Monday, January 29, 2007

North Canton Taxpayers Subsidize Golf Course Operator While City Cuts Budget

Prepared Comments Made to
January 29, 2007

Last week, in this chamber, I sat through the Council of the Whole committee meetings and observed the results of what reckless spending will do to future budgets of a municipality.

North Canton City Council is now trying to cope with its financial crunch by cutting capital projects, employing fewer city employees and doing less street maintenance.

Finance Chairman Pat DeOrio wonders how the city got to this point financially.

The sad fact in this scenario is that ill-advised spending decisions, over the last few years are, in large part, responsible for the budget cuts now required. Despite declining revenue collections, councils before you continued to outspend revenues. To use the vernacular, the chickens have come home to roost.

I have a list of ill-advised spending decisions made by city officials over the last few years that have robbed this city of its financial vitality and its financial cushion. I will limit my comments to the expenditure at the top of that list and at the top of this list is the purchase of the former Arrowhead Country Club property in 2003.

Four years ago, despite declining revenues, the City of North Canton purchased the former Arrowhead Country Club golf course, now called The Fairways for $4.2 million. Today, there should be no doubt in anyone’s mind that the exorbitant price paid for that property has diminished the city’s reserves and added to the city’s current indebtedness.

The purchase of the golf course property four years ago took $2.0 million from the city’s cash reserves and increased the city’s debt by an additional $2.2 million. That outstanding debt on the purchase of the golf course is approximately $1.6 million.

The purchase of the Arrowhead Country Club property by the city in 2003 was followed by an equally poor financial decision that also impacts the city’s finances today.

I am referring to the sweetheart leasing arrangement given to the operator who now leases the golf course property from the city. The lease terms for the golf course are an insult to the taxpayers of North Canton.

The lease, signed with the present operator of the golf course soon after the City of North Canton purchased the property, provides for lease payments that are a fraction of the costs that a bank would charge for extending a commercial mortgage on a property costing $4.2 million.

I have polled four lending institutions located in North Canton for rates on a commercial mortgage in the last week. They were Wayne Savings, Ohio Legacy, Key Bank and Stoffer Mortgage. The average lending rate charged by these four lenders for a commercial real estate mortgage was 8.13 percent.

Using the average interest rate charged by these four institutions of 8.13 percent, simple math calculations show that interest rate charges alone on a commercial real estate mortgage would result in annual interest charges of $341,250.
Yet, the lease payments made to the City of North Canton for the exclusive use of the 105 acre, eighteen- hole golf course with clubhouse and pool and all the other amenities that go with the property are less than half of that amount.

The operator of the golf course property did not have to secure a loan at commercial mortgage loan rates and pay $4.2 million for the property. The operator of the Fairways golf course let taxpayers do it for him.

The City of North Canton purchased the golf course with taxpayer funds and a private business benefits at taxpayer expense.

Lease payments made to the City of North Canton by the operator of The Fairways, formerly Arrowhead Country Club, have averaged $152,250 per year. And of that amount, the City of North Canton is required to expend $50,000 per year for capital improvements to the clubhouse.

Using the annual interest costs of $341,250 per year for a commercial real estate loan, the City of North Canton is undercharging the operator of The Fairways golf course $189,000 per year.

By the end of 2007, the fourth year of the five-year lease for the golf course, North Canton will have lost $756,000 in revenue as a result of the lease arrangements made with this operator.

The $152,250 annual cost to the present operator to lease the $4.2 million golf course property is the equivalent of getting a $4.2 million commercial mortgage loan for an interest rate of 3.63 percent.

This is substantially less than what North Canton taxpayers have to pay for residential mortgage. Residential mortgage rates are presently around 6.5 percent.

Why have city officials allowed private enterprise to profit itself on the backs of North Canton taxpayers under this lease?

Does fiscal irresponsibility ring load and clear here?

As I noted earlier, the lease also requires the city to spend $50,000 annually on capital infrastructure improvements for the clubhouse and pool for the exclusive use of the golf course operator. So effectively, the city only receives a little over $100,000 annually in lease payments.

The lease of the golf course property under these terms is a complete sellout of the taxpayers of the City of North Canton, plain and simple! The citizens of North Canton get NO enjoyment or benefit from the use of the facility.

On the other hand, the operator of the golf course benefits quite handsomely financially under the terms of the current lease.

In terms of the average annual loss of $189,000 to the city under the golf course lease, do you think that council could find a worthy use for that sum of money?

At last week’s council meeting, Finance Chairman stated that he has spent hundreds of hours looking for additional funds to plug a few of the budget shortfalls. Mr. DeOrio, I have found a sizable amount of additional funds for you.

Could this council find a worthy use for the average annual loss of $189,000 that the city loses under the golf course lease?

Could that money be used to fill a patrolman’s position on the police force that has gone unfilled? Could that money be used to pave streets in the city?

The annual loss to the city of $189,000 under the present golf course lease is three-quarters of the city’s annual paving budget of $250,000.

The lease for the golf course is renewable at the end of 2008. At the end of this first five-year term of the lease, the taxpayers of the City of North Canton will have subsidized the private operation of The Fairways by nearly one million dollars.

Mr. DeOrio, I think you must realize that it does not take too many unsound financial decisions such as I just described to put a community on the path of budget cuts that ultimately lead to reduced services and increased taxes.

Mr. Foltz, last week you said that it would be “…fiscally irresponsible not to prepare for the loss of revenue…” should the Hoover Company cease operations here in North Canton.

Mr. Foltz, you were on this council at the time these decisions were made and you voted for each of these actions.

I would call the purchase of the Arrowhead Country Club and the subsequent lease arrangement fiscally irresponsible. I hope with 20/20 hindsight that you would as well.

Every single person in this room is looking for additional funds that are desperately needed to maintain city services.

I would propose that the City of North Canton attempt to recover the bulk of its investment when it purchased the golf course property by selling the property and retaining the development rights.

The sale of the golf course while retaining the development rights to the property will save the green space from development while at the same time allow the city to recoup previously expended funds that are desperately needed now.

By selling the golf course, the city could recoup, upwards of $3.0 million dollars of the $4.2 million it paid for the property.

The present lease arrangement is patently unfair to taxpayers and should be ended. Taxpayers should not be subsidizing a private golf course operator. Selling the property when the lease expires next year would put an end to a lease that is fiscally irresponsible and unfair to the city and its taxpayers.

The sale of the property would help relieve the strain on the city’s budget by providing an infusion of perhaps $3.0 million.

This course of action would go a long way in showing taxpayers that this council is indeed fiscally responsible and that city council can act as fiduciaries on behalf of taxpayers as they should.

Thank you
Chuck Osborne
City of North Canton