By KEVIN McCALLUM
THE PRESS DEMOCRAT
The Bennett Valley Golf Course in Santa Rosa is losing hundreds of thousands of dollars a year and will be nearly out of money by next summer
unless the city can help it swing back to profitability soon.
City officials say that without substantive changes, the course will lose $262,000 next budget year, the sixth straight year of losses and the fourth year in a row with losses exceeding $200,000.
At that rate, the once highly profitable course will be broke, with just $18,000 in reserves by next July, down from more than a $1.1 million five years ago.
Taxpayers will be on the hook if losses continue, a fact that is lending a sense of urgency to the city’s effort to understand the challenges facing the course and craft solutions.
“We’re on the edge, and we’ve got to take corrective action, and it needs to happen immediately,” said Mayor Scott Bartley.
The heightened scrutiny of the course’s finances comes at a sensitive time for the operator, Bob Borowicz, who, it was revealed last month, for years gave thousands of dollars worth of free golf and other gifts to two former city officials, one of whom was responsible for negotiating Borowicz’s contract.
The 18-hole course, opened in 1970, is the most popular in the region, with just over 70,000 rounds played last year. It is known for its competitive rates, excellent maintenance and modern facilities.
An outside performance review praised the course in general, but recommended several financial, operational and capital improvements to make the course profitable again. The report, conducted by Sirius Golf Advisors, concludes that course is in need of a “major overhaul” that could cost up to $5 million.
One item in particular, replacing the course’s aging irrigation system, could cost more than $1.2 million, money the city has not set aside.
The need for such major capital improvements comes as the course struggles to repay the debt on the $10 million clubhouse and pro shop completed in 2007.
The new facilities, which have been criticized as extravagant by the previous course operator, opened just as the economy began to sour.
Bartley, an architect, recalled being surprised at how expensive the buildings were compared to other facilities under construction at the time.
Now the bill is coming due. Payments on the $5.6 million in bonds sold to finance the clubhouse and pro shop have run about $400,000 a year since the clubhouse opened. In addition, since 2011 the course has been repaying a $862,000 city loan needed to fund the higher than expected construction costs. The money was diverted from park development fees meant for park projects in other parts of the city, with the promise that it would be repaid with interest over 20 years.
Combined, that creates a total debt payment of nearly $500,000 annually and is the main factor affecting the bottom line, said Assistant City Manager Jennifer Phillips.
But it’s far from the only one.
Another key finding of the review is that the revenue may not be equitably split between the city and Borowicz.
The 10-year contract Borowicz struck with the city in 2009 calls for the city to receive the green fees while Borowicz, in addition to his management fee of about $900,000 a year, receives about 90 percent of the other revenue, including that from the driving range, golf cart rentals and merchandise sales.
The report notes that this arrangement creates an inherent conflict of interest between the city and the operator by essentially encouraging Borowicz to keep green fees as low as possible.
“The operator gains the most by having low green fees as he gets none of the green fee revenue, but makes his money by having a high volume, because he gets his money on everything else the golfer buys,” the report explains.
Keeping green fees artificially low “is not necessarily good for the city,” the report notes.
While it is the City Council that sets the green fees, the report says the city likely “relies strongly on the recommendations of the operator in setting these fees.”
As a case in point, the report notes that the elimination of non-resident fees in 2011 has benefitted Borowicz more than the city. Eliminating that 20 percent premium for non-residents helped lure back golfers from other communities.
After play crashed by 22 percent in 2009, rounds rebounded 11 percent from 2010 through 2012. But that hasn’t generated a similar increase in green fee revenue, which has remained virtually flat, according to the report.
That’s because nearly all of the increase in green fees from non-residents was offset by a similar decrease in green fees from residents, the report found.
When all revenue sources are considered, Borowicz’s revenue increased $188,000 over those three years while the city’s share has fallen by $87,000, according to the report.
Both the 2009 contract and the 2011 elimination of non-resident rates were negotiated and presented to the City Council by Marc Richardson, the former director of the city’s parks and recreation department until his retirement in December.
Richardson was fined $6,500 last month by the state Fair Political Practices Commission for failing to report thousands of dollars in free golf, cart usage, lessons and merchandise discounts from Borowicz over several years.
Richardson and Rich Hovden, the former parks development manager who also was fined, repaid Borowicz a total of $9,365 in December. Both have said they didn’t consider the freebies to be gifts given that they were responsible for oversight of the course.
Richardson also was fined for conflict of interest because he negotiated contracts with Borowicz at the same time he was accepting undisclosed gifts from him. Richardson contended that the contract negotiations with Borowicz saved the city $1.6 million, a calculation based largely on a reduction in the annual cost-of-living increase to Borowicz’s management fee from 4.4 percent per year to 2.75 percent.
But the report, by casting doubt on the wisdom of the 2011 elimination of non-resident rates, raises questions about whether the city’s best interests were being represented in those negotiations.
Borowicz thinks they were. The drop off in rounds in 2009 was steeper for non-resident golfers, and it was important for the city to do something to woo those golfers back, he said.
While he acknowledged the benefits from the increase in rounds may have been “uneven” in recent years, he said doing nothing would have been far worse.
“If we didn’t offer the discount and the promotion to get people out there, the city would be hurting worse and I would be, too, said Borowicz, who has worked at the course for more than 25 years.
Another major area of concern was what the report characterized as weak financial controls and poor accounting practices.
For example, more than 100 rain checks were issued to golfers from June through September of 2012, a period when there was no rain. That indicates a problem if nearly “one golfer per day needs a rain check to be placated,” the report found.
Borowicz denied that figure is excessive, saying other courses in the area also offer rain checks. They are not merely for inclement weather, but for all kinds of reasons where people can’t complete their rounds, he said. He recalled offering a 91-year-old woman a rain check on the back nine holes because it was too hot for her to continue.
Resort courses can be less generous with rain checks, but for a course they relies on regular, repeat local business, it’s just a smart business decision, Borowicz said. “You give them reason to come back,” he said.
The amount of green fees revenue the city has received is another “red flag” listed in the report.
It found a $548,000 discrepancy over three years between the amount of green fees listed in the income statement and those listed in other reports. It’s possible the discrepancy is just an accounting error, but the report suggests “someone should track it down.”
Another area of concern involves annual passes. The amount of revenue from the pass holders didn’t match the number of passes reported as sold. The report called the finding “disturbing” and one that “demonstrates carelessness in bookkeeping and the fact that a number of passholders are not paying the full amount.”
It is issues like these that most concern Councilman Gary Wysocky. He said he awaits Phillips’ report to the council and Borowicz’s responses “with great anticipation.”
The consultant’s report calls for a “comprehensive audit to determine the nature and the extent of the problems” at the course, a recommendation Wysocky, a CPA, said he strongly supports.
“This is why I say we should focus here first,” Wysocky said.
Both Borowicz and Phillips cautioned against relying on the accuracy of the 95-page report, which the city paid $15,500 for, until they had more time to analyze it. Borowicz said there are several areas where data appears to have been misinterpreted by the author, Sirius president John Wait.
Wait declined to comment, citing the need to allow the review process with the city to play out. He noted his report was completed before the gifts to Richardson and Hovden became public.
Borowicz said he is working closely with Phillips to clarify any misinformation in the report and expects to renegotiate his contract soon with an eye toward helping the course succeed.
“We want to get this thing squared away and going in the right direction,” Borowicz said. “We are working on it and we are going to figure it out together.”
Phillips called the effort her “highest priority.”
It is likely that the contract will be revised with “a combination of cuts on my end and increases in fees a little bit,” Borowicz said.
Bartley said he couldn’t prejudge those negotiations, but said it was clear the course needs to become self-sufficient again.
“I think the reality is we need to get the golf course to break even and to build back the reserves,” he said.
It’s unclear how golfers will react to higher green fees, which the report suggests are appropriate. Fees went up 30 percent after the clubhouse and pro shop opened. Rates for annual passes went up 11 percent in 2011, and last year they ticked up $1 across the board. Today adults playing 18 holes on the weekend pay $38 and $24 during the week.
For years the course was the best bargain around, said Tony Conrady, president of the 368-member Bennett Valley Golf Club. But comparable courses nearby, many facing similar challenges to Bennett Valley, are offering aggressive promotions.
“That has taken away some players, for sure,” said Conrady, who has played the course for 30 years.
He said he’s concerned the city will overact to the report and consider management changes at the course, which he feels would be unwarranted. The staff is excellent and beloved by regular golfers, he said. “It feels like home to me,” Conrady said.
Upgrades like adding sand to the fairways to improve drainage and the installing more tees for women are underway, he noted. Adding new features to the practice area, like a sand trap, might help draw more golfers, he said.
Most golfers probably would accept a modest increase in green fees if they knew it was necessary to keep the course solvent and well managed, said Nancy Kennedy, a retired vice principal at Santa Rosa High School who is a regular golfer and member of the Bennett Valley Women’s Golf Club.
“I think people would stay loyal to it,” Kennedy said. “It’s still a very good deal.”