Brea Dam: Crony meet Capitalism

Have you ever woken up in the middle of the night and said to yourself, hey, I’m going to take out a new mortgage to pay for sprinklers on property I don’t even own?  Yeah, me neither.

That’s exactly what the City of Fullerton cooked up in 2010 with one minor difference. Instead of a mortgage, they sold municipal revenue bonds, but that distinction is, for the most part, a moot point.  Debt is debt.

You see, the Fullerton Golf Course, located northeast of Harbor Blvd. and Bastanchury Rd. (near St. Jude) sits on nearly 75 acres of land owned by the Federal government.  The City of Fullerton is simply the lessee on a long-term lease granted by the US Army Corps of Engineers.

American Golf (and it’s predecessor) was the contract operator of the Fullerton Golf Course beginning in 1979.  They operated the course as if they owned it outright, and gave the City of Fullerton 20% of the golf and 8% of the concession revenue. This was not a bad arrangement for the City considering it was in American Golf’s best interest to run a lean operation and generate as much revenue as possible.  They also assumed responsibility for golf course operating costs, liability, and capital improvements.

By late-2006, nearby residents had complained that golf balls were leaving the golf course and striking their homes.  Now-Retired City Manager Chris Meyer volunteered to pay for netting that would protect these residents’ homes.  They admit in the closing paragraph (below) the City of Fullerton had not subsidized any golf course infrastructure improvements for 28 years!

And so it began.  Give a kid a candy bar, and they’ll keep coming back asking for more and more and more.

American Golf came crawling back to City Hall a few months later, boohooing bogus cost “increases” to elicit sympathy from City staff. Let’s examine their letter:

One doesn’t need to be a math major to realize Mr. Keller’s numbers [highlighted above] are complete nonsense. There’s a difference between the unit cost of an item and the total expenditure for multiple units of said item.  When we speak of the cost of gasoline, the unit price per gallon is what we lament when it climbs too high — not our total gasoline purchases from year-to-year because that’s highly dependent on the amount of driving we do, the type of car we drive, etc.

Mr. Keller seems to be insinuating that the unit price of water, electricity, and maintenance skyrocketed in very short time.   Let’s assume a bottle of drinking water from the golf course tap cost $1.00 in the year 2005.  Using Mr. Keller’s numbers, that same water cost $1.52 a year later (52% increase), and $2.78 (82.9% increase) a year after that. Hello?

Even if Mr. Keller was trying to say total water expenditures increased by 52% in 2006, and then, again, by 82.9% in 2007, he is admitting to gross mismanagement on the part of American Golf.  They simply used too much water.  Way too much.  Same with all of their other expenses.

Either way, Alice Loya, and her boss at the time, Joe Felz, should have looked at the numbers and said, no, that’s utterly absurd.  What did they do instead?  Agendize raising the golf fees by 4.7% to 6.4%.  American Golf has just come to them and whined that their various costs rose by 52%, 82.9%, 28.3%, 22.4%, 50.3%, and 67% in two short years but somehow a golf price increase of four to six percent will right the ship?  Hello?

First the ‘free’ netting, and now, golf fee increases eminating from phony math that Alice and Joe never bothered to scrutinize.  All aboard the American Golf Pity Party Express™!

Fast forward a couple years to the Great Recession.  I don’t doubt for a second that fewer people went golfing which put a dent in American Golf’s cash flow.  I get that, I really do. But this is not some mom-and-pop operation, they are a corporation with approximately 100 golf courses all over the United States.

In 2010, American Golf was crying that the golf course sprinkler system is old, needs to be replaced, and they can’t afford to pay for it themselves.

American Golf set the precedent by spending millions of its own private money to improve the golf course, as Joe Felz readily admits in the above staff report.  Fine.  Given the economic uncertainty at that time, perhaps a (temporary) compromise would have been fair?  Instead of remitting 20% of golf revenue back to the City, how about reducing that to 10% with a stipulation the other 10% be used for golf course improvements?   Former City Manager Chris Meyer was thinking along these lines when offering American Golf a “rent credit” for the netting project in 2007 (see above).

An arrangement such as this would have proven easiest and lowest risk for the City, thereby preventing a myriad of other problems down the road.

Take a guess.  What option do you suppose Joe Felz and Alice Loya chose to do?  Certainly not the most sensical option.  They opted to sell bonds at a very high rate of interest to fund the new sprinkler system!

Remember, the City was under NO OBLIGATION to fund these sprinklers.  It was plain and simple an early Christmas present to American Golf.

You might be thinking to yourself, wait a minute, shouldn’t the City Council be blamed for this nonsense?  Well, yes and no.

The bonds were placed on the agenda for Election Night — November 2, 2010 and buried with other Redevelopment Agency re-funding bonds the City was looking to have approved in one fell swoop.  A great way to ensure nobody was paying attention.

Much more to come…