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home : news : city news August 16, 2017

Jamie Taylor/river news

Interim city administrator Keith Kost, left, explains his recommendation to hire a third party consultant to look at Northwood Golf Course operations as Dave OíMelia, operator of the course restaurant, looks on. The cityís golf course advisory committee voted Tuesday to hire a consultant. The City Council has the final say.
Jamie Taylor/river news

Interim city administrator Keith Kost, left, explains his recommendation to hire a third party consultant to look at Northwood Golf Course operations as Dave OíMelia, operator of the course restaurant, looks on. The cityís golf course advisory committee voted Tuesday to hire a consultant. The City Council has the final say.
8/12/2017 7:29:00 AM
Golf course advisory panel wants outside firm to evaluate Northwood
Goal is to get course out of financial bunker

Jamie Taylor
River News Reporter

Down a projected quarter of a million dollars on the revenue side for the year to date, the latest in a string of down years for Northwood Golf Course, the city of Rhinelander golf course advisory committee on Tuesday heeded a recommendation to have an outside consultant evaluate the operation and provide guidance on how to get the course out of a financial bunker.

Interim city administrator Keith Kost brought a proposal to the committee from Green Golf Partners for such a study, the price tag for which was $10,000, half of the firm's usual price.

"We have an asset that is worth some money, probably some substantial money, but the asset doesn't cash flow or even come close to cash flowing," Kost said as he started off his presentation. "In year-to-date right now, on the revenue side from the budget amount, you're down a quarter of a million dollars, on the revenue side. And there is no way you're going to make that up. The projected loss from the budget was supposed to be $50,000, you're running about a $110,000 loss year-to-date right now."

When asked for the exact year-to-date figure for the downturn on the revenue side of the budget, Kost clarified it to be $254,000. The net loss for the year is $110,000.

"So, what would a business person do if he had an asset that's not cash flowing? You would look to go find an expert to evaluate your asset and tell you what to do with your asset," Kost said. "I looked at several to bring to you. This Green Golf Partners is a company that owns golf courses, professionally manages golf courses and does consulting work."

Kost said the head partner has played Northwood and his parents have relocated to the Land O' Lakes area. The chief financial officer played the course in the last month, he added. Kost said the company's consulting fee would normally be $20,000 or more.

"But because the guy has such a love for this area, they are willing to put a proposal together for you, have it back to you in 60 days, for $10,000," Kost told the committee.

The terms would be $5,000 when the contract is signed and the rest when the proposal is completed.

"The objectives would be to see if the current management practices can be altered to achieve the efficiency that allows financial stability, review the impact of third party management in its association on financial impact and examine the sale of the course to determine pricing and local effect," he said.

Kost said he sat down with former finance director Julie Ostrander, before she left to take a new job in Lodi, to examine the entire financial history of Northwood.

"The few years that a profit was shown, on the accounting they weren't accounting for paying any of the bonds or their indebtedness," Kost said. "Now this is a great asset and I'm not beating up anybody on the head."

He noted the golf market, as a whole, has been in a prolonged slump, and even the Madison golf parks system is facing the prospect of closing courses.

"In 2016, they lost $393,000," he said. "They had a profit one year in the past nine. They are proposing closing two of their four courses, or if they don't do that, it's the same thing that the (City) Council's talked about, they're going to move this to the general fund," he said.

Kost said the mayor of Madison is adamant that the problem not be shifted to the taxpayers by way of the general fund, or moving it to the parks budget, which is much larger than that of the Rhinelander parks, buildings and grounds department.

"My recommendation to you, and it is up to the committee and then up to the council, is let's get a third party expert in and see what we can do, if anything, to turn this around," he said. "The course is 30 years old, the capital requirements are soon going to be major irrigation and other things, and it's been a terribly tough market and we really haven't recovered from 2008. But, having said that, you go back, it's never cash flowed."

"Did that include back in the '90s?" asked golf professional Dan Buckley?

"Correct, the few years where it looked like it cash flowed, they weren't showing payment of the indebtedness on the course," Kost replied. "It doesn't even cash flow this year if I take the depreciation out of it. I did the last three years and in 2014 it lost $180,000. In 2015, $144,000 and 2016 almost $76,000 and $110,000 this year. If I add back in depreciation this year, it's a $66,000 loss."

Alderman Alex Young, who has been quite vocal over the course of the last year regarding the mounting golf coures debt, spoke in favor of Kost's proposal.

"You guys know I have brought things in the past to the council to try to force conversation about the golf course and we have talked about this as long as I've been on the City Council," Young said. "We've talked about the losses at the golf course for at least the last decade, and for the last 10 years, the council hasn't come up with a solution. None of us have come up with a solution."

He then referenced the definition of insanity as doing the same thing over and over again and expecting different results.

"I think we need to come up with different results, and I don't think they are going to come from here," he added.

In studying the budgets over the last few years, Young said Buckley and course superintendent Joe Andersen have done all they can to cut costs at Northwood.

"They have done what they can to control expenses where they can," Young said. "It looks like they have made six figures in cuts to expenses over the years, but the revenue side just keeps dropping so that after cutting hundreds of thousands of dollars off the expense side, we're still bleeding money out of this thing. This literally has an over $1 million debt to the city right now that is supposedly an asset in our general fund that is most likely never going to get paid back. So, from an accounting standpoint, that is bogus accounting that we're considering that million dollars in the general fund."

Despite several ideas being floated over the last 10 years to fix the problem, the committee and City Council keep "kicking the can down the road" and not addressing it, he added.

"I don't think those of us around this table are going to come up with an idea on this and I think for $10,000 to try to come up with a solution to what is literally an over million dollar problem for the city is money well spent," Young said.

He then made a motion to hire Golf Green Partners to do the study. Sonny Paszak seconded the motion.

Committee chair Tom Kelly agreed with Young.

"We are in trouble here and it is time we do something about it," he said, noting that a recent study showed that Northwood has a $4.5 million positive economic impact on the city and region's hotels, restaurants, sporting good stores, among many other businesses.

"We need to do something (to protect that)," Kelly said. "Where the $10,000 is going to come from, I'm not exactly sure."

One idea is the initial $5,000 could come out of this year's Northwood budget, with the second half coming from the 2018 borrowing. Young didn't think that was possible since it isn't a capital project, which the borrowing is intended to fund.

"I do think that it is money well spent and if we need to do a amendment to (the 2016) budget, then that is what we need to do, because I think we need to come up with a solution," Young said. "One of the advantages is we're going to have an outside party come in, it's not one of us. They are going to tell us their unvarnished opinion about what we should do. The upshot of this, as opposed to being nervous about other proposals, I've heard people say why don't you throw up your hands and let the paper company (Wausau Paper which originally owned the property) take it back. That takes us out of the driver's seat, I think."

Whatever recommendation the consulting firm makes, the city still controls the final decision, he added.

Despite all the talk about the finances of the golf course, alderman Steve Sauer said there has never been a thorough examination of the financial history of Northwood.

"We've been talking about this million dollar number for years," Sauer said. "I know it has been on the agenda a couple times. This has been kind of pushed under the rug as far as getting a full historical accounting of the golf course, as well as there are several major debt milestones coming up here in the near future."

He said it was his understanding that the clubhouse debt will be paid off in 2019 and the irrigation system in 2020.

Andersen said there is currently no debt on the irrigation system, that is the original debt to build the course, which was refinanced at one point. He added that he was not involved with the refinancing, only told about what was done after the fact.

"I have nothing against bringing in someone from the outside and having them say 'Look, this is what we think should be done,' I think it is very difficult for this committee to have a firm grasp of the financials of the golf course when we have never looked at the financials of the golf course," Sauer said. "I mean, we may look from year-to-year, we may look from budget period to budget period, but we're not looking at the long-term."

Andersen said he thought having the company study the operations at Northwood was a good idea at a very reasonable price. However, he objected to the reference to "massive debt that the golf course owes to the general fund."

"I get very, very upset over and over when I hear the number of what's due to the general fund because it's being inflated," Andersen said. "I am looking at the balance sheet right here, which is on page 30 of your packet, and as of July 31, 2017 the debt to the general fund is $876,494, not a million dollars, not over a million dollars. Yes, we do have a lot of other debt to buy equipment and all this stuff, but if this balance sheet is correct, I keep hearing this number even in the media, and when those reports are made in the media, I think it makes a horrible financial situation look worse than it actually is."

Mayor Dick Johns noted there is over $1 million in the general fund and paying for the $10,000 cost of the study by Golf Green Partners will not be a huge hit.

"If it gives us a look at the thing, it is well worth it," Johns said.

Kelly noted that if a decision is ultimately made to sell the golf course, the consulting firm knows people who would have the money to buy it.

Young pointed out that if selling Northwood is the ultimate decision, the city has the ability to put deed restrictions in place to make sure it remains a golf course, thus protecting the positive economic impact on the area.

"That might affect the pricing we get for it, but then it goes back on the tax rolls," Young said. "This is just talking outside the box here, but those are reasonable things to look at."

He said the committee, and ultimately the council, should wait and see what the report says before even discussing possible avenues of action to take.

Buckley questioned where Kost had come up with the idea of hiring Golf Green Partners, as they deal with only one golf course in the state and four in Illinois.

"They are primarily based in the south," Buckley said. "We have a huge management company in the state of Wisconsin that manages Wausau Country Club, Stevens Point Country Club. It has the viability, the resources, the marketing. They're doing everybody around. I'm not saying these guys won't do a good job, but I know what happens. They start in here and then they get in with their proposal and that kind of leads you down the road that they are the guys to do it."

He also questioned how much experience the company has in Wisconsin where the golf courses are very much seasonal operations with seasonal challenges.

"The companies that are in Wisconsin deal with that," Buckley said.

Kost agreed that the expense side of the Northwood operation "has gone down considerably" in the last four years.

"But the annual revenue continues to go down. Seasonal memberships are down 8 percent this year, green fees are down 10 percent, golf shop sales are down 9 percent," he said.

Buckley noted that the weather was horrible for golf during the first three months of the season, something course officials obviously have no control over.

"We took it in the shorts, but every other golf course in the state also took it in the shorts," he said. "Is it going to happen again, probably. But if you come back and look at July, that was close to the second highest revenue month we've ever had. Is golf done here? I don't think so, not yet."

He reiterated his concern that if the committee is going to hire a third party consultant, it should hire one that is familiar with Wisconsin golf courses. He added that the majority of the players at Northwood are from outside the area.

"We are not going to grow our way out of our troubles on local play, it's just not going to happen," Buckley said.

Alderman Tom Gleason, who was just observing the meeting and is not a committee member, was asked for his opinion.

"I like the idea of a third party coming in and looking at the operation, I'm not so wild about the $10,000 coming out of the general fund," he said, adding that he understands that, one way or another, the money would eventually come from the general fund. He agreed with Young that nothing has been done to address the issue of losses at Northwood in the 10 years he has been on the council.

"It's just been continued to be allowed to run in the red, and we can't allow that to continue," Gleason said. "Because that anchor is just going to pull us under."

The motion to hire the firm passed unanimously. The City Council will make the final decision at its regular monthly meeting Monday at City Hall.

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