March 30, 2004 

SUBJECT: Postponement of Golf Fee Increases (04-115)

REPORT IN BRIEF

During the regular budget review process each June, Council approves golf fees for the coming April--the start of the next golf season. In other words, last June 2003, the City Council adopted golf fees which would go into effect April 1, 2004. However, as noted in the existing policy section of this report, Council's fee resolution also authorizes the Director of Parks and Recreation to adjust green fees as necessary to encourage optimum play. This report advises Council that staff now recommends against this fee increase due to concern for the lagging general economy, declining rounds of golf play and the need to maintain our customer base. In a typical year, staff would simply notify Council that the Director was adjusting the approved fee increase by informational memorandum. However, these are unusual and difficult fiscal times and this report requests that Council consider alternatives and take action to either affirm or redirect staff’s actions.

BACKGROUND

Golf fees are market based and generally adjusted at the start of each golf season, not the City's typical fiscal year or calendar year. Each June, as a part of its regular budget review process, Council approves golf fees for the coming April--the start of the next golf season. Fees generally have been increased by $1.00 to $2.00 at Sunnyvale Golf Course and $.50 to $1.00 at Sunken Gardens Golf Course each year. This has been consistent with the golf market in our region.

As the golf season progresses, staff watches the amount of play in specific categories (Weekday, Weekend, Discounted Cards, etc.) and the associated revenues for each golf course. The local and regional golf markets are also monitored to see how current fees are being accepted and how future approved or proposed fee increases may be accepted by the customers (elasticity of fees). Occasionally due to unfavorable market, weather or economic conditions, previously approved fees are no longer recommended and may not be beneficial for fiscal health of the Community Recreation Fund. Most recently this occurred in spring 1997 when market conditions encouraged the Director of Parks and Recreation’s decision not to implement Council approved golf fee increases for three selected fees (Sunnyvale Golf Course: Weekday, Weekend Twilight and Ten-Play Card).

This fiscal year we again see unusual circumstances of poor economy, declining golf play, and weak golf market place combining such that the current golf revenues are well behind planned amounts. Additionally, we see similar negative aspects for the regional and statewide economy and citywide fiscal difficulties. Staff does not believe that the planned April 1, 2004, fee increase is in the best fiscal interest of the City at this time. While Council policy allows the Director to adjust the fee administratively, staff see that these are very difficult times and that the public may wish to comment on this action. Council may also wish to weigh current conditions in light of citywide budget constraints. Therefore, this report has been prepared as close to April 1, 2004, as possible while also providing opportunities for public input through the Parks and Recreation Commission in advance of Council’s consideration.

EXISTING POLICY

SECTION 6.01  MUNICIPAL GOLF COURSE GREEN FEES

B. Adjustments to Green Fee Rates:

Director of Parks and Recreation Department may adjust green fee amounts for marketing and promotional activities as is necessary to encourage optimum play of the municipal golf courses.

DISCUSSION

The postponement of golf fee increases may seem counter-intuitive during a time when the City needs to maximize its revenues. However, golf staff believe that an additional hike in fees at this point would actually be counter-productive to overall revenue generation given the number of courses golfers have to choose from and similar price considerations at competing courses. Consideration of fee increases is a complex activity that includes a look at current economic conditions, golf industry trends, local market conditions and more. To some extent, the City’s golf managers rely upon knowledge gained during more than 60-years collective experience with the local industry. With an eye on continuing downward trends in the golf industry and the lagging local economy, staff has updated the estimated rounds and revenues at the close of Period 7 to project what we may see at year-end for golf revenues and participation. At this date, it is clear that both rounds and revenues will finish the fiscal year below planned amounts. 

Staff has also completed the usual spring Market Survey of Golf Fees (please see Attachment A) that provides an overview of basic weekday and weekend fees and a comparison with Sunnyvale fees for each course. It is important to target the golf fees to match with our planned market position for each course. With all market elements considered (location, yardage, course condition, practice facilities, etc.), Sunnyvale Golf Course fees should compare well with Market Average for Market Range II. While Sunken Gardens Golf Course is the strong leader of the nine-hole courses, its fees should be just ahead of the nine-hole course Market Average. While a review of Attachment A indicates that Sunnyvale Golf Course currently compares well with its Market Average, an increase of fees could negatively impact golf play and golf revenues. Similarly, and of greater concern, Sunken Gardens Golf Course fees are well ahead of the nine-hole average. Increase to fees at Sunken Gardens Golf Course would likely result in negative revenues.

If golf fee increases are effectuated, staff anticipates that golf revenues will be approximately $200,000 less than originally anticipated. If on the other hand, planned increases are postponed, staff estimates the $200,000 loss will be reduced to $178,500 (please see Fiscal Impact Section.) 

Following are the approved green fees effective up to March 31, 2004 and those planned to become effective April 1, 2004. 

Postponing the planned April 1, 2004, green fee increases will provide the best opportunity to maintain our customer base throughout this difficult period.  Staff believe that holding current prices will encourage more play from April 1 through June 30, 2004, and that this will likely improve revenues some $21,500 as compared to revenues which would accrue during the same time period given the previously planned increase in fees. However, even with this proposed postponement of a fee increase, revenues will not meet planned amounts at year-end. (That is, staff believe that going ahead with the planned fee increases would result in even larger actual losses in both golf play and revenue.)

Staff will be revising revenue estimates and proposed golf fees for the ten-year plan based on current information and presenting it for Council’s further consideration in the context of the next two-year budget review (FY 04/05 and FY 05/06) this coming June 2004.

FISCAL IMPACT

Based upon review of golf rounds and revenues through Period 7, year-end revenue for green fees is estimated to be improved by $21,500 if green fees approved for April 1, 2004, are not implemented. However, even with this estimated improvement, golf greens revenue and golf rounds will finish this fiscal year approximately $178,500 below planned amounts.

PUBLIC CONTACT

Public contact was made through posting of the Parks and Recreation Commission and Council agendas on the City’s official notice bulletin board, posting of the agendas and report on the City’s web page, and the availability of the report in the City Clerk’s office, Library, Parks and Recreation Administration, Community Center, and Senior Center.

This report was reviewed by the Parks and Recreation Commission at their scheduled public hearing on March 24, 2004.

ALTERNATIVES

1. Postpone previously approved green fee increases planned for April 1, 2004.

2. Implement previously approved green fee increases planned for April 1, 2004.

3. Direct staff to take other action as appropriate.

RECOMMENDATION

The Parks and Recreation Commission studied this issue on March 24, 2004, and voted unanimously to recommend that City Council postpone previously approved green fee increases planned for April 1, 2004 (Alternative No. 1).

Staff also recommends Alternative No. 1.

Prepared by:

Curtis Black
Superintendent of Parks

Reviewed by:

Robert A. Walker
Director, Parks and Recreation

Reviewed by:

Mary J. Bradley
Director, Finance

Approved by:

Amy Chan
City Manager

attachmentS

A. Golf Fee Survey, March 2004