Taxpayers on the hook for Groesbeck expenses

Guest columnist Jerry Ambrose is the finance director for the city of Lansing and chief of staff for Mayor Virg Bernero.

In his April 19 City Pulse guest column, Tim Knowlton expressed skepticism that general tax dollars are necessary to subsidize the operation of Lansing’s Groesbeck Golf Course. Unfortunately, Mr. Knowlton wrote his article before concluding his conversations with city staff. As a result, he materially misstated the facts about the use of General Fund and Parks Millage tax dollars to subsidize Groesbeck. Let’s set the record straight:

Mayor Bernero’s administration has never claimed that City general revenues support Groesbeck to the tune of $400,000 to $500,000 per year. In his FY12 budget recommendation, Mayor Bernero stated that “Consideration is also being given to procuring private management services for the Groesbeck Golf Course and the City’s three cemeteries as a means to reduce the more than $500,000 annual subsidy from the General Fund.” The $500,000 figure refers to the subsidy not only for Groesbeck, but for three City-owned cemeteries as well.

In fact, the operation of Groesbeck has required a General Fund subsidy of more than a quarter-million dollars annually for many years. Below, excerpted from the City’s audited financial statements and accompanying financial records, is a summary of revenues and expenses related to the operation of the course.

These deficits have been covered routinely with General Fund and Parks Millage tax dollars, a situation that Mayor Bernero has challenged his administration to correct. It is not his goal to close Groesbeck; it is to have the course operate without the subsidy of Lansing taxpayers, something many golf courses in the region and state are able to do routinely. And in today’s challenging economic times, there are far more urgent uses for these dollars.

The expense figures cited above do include the much-discussed (and much-misrepresented) “administrative costs,” which currently range from $69,000 to $72,000 annually. Questions have been raised repeatedly about what constitutes administrative costs and why they should be included in the cost of golf operations. In truth, there is no mystery about it: Administrative expenses are simply the costs incurred by the City to provide administrative support to golf course operations.

Administrative costs include routine functions such as bookkeeping, payroll processing, accounts payable, technology support, legal advice and building maintenance. In lieu of charging the golf course directly, their value is calculated through an indirect cost plan — the same mechanism the City uses to recover administrative costs associated with state and federal grants, and that is commonly used in both public and private sector cost accounting. In the current year’s budget, administrative costs total $72,000, including charges for Building Maintenance ($20,062); Technology Support ($17,041); Accounting, Payroll, Accounts Payable and Purchasing ($21,722); Financial Audits ($2,976); Legal Advice ($476); Banking ($1,678); and Parks Administration ($8,045). 

In our judgment, these costs are legitimate expenses to be considered when analyzing the financial performance of the golf course. Are these functions necessary for the golf course to be managed and operated?  Of course they are. Such costs are part and parcel of the operations of every golf course, public or private. There is no legitimate reason why they should be excluded from the actual costs of operating Groesbeck.

More importantly, even if one were to eliminate administrative costs from the analysis, the operation of Groesbeck would still require a tax subsidy, whether it comes from the City’s General Fund or the Parks Millage. If these expenses are ignored in both FY09 and FY10, the operating deficit would still have been $170,000 per year. This $170,000 subsidy represents lost opportunity to use these funds in other areas of city services, such as police, fire and roads. For the current year and next year, the subsidies are budgeted to come from the Parks Millage, which represents a lost opportunity to use these funds for maintenance and improvements to our city parks.

Notwithstanding Mr. Knowlton’s flawed assertions, the bottom line is that the operation of Groesbeck Golf Course has required an operating subsidy of more than a quarter-million dollars per year. Even without administrative costs, the annual subsidy is between $170,000 and $200,000 per year. That’s the equivalent of a $7 subsidy for each of the 31,000 rounds of golf played at Groesbeck last season. It also represents opportunities lost to support more urgently needed city services.

The potential certainly exists to keep Groesbeck operating without a subsidy from Lansing taxpayers. And that — not closing the course — is the ultimate goal of Mayor Bernero’s administration.