Social and Political Commentary

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Mount Hood Course revenue lowest since 2005 -- but still tops $2 million

... 64 rainy days and sluggish economy adversely affect numbers for 2011

by Joe Sullivan

Mount Hood golfers on first tee.

Mount Hood total revenues from golf operations, food service and pro shop sales
topped out at $2,067,871 for 2011. This was the lowest revenue total since 2005 when revenues were $2,047,230. The highest revenue during the 2005-2011 period was $2,241,911 which the course achieved in 2010.

These numbers come from the Pro Forma report which the golf course managing company, GMC, prepares on a monthly basis for the Park Commissionís review.

The report is updated each month enabling the Commission to review revenue and expenses for each month and a year-to-date picture as the monthly numbers accumulate. At year-end the pro forma issued for December shows all the numbers for revenue and expenses for2011 and was the source for this story.

The Pro Forma covers only the revenues and expenses associated with operating the course. It does not cover other expenses such as payments for the bond issued to cover the costs of repairing the Big Dig dumping damage, or Indirect Taxes, or Payment in lieu of taxes. These costs are significant and can run into hundreds of thousands of dollars.   

Course revenues come from three categories: golf course operations such as green
fees and golf cart rentals, food service operations such as the snack bar and from
the Golf Pro Shop sales.

In 2011, revenue from golf course operations totaled $1,396,502. Food service
totaled $551,538 including taxes, and the pro shop $119,831 including taxes.

The city receives a portion of these revenues. The golf course managing company
receives a flat fee of $600,000 for operating and maintaining the course, plus
attainment incentives of $234,189.

The city received $56,644, or 11%, of the total Food Service revenues of $514,766
(not including taxes) and $9,375, or 8% of the $116,504 in pro shop sales (again,
not including taxes.)

Adverse conditions not limited to Mount Hood

The Mount Hood revenue drop of $174,040 in 2011 shows the erratic behavior of the
golf course business. The previous year, 2010, revenue had been up $41,702. It was
Mount Hoodís biggest year. The year before that, 2009, revenue was down $1,114.

Annual revenues are not consistent from year to year because they rely so heavily on
elements that are outside the control of any golf course. Bad weather and an
unsettled economy are two factors which can be expected to negatively impact the
courseís annual revenue.  

Mount Hood had 64 days of rain during the 2011 season, more than two months out of
the entire season. Even highly productive course manager like GMC that operates
Mount Hood, can do little to rescue revenues from conditions so drastic.

Itís important to recognize the up-and-down nature of golf course revenue especially
when your relying on it to pay for an annual cost that does not change. Bond payments
are a good example. You have to be able to pay the costs of the bond every
year, even in the years when business is lousy.

Because of the special legislation sought by the city and approved by the State
House, Mount Hood Golf Course will be required to pay for the costs of building a
new football stadium and running track for the next 25 years.

The costs are to be covered by two 25-year bonds totaling $5.2.

Year-to year course revenues are up and down but must cover bond costs that
don't change

The dynamic was now in place. The up-and-down annual revenues of Mount Hood would
have to be sufficient to cover the bonds whose cost will remain the same every year.   

This is an issue in which the importance came to light in early 2011 when the Park
Commissioners and the city were preparing the 2012 Budget for the golf course. The
budget lists the expected revenues and expenses for the year 2012.

An issue arose when Commission Chairman Mike Interbartolo rejected a cost of
$62,349 that the city submitted to be included in the 2012 budget. This additional
cost was for engineering design work for the new field and would increase the
total cost of the budget to an amount that would exceed the 2012 expected golf
course revenue.

This immediately brought to a head the question of what happens when both the costs
of running the golf course and the cost of the new athletic field complex are more
than the anticipated revenue?

Prior to the Park Commissionís monthly meeting on March 14, Mayor Dolan sent a
letter to Interbartolo saying that Interbartolo did not have the authority to
take out the $62,349 out of the 2012 budget and that it should be reinstated. The
Mayor went on to say that CFO Patrick Dello Russo and other members of his
administration would be at the Commissionís meeting to answer any questions.

The issue was resolved when the Park Commission reduced a planned expenditure for
the golf course to accommodate the $62,349 bond cost.

The 2012 budget was the first budget to include the costs of the new athletic field
complex. It did not take long to find out what would be done when the projected golf
course costs coupled with the athletic field bonds costs are larger than the
anticipated revenue which is supposed to pay for them. The answer is that something
that had been planned for the golf course will be eliminated to provide the money to
cover the cost of the new athletic field complex bonds.

The irony is that two months earlier in January, CFO Dello Russo appeared before the
Board of Aldermen to report that the city would add $245,814, the excess for 2009
Mount Hood operations, to the reserve fund bringing its total to $810,179. This did
not include a number for the excess that occurred from the 2010 operation which the
city was still holding under the designation as free cash. If this were as big as the
2009 excess, the total of the reserve fund would be more than $1 million.

Two months later the Park Commission and the administrationís financial team were in
a discussion, because the reserve fund was not adequate to cover a $62,349 cost for
the new ball field.

What will happen when revenue cannot cover costs?

What will be vital in the future is how the city will handle the situations when the
golf course revenue is not large enough to cover the costs of running the course and
those of the athletic field bond.

To continually debase the course, because the funds needed to run it are being used
to pay for athletic field obligations, is not sustainable. High revenues coming from
a course that is in continuing deterioration are not sustainable.

During the 2011 summer months stories were circulating among the golfers that
the city was considering managing the course. The anticipated benefit was that the
city would get the attainment incentives now going to the golf course manager.

City officials had approached some of the golfers and discussed the possibility and
pointed out some of the anticipated benefits. The proposal was not well-received and
considered to be unrealistic.

Golfers' perception: Mount Hood success is due to course manager.

If there is a general perception on which Mount Hood golfers will agree, it is that the
reason that course is so successful is because of GMC, the golf course manager.
Anticipating that the city will get more money by running the course under the
auspices of the Public Works Department is not realistic.

Apparently the city agrees with this conclusion. At the January meeting of the Park
Commission an agenda item was the Request for Proposal document. It will be used to
solicit and evaluate bids from candidates who want to be the golf course manager
from 2013 to 2017. It is a state law that if a municipality elects to use a golf
course manager for more than one year, the manager contract must be re-bid every
five years.

The bidding process can be a tricky proposition fraught with legal considerations.
Ten years ago the city ended up in a lawsuit involving one of the unsuccessful
bidders. In a settlement involving confidentiality, the city was obliged to pay the
bidder $320,000.

As a consequence of the lawsuit the Park Commissioners retained legal counsel to
help with the RFP that would be used in the bidding process in 2007. Mr. Robert
Garrity, a principal of the Boston Law Firm, Garrity & Kinsley, was selected by the
Commission to help in creating the RFP that was used to select the golf course
manager for the years 2008 to 2012.

The Commissioners, with Attorney Garrityís help, came up with an RFP that was
explicit in what was expected from a manager. It left no room for vague response. It
was successful. The bidding process went off without a hitch, or without any
lawsuits. The Attorney Generalís office commended the RFP.

Attorney Robert Garrity of Garrity & Knisley.

Commission brings back Boston law firm to help with RFP.
With that in mind, Attorney Garrity had been invited to the Commission's January
meeting. In discussions about the RFP that will be used for the 2013-2917 bid, it
was the consensus that improving the RFP used to select the current manager
will be hard to do.

Mount Hoodís goal for the future will be to maximize the revenue to pay for the
athletic field complex bonds. Crunch time is going to be between 2012 and 2016,  
because the course will be finishing up paying for the Big Dig Damage bond and the
interest accruing on the athletic field complex bond.
February 3, 2012

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