Tuesday, December 8, 2009

The Golf Fund Report

A Financial Analysis and Critique by Nancy Wuerfel And A Response to The Report by San Francisco Rec and Park Management

Hello All,

The below article on the investigation of the San Francisco Golf Fund's financing was published on November 25, 2009 in both the Pacifica Tribune and the San Jose Mercury News. On December 1, 2009, the SF Recreation and Parks Department's (RPD) Parks and Recreation Open Space Committee (PROSAC) unanimously, by a vote of 14-0, passed the following Resolution, in response to the investigation of the San Francisco Golf Fund financing conducted by PROSAC Vice Chair, Nancy Wuerfel:

"Because of PROSAC'S long association with the Golf Fund since its inception in 2002 and its active participation in crafting the fund's priorities, PROSAC wishes to convey to the Recreation and Park Commission its concerns about the failure of the Department to follow the accounting procedures set forth in the Golf Fund Ordinance 51-02, Administrative Code section 10.100-256 and to urge the Commission to provide the appropriate oversight to ensure that the Ordinance is duly implemented immediately."

The newly passed PROSAC Resolution, requesting immediate compliance with the SF Golf Ordinance, was submitted on December 2, 2009 to the SF RPD Board of Commissioners...



By: Barbara Arietta
     Correspondent  - Pacifica Tribune/San Jose Mercury News

In what appeared to be a strong 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!"

And, what does the San Francisco Recreation and Park Department say in response to Wuerfel's indictment of its accounting methods and highly controversial profit and loss figures?

Wuerfel's Golf Fund Report was initially presented to San Francisco Mayor Gavin Newsom and San Francisco Recreation and Park Department General Manager Phil Ginsberg on August 3, 2009. On October 7,2009 Ginsberg issued a formal written response to Wuerfel's report. In it he stated that he felt that  Wuerfel raised a number of valid issues and proposed many useful recommendations. The department agreed with a number of recommendations and will change its procedural and reporting practices accordingly. According to Ginsberg, among the changes the SF RPD plans to make, in response to Wuerfel's investigation and subsequent in-depth Golf Fund Report, are:

* The Commission will schedule annual meetings to review the Golf Fund. It intends to hold the first meeting after the Presidents Cup Tournament has concluded and the total expense and revenue from the tournament are known. (Note: President's Cup was played at Harding in San Francisco and was concluded in October 2009, after Ginsberg's responsorial letter was sent to Wuerfel and also SF Mayor Gavin Newson, among others.)
* The Commission will review and discuss the guiding principles that the department identified prior to renovating Harding Park.
* The department will discontinue its pratice of funding the Treasurer's Office costs for golf resident cards from revenue and will instead cut a work order in the department in the '10-'11 budget.
* The department will continue to ensure that the annual Harding capital set aside complies with the Administrative Code.
* The department will update the payment schedule for the Open Space Fund payment annually.
* All future fund balance reports that the department generates for the Golf Fund will detail revenue, transfers and expense for each of the three components of the fund: NPR,APR and CPR.
* As is the case today, all expenditures from the Harding Park capital set aside will be reviewed by the department's Director of Administration and Finance.
* The department has established a separate project to track expense associated with the President's Cup tournament and will do so for all future tournaments.
* The department will request the PGA to meet all terms of the agreement regarding the President's Cup tournament.

However, Ginsberg went on to state that the department respectfully disagreed with some of Wuerfel's analysis. Ginsberg stated that the department conducts its accounting for the Golf Fund in coordination with and under the supervision of the Controller's Office. "The Recreation and Park Department abides by all of the Controller's fund accounting requirements and has engaged in proper accounting practices at all times," wrote Ginsberg."While I believe that you, Ms. Wuerfel, may disagree with policy choices that SF RPD has historically made in managing the fund, my finance and accounting staff have performed their jobs properly."

One of the biggest complaints voiced by many is the mystery of the unallocated "Golf Operating" charges and what the methodology is on how they are possibly distributed among the individual golf course budgets. These charges can make an individual golf course's profit turn into a loss, once these added-on "overhead" charges are applied to its individual budget.. Where do these unallocated  "Golf Operating Index Code" charges come from? "These charges are assigned to us by the SF Controller's Office. They are the result of the City-Wide Cost Allocation Program (COWCAP) , which distributes general city administrative costs among all of the city departments,"said Katie Petrucione, SF RPD Financial Officer ."They cover the overall costs of city-wide operations, such as the cost of the Mayor, the Mayor's office, the Controller's office and all other administrative offices that operate the City's business."

Upon questioning the current methodology of just how each specific golf course gets charged with which specific "added-on overhead" amounts, Petrucione stated that the SF Controllers Office only gives the SF RPD one assigned overall unallocated Golf Operating Index Code charge each year."There is no specific allocated charge to a particular golf course from the Controller's Office. Rather, it all goes into the one unallocated Golf Operating Index Code, said Petrucione. "Between now and the activation of the FY2010-2011 budget, Dawn Kamalanathan, SF RPD Planning Director, and I will be investigating the possibility of spreading some or all of these costs, however, we haven't made any final decisons. We will sit down with each other and figure out what the best methodology would be to spread the costs among the various golf courses. We shall be looking at the number of budgeted full-time employees (FTE's) at each course and most likely will base the distribution on that percentage."

"As it is now, Harding has the most FTE's, with 54% of the total full time golf course employees located in Harding's budget, and with the new methodology, it would most likely be allocated  54% of the COWCAP overhead charges, with Sharp Park and Lincoln each being distributed 21% of the COWCAP overhead charges, based on the number of budgeted FTE's at each of those courses," said Petrucione.

Petrucione stated that Sharp Park Golf Course, in spite of its challenges and criticisms to the contrary, is doing very well this year. Petrucione's statements contradict the current mischaracterizations of Sharp Park's success as a golf course by those that would destroy it as a golf course, in favor of an expanded wetlands. "Sharp Park Golf Course is SECOND only to Harding in rounds played. Harding  had approximately 58,000 rounds played in FY 2009. Sharp Park Golf Course had 54,073 rounds played," said Petrucione. Other SF golf courses such as Lincoln, who is trailing Harding, Sharp Park, Golden Gate and Fleming, reported only about 37,000 rounds played in FY 2009, with Fleming and Golden Gate reporting about 41,000 rounds played in FY 2009."

It was pointed out to Petrucione, that accordng to a recently released SF RPD Report of Golf Rounds at All Courses, it was noted that the "pricey" and expensively renovated Harding had consistently dropped in rounds played from a high of 90,000 rounds in 1996 to 58,000 rounds today, while Sharp Park had a high of 58,000 rounds  in 1996 and is at 54,073 rounds today. Petrucione agreed that if the figures were "normalized", taking into consideration the extra number of days that Sharp Park Golf Course closes down because of drainage and other problems, as compared to it's sister courses, it would be quite possible that the number of rounds played at Sharp Park would be even higher then it currently averages and  could possibly put Sharp Park Golf Course in the position of being the number one producer in rounds played among all of the SF golf courses.

Dawn Kamalanathan, SF RPD Planning Director, upon being questioned at the November 4, 2009 PROSAC meeting admitted that Sharp Park has surprised many with just how well it's been doing this past year..."Sharp Park Golf Course was budgeted in FY 2009 to bring in $1,225,000, but in actuality brought in $1,315,681. It was also anticipated to have expenditures of $1,335,125, but only had expenditures of $1,216,539. What was forecast to be a $110,125 loss turned out to be an actual $99,142 profit for Sharp Park Golf Course in  FY 2009," said Kamalanathan to the SF PROSAC Committee.

Petrucione, in a closing remark, stated that, although they don't have an exact method in place for identifying how many SF residents actually play there, they do have keep records of revenues generated by rounds played and the current breakdown reveals that FY2005 through FY 2009, contrary to current misstatements of who plays at Sharp Park, the breakdown is as follows: Non-residents (10%):SF Seniors and Residents combined (67%):Juniors (3%);Back Nine (5%);Twilight (10%); and Tournament rate(5%). "Also, in addition to what we are learning from revenue generated by rounds played, we also have straw polls that have recently been taken, and it appears that the majority of golfers at Sharp Park Golf Course are San Francisco residents," Petrucione said. This last piece of information revealed by Petrucione would appear to be another piece of information that contradicts what Sharp Park's current detractors would have the public believe.

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