Detroit residents bear the biggest tax burden of any municipality in Michigan, laboring under tax rates six times higher than the average of other cities in the state. Fortunately, there are many opportunities for city government to cut spending and save resources. In the early 1990s, Detroit contracted out to a private company for management of four of the city's six municipal golf courses. Mayor Dennis Archer should finish the job and use privatization to slice the remaining two courses from the city's budget.
The Growing Popularity of Golf
Golf is a popular game and one that has grown dramatically in recent years: There are currently over 16,000 golf facilities in the United States and 68% of them are open to the public. In 1994, a whopping 88% of all new courses were available for use by the general public (as opposed to being reserved for club members or other exclusive fee-payers). Golf Course Management magazine reports that nearly three million golf newcomers, ranging in age from 18 to 29, took up the sport last year alone.
The average American 18-hole, daily-fee course hosted 33,000 rounds of golf in 1998. The average golfer spent $57 per round on fees, carts, and refreshments. In 1998, more than 700 new courses were under construction, including 34 newly opened courses in Michigan (which led the nation) in 1997. Golfers older than 50 led the golf boom by playing an average of 36 rounds a year. The senior citizen segment of golf demographics comprises 6.5 million golfers, up 16% since 1991. There was also a 51% increase in beginners during that time. The typical male and female golfer are 39 and 43 years of age and make $63,000 and $61,000 each, respectively.
These facts indicate that the demand for golf is strong, and that the private sector is driving hard to supply courses to meet that demand. Unfortunately, municipalities such as Detroit continue to subsidize their own golf courses unnecessarily. Former Mayor Coleman Young had the right idea when he contracted with a private firm, American Golf Corporation (AGC), to manage the city's Rouge, Chandler Park, Palmer Park, and Rackham courses.
Private Management Saves Green
AGC is a successful, 23-year-old management company based in Santa Monica, California. Of the 66 largest golf course management companies surveyed by Golf Course News in 1997, the average number of management contracts per firm was 12. AGC, however, owns or has contracts to manage 270 courses in 29 states and in the United Kingdom. Nationally, only 5.5% of municipal courses are managed by private firms.
The city of Detroit has earned over $250,000 in profit during each of the eight years of its ten-year management contract with AGC, which expires on November 30, 2000. Meanwhile, AGC has invested over $2.3 million in the four courses for improvements such as bunker renovation, improved drainage, more trees, better cart paths, new golf carts, and even new clubhouse roofs and carpets.
The massive infrastructure improvements to the AGC-managed courses have not gone unnoticed by area golfers. Indeed, 1998 was AGC's best year in Detroit. The four AGC courses earned gross revenues of $4 million on 200,000 rounds of golf. As a result, the city of Detroit will receive an approximate payment of $370,000 from AGC this fiscal year.
Prior to privatization, Detroit's golf courses were bleeding the city treasury. Since fiscal year 1994-95, two of the courses, Rogell and Belle Isle, have absorbed over $3.6 million in subsidies from the city. Privatization of these last two government-operated courses could not only save Detroit taxpayers millions of dollars in subsidies, it could inject needed revenue into other city services including snow removal, water main repairs, and street lighting.
Even better than outsourcing the management of the courses, Detroit should consider selling them off entirely. Selling these assets would end the need for subsidies and the city would enjoy a one-time cash infusion from the sale. In New York state a 1997 sale of an 18-hole municipal course garnered $3.2 million. In addition, the course became a tax paying business, paying yearly revenue to federal, state, and local taxing authorities. Detroit could do the same. Whether the courses continued under private ownership for golf enthusiasts or were converted to other uses, the land would become an income generatorfirst as it is taxed and later as any businesses on it develop to serve consumers in some fashion.
Private, for-profit businesses such as AGC have shown they can operate municipal golf courses profitably and efficiently, and golf's continued popularity indicates there are even more profits to be made. At the least, Detroit should contract out management of its two remaining government-operated courses to AGC or another private firm. Better yet, it should sell all of its golf courses to entrepreneurs to give the city a much-needed cash infusion, strip away unnecessary bureaucracy, and add other new, healthy businesses to the city's tax roll.