Subscribe free to our daily email newsletterContributor Opinion by Martha Klasing: Did the Mayor and Council really spend over $2 million on RedGate?
Oct 13, 2010 10:55 - 6 Comments
I would like to respectfully submit to the citizens of Rockville some clarification on the recent story in Rockville Reports on the City paying off “RedGate’s deficit”. There is no doubt that many were angered or disappointed with what they read. The story stated that the Mayor and Council voted to use more than $2 million in reserve funds to cover the existing $1.7 million deficit at RedGate and to cover the projected $674,000 debt for Fiscal Year 2011. The motion that was made, and unanimously approved, stated very clearly the funds would come out of surplus funds.
I put the term “RedGate’s Deficit” in quotes for a reason. Let’s not forget or overlook one critical fact about those numbers – the existing deficit of $1.7 million includes $1,342,000 of City Administrative Overhead costs that did not arise from the operation of the Golf Course. Those costs stem from the running the City and had to be paid whether RedGate existed or not. The costs of running the City – things like salary for the City Manager, City Clerk, City Attorney, costs of maintaining City Hall – get allocated to various departments. Based on some formula, the City charged the Golf Course over $1.3 million up through FY 2010. As you can see, the full $1.7 million is NOT attributable solely to RedGate and should not be portrayed as such, as was suggested by the article in Rockville Reports. The article was misleading and did not give Rockville Citizen’s the full story.
At the end of the article, it was mentioned that the accumulated deficit is projected to grow to $5.8 million over the next five years. Same story – that figure includes nearly $3 million of City Administrative Overhead costs that did not arise from Golf course operations. To give this perspective, the overhead charged to RedGate in FY2005 was $168K. In FY2012 this will have doubled to $335K, and increases every year.
Certainly, RedGate needs attention – the finances need to be shored up and the operating model needs to be scrutinized. The Mayor and Council recognized this, accepted the recommendation of the RedGate Advisory Committee, and voted to finally bring in the industry experts – the National Golf Foundation – to assess whether RedGate is viable and, if so, to render advice on the best operating model to achieve financial stability.
The National Golf Foundation (NGF) is considered the gold standard in terms of industry expertise. NGF is a not-for-profit organization with no agenda in terms of maximizing its own profits or increasing its footprint by taking over golf courses. Its mission is simple – to serve as an objective and independent resource dedicated to serving all the people, companies, facilities and associations that are involved in golf. Getting expert advice is the first, and sorely needed step, to get RedGate back on track, if that can be done. If not, the Mayor and Council will have another tough decision to make. I, for one, believe RedGate can operate profitably. Municipal courses in the DC metro area have demonstrated that this can be achieved, even in these current, difficult times. With appropriate marketing, the right operating model, and an appropriate business plan, RedGate can succeed. And, by the way, RedGate didn’t cost taxpayers $2 million.
Martha A. Klasing
Member, Redgate Advisory Committee
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“Municipal courses in the DC metro area have demonstrated that this can be achieved, even in these current, difficult times. ”
could you cite some specific examples of this courses, with operating revenues and profits/surpluses included by year, particularly since 2008?
also, can you explain what the financial situation of redgate would be without the charges that you deem inappropriate?
thank you!
Martha,
Thanks for pointing out again (and again) how administrative city cost are allocated to all departments, including Redgate. Without this insight, citizens easily come away with an incorrect conclusion that Redgate’s financial situation is far more dire than it really is. And IF Redgate were to be turned into something else, the administrative city cost would continue to exist and would be allocated to other departments.
I think it’s important to recognize that just about ALL of the city’s parks and rec venues operate at a loss; the swim center, skateboard park, senior center, etc. Having diverse recreation options in Rockville helps keep Rockville an attractive place to live and work.
I played Redgate last Friday and am pleased to report the staff said it was one of the busiest days of the year. It was so great to get outdoors in the beautiful setting, yet be only minutes from home and work! The only bad part was that I shot a 102!
Thanks again for the reporting.
Tom Miner
Getting all the facts that relate to the cost of running the golf course is most appreciated. Thank you Martha for explaining it so clearly.
It is my opinion that there could have been a better business plan but no one saw how the economic downturn could affect the golf business. It is not always worth paying a contractor to make recommendations because their predictions could also be bad. With new and accurate information a better decision can be made in the future whatever it is. I recommend a new business plan for the Redgate Golf Course.
Does anyone know what City resources are dedicated to RedGate or what the basis for the allocation is? Are some of the $168K in 2005 or $335K in FY2010 City staff or other resources that RedGates uses and therefore some or all of the allocation is appropriate? If RedGate was closed, would the City be able to reduce resources by some amount, either all or part of the $335K or is this truly overhead costs unrelated to RedGate and no one in City Hall, City Manager office spends any time or other resources on RedGate?
I don’t know the answer to the above, but perhaps someone on this tread does?
Thanks!
Adam
it appears the city has revised the Rockville Reports article.
http://www.rockvillemd.gov/rockvillereports/2010/oct/RedGate
it also contains a link to the Sept. 20 meeting, described as the place to “To read all of the details of discusion on RedGate Municipal Golf Course, read the Mayor and Council.”
however, it was at the sept. 13 meeting that the advisory board made its presentation and much of the article here comes from that report, which can be found here:
http://rockmail.rockvillemd.gov:80/clerk/egenda.nsf/d5c6a20307650f4a852572f9004d38b8/e0136044af8540548525775a006643d7!OpenDocument
the city might want to add a second link.
according to the advisory committee’s attachment, since 2001 redgate has had operating revenues of about $1 million, $1.2 million per year, with expenses close to $1 million also every year.
net income from operations has fluctuated pretty wildly: $31,000 in 2000, $146,000 in 2002, a loss in 2003 of $61,000, 2004-2006 saw profits around $130,000, with a drop in 2007 to $74,000, a $6000 profit in 2008 and a $214,000 LOSS in 2009. these are just operating amounts that do not include any city assigned overhead.
Dear Theresa and Adam,
I’m submitting this comment to address your questions as best as I can regarding RedGate (and sorry it’s taken so long to reply). With respect to other muni courses in the area and how they have fared financially, Herndon is a good example. I can’t attest to how Herndon’s demographics stack up to ours, but geographically we aren’t that far apart, so I would think Herndon would be a good comparable. Also, I understand from colleagues who live and golf near Herndon that there are numerous courses in the immediate area, so they are also operating in a highly competitive market. For FY 2008, Herndon reported a small net gain of $12,901. For FY 2009, they reported a small loss of $11,578. The estimate for FY 2010 is a modest net income of just over $7,000. Not awe-inspiring numbers to be sure, but nonetheless demonstrate that the course is holding its own.
For FY 2008, Howard County’s course revenues exceeded operating expenses (excluding debt service) by $630,590. For FY 2009, their course revenues exceeded operating expenses (excluding debt service) by $718,765. When you add debt service to the mix for FY 2008 and FY 2009 (respectively $758,573 and $761,002), the result is a net loss for FY 2008 of $127,983 and for FY 2009 of $42,237. I don’t think you can ignore debt service, but the point being is that Howard County’s debt service is very high – it is a new course. Redgate’s debt service amount each year is fairly low – for FY 2008 it was $12,208 and for FY 2009 it was $11,944. To me, this illustrates that Howard County’s course is operating efficiently (for lack of a better expression) and if it weren’t for their debt service they would be turning quite a significant profit.
MCRA, which is an instrumentality of Montgomery County, MD operates 9 golf courses in the area. It is difficult to find separate financial data on the individual courses in their portfolio, but in the aggregate they operate profitably. Based on various discussions and public data available on Sligo creek, I think it is safe to say they may have 2 or 3 courses that are losing money, but overall total revenues exceed total expenses for all 9 courses combined. Which means the ones that are profitable have enough income to prop up the ones that aren’t. For FY 2009, they reported a total net income from all courses of $114,576. Their FY 2010 budget shows a net income of over $700,000. What they will actually achieve remains to be seen.
Theresa – in your latest comment it looks like you’ve got a handle on RedGate’s financial situation without the City OHD charges. As you point out, they experienced a loss in FY 2009 and the same for FY 2010 (though we don’t have final numbers yet). This is exactly why RedGate needs some attention and that is why we (RedGate Advisory Committee) were pleased when the Mayor and Council acted upon our suggestion to finally engage the National Golf Foundation to perform an assessment of RedGate.
Also, please don’t misunderstand my comments about the City Administrative Overhead charges. I don’t believe that they are “inappropriate”. This is a very common practice in government and well as private industry. I’m just trying to clear up the notion that the golf course is costing the taxpayers $2MM. Yes, that is the amount that is reflected in the RedGate “Fund” in terms of what amounts have been posted to that fund in accordance with the City’s accounting practices. But, let’s clarify so folks have the opportunity to understand that full amount of the deficit does not stem from RedGate’s operations. To date, the information provided by the City on this subject hasn’t clarified this and I believe it is misleading.
Lastly, Adam, with respect to your question about the basis for the overhead allocation, the Cost Allocation Plan is available on the City’s website. Warning – it is quite lengthy and clocks in at 255 pages!
As an example, the basis for the allocation of the City Attorney position is “Estimated level of effort”. For the cost of the Mayor and Council, it is based on the # of agenda items, among other items. For City Manager – Admin, the basis is a laundry list of items like # of agenda items, web updates per department, budgeted postage, Parks & Rec admin, etc. It’s quite complicated and I do want to make the point that I’m not arguing that an allocation is unfair or inappropriate. RedGate does benefit from the different departments such as graphics, cable TV, IT, Human Resources, Finance & Accounting, etc. so an allocation makes sense. I will point out , however, that Redgate’s allocation for “Finance & Accounting” for FY 2011 amounts to $140,775. That seems a little steep if you were applying some arm’s-length measurement. I’m sure there are many able accountants and finance types that could handle RedGate’s finances for an annual salary of less thann$140,000. I will also venture to say that if RedGate didn’t exist, these costs would remain the same. You wouldn’t trim the graphics department because RedGate wasn’t there. You wouldn’t reduce the City Clerk’s hours because RedGate went away. My guess the HR department and the Finance and Accounting department would remain intact (i.e. they wouldn’t trim ranks) if RedGate would cease to exist. I’m beleaguering the point, I know, but I’m really just trying to get across the point that when a statement is made suggesting RedGate costs the taxpayers $2MM, it isn’t fair to RedGate, its staff, and the citizens of Rockville. It’s simply not accurate.
Sorry for lengthy explanation. I hope this is somewhat helpful in addressing the questions that you have. If I thought RedGate was a loser, I wouldn’t spend the amount of time I am trying to defend it. I don’t even play golf, but it seems to me it has become a scapegoat and an easy target and I’m just trying to add a little balance to what is being said about the golf course. An interested friend of mine recently said to me - and she also isn’t an avid golfer but plays once or twice a year - golf is a game she can play with her son and her granddaughters when they come to visit; it’s a game that those who are physically challenged can also enjoy. That’s important. It matters. A public course such as Rockville offers the opportunity for an affordable recreational pastime for families. It’s not just for a certain, select (and elite) slice of society. I hope the Mayor and Council understand that. Thanks for your time, interest, and consideration. MAKlasing