Monday, September 12, 2011

Arrowhead Golf Course Purchase & Ownership Continue to Be a Fiscal Disaster for North Canton

Prepared Comments Made to
September 12, 2011

The purchase of Arrowhead Golf Course in 2003 for $4.2 million and the subsequent eight years of ownership of the property continue to be a fiscal disaster for the City of North Canton.

North Canton City officials do not want the public to know the current status of the property and have taken extraordinary measures to cover up the current fiscal crisis with the Arrowhead property, now known as The Fairways.

Three weeks ago, before the close of a Council of the Whole meeting on August 22, Law Director Hans Nilges asked that councilmembers review a memo he had sent privately to council members.

I have inquired for several weeks as to the contents of the memo only to be told that the Law Director has stated the communication is protected by attorney-client privilege. Since becoming the City’s Law Director, Mr. Nilges has used this claim of privilege rather frequently to block access to public records requests.

The memo was clearly designed to circumvent Ohio’s Open Records Laws. I have not seen the memo but after an 11-day wait for the City to comply with my recent records requests and confirmation from sources, I have learned, substantively, the contents of the memo: North Canton is ending the current lease of The Fairways with R & S Golf Properties, Inc., the operators and current Lessee of the former Arrowhead Golf Course.

In a July 13, 2011, letter from the City to R & S Golf Properties, Inc., Law Director Nilges states, “pursuant to Article XII, Section 12.1.1 of the Lease, the City is exercising its right to terminate the Lease, effective, December 31, 2011.”

Revelations in a June 3, 2011, letter from the City to the Lessee indicate that property taxes for The Fairways have not been completely paid by the Lessee as required for the three-year term of the lease and that there are concerns as to whether the required $80,000 per year capital-improvement obligation of the Lessee has been met during the lease.

A records search has also uncovered an appraisal of the golf course dated August 26, 2011. The appraisal of commercial property of this scope is not done overnight, so I can only presume that along with the termination of the lease in mid-July, someone ordered an immediate appraisal of The Fairways that cost taxpayers $3,800.

The 2011appraisal of The Fairways concludes that the property is valued at $1.9 million. This is less than half the original purchase price. Yes, the down economy has had an impact on this current valuation but it does not explain away the entire 55% loss in valuation. The $2.3 million loss off the purchase price for Arrowhead can only be attributed to gross overpayment for the golf course.

Eight years ago, after council voted to proceed with the purchase, I undertook efforts to allow the citizens of North Canton to vote on the expenditure of their tax dollars for the purchase of Arrowhead. I was halfway to getting the signatures for a referendum when the editorial board of the Repository decided to undermine the constitutionally protected right to referendum a legislative action by running an editorial urging residents not to sign the petition.

Do you think the editorial board at the Repository would like to share in the financial burden that they urged on the citizens of North Canton when they intervened to urge citizens not to sign the referendum? Not likely.

Over the last few weeks, there have been rumors that a prospective buyer was in the wings to purchase the golf course. At last week’s Council of the Whole, Councilmember Mark Cerreta stated that the golf course was not being sold. If that is the case, why was there a rush to order an appraisal of the golf course property?

The financial impact of the golf course on North Canton finances cannot be unloaded with a quick sale as the City has made a poor decision regarding the golf course property. In recent months City Council, for a fee of $14,417, chose to convert a $700,000 short-term note on the property to long-term debt, obligating the City to pay bond interest of nearly $200,000 whether the property is sold or not.

Page 10 of the Preliminary Official Statement (POS) for the bond dated March 2, 2011, states, “The Series 2011B Bonds are not subject to optional redemption prior to their stated maturity [December 2020].”

What is truly sad regarding the bond financing is the fact that there were funds available to pay off the Arrowhead notes in the CIC escrow fund that could have been used.

If the city is anxious to unload the golf course, why did this council issue long-term bonds on the property?

I would like to know, in total, how much city money has been spent on Arrowhead? I have made requests to city officials for a list of expenses incurred while owning the golf course but apparently no one knows or seems to even care.

I would not be surprised to learn that over and above the $2.3 million devaluation of Arrowhead, the City has incurred an additional $1.0 million in expenses over the eight years it has owned the property for debt service not covered by lease revenue, annual note issuance fees, appraisal and environmental fees, a 2005 storm study, and the list goes on.

In my hands, I hold a copy of the PGA MAGAZINE provided to me in 2003 by a highly respected and long-time owner and operator of golf courses in Ohio and Florida. It contains Part 1of a two-part report entitled “Wake-Up Call.”

The twelve-page report details the problems facing the world of golf and course owners. Golf play was on the decline and the report details that fact. One paragraph from the report states:

Core and avid golfers playing fewer rounds translates to a loss of revenue across the board – green fees; lesson and caddie fees; golf-car revenue; ball, equipment and merchandise sales; food and beverage; hotel rooms at golf destinations, etc. The estimated annual loss to the golf industry is about $2.77 billion per year. Yes, billion.

I read excerpts of this twelve-page report into the record 8 years ago to no avail. What has been particularly disappointing is to hear city officials continuing to defend the Arrowhead purchase.

The chickens have come home to roost and you are now getting your Wake-up Call. It is sad that your decisions have come at such great expense to the taxpayers of North Canton.

Thank you,
Chuck Osborne
City of North Canton