San Diego and San Francisco: the same number of golf holes, the responsibilities of championship events, similar operational requirements, public concerns, and financing issues. It is not clear why RPD did not choose to include this model in their list of possibilities for San Francisco. San Francisco should be, at least, as capable as San Diego is at running a first-rate municipal golf course!"

After Wuerfel concluded her presentation, the PROSAC Committee requested that the RPD management officials present at Wednesday evening's meeting prepare a detailed response to Wuerfel's detailed allegations for PROSAC's next meeting in December.