Monday, June 15, 2015

Oro Valley's Golf Course Presents Significant Financial Challenges

The Oro Valley 2015-16 budget includes a subsidy to pay for the losing operations of the Town Of Oro Valley golf courses. The subsidy is the half percent sales tax that the Majority-4 approved in March.

The sales tax increase finances golf course losses
According to a December Troon Golf ("Troon") financial forecast, the Oro Valley golf courses will generate $4.4 million in member fees and other revenues. Troon is under long-term contract to manage the golf courses and tennis facilities for Oro Valley. The golf courses will cost the town $6.2 million in Troon contract fees in 2016, according the the 2016 Oro Valley budget. The difference between projected revenue generated and Troon fees of $1.8 mil is a bit shy of the town's 2016 budget of $2mil in sales tax income from the half percent sales tax increase.

The Troon forecast projects golf course operating losses through FY 2018. The community center, on the other hand, is forecast to generate an operating profit of $317,000 in 2016. However, it is budgeted to receive a $1mil investment in the facility in 2016 so the net cash flow will be negative.

Troon's financial forecast included future years. These show that the town will lose money on golf operations through 2019.  These ongoing operating losses from the golf operation is of concern to many Oro Valley residents. They contend that the Troon revenue projections are optimistic, in light of a long term downturn in golf course operations and a nationwide decline in the popularity of the game of golf. While these operating losses are occurring, the town forecasts a spend of $6.4 million in capital outlays to upgrade golf operations from 2016 through 2025.

How will the Oro Valley pay for these investments?
That is the question Council Member Brendan Burns asked town manager Caton. We suspect that Burns asked the question because he has studied the numbers that the town has presented to him.

In a report to council, Caton provided 2 financing options. One option is to issue bonds in the amount of $2.5 million. That is not going to happen, according to a statement made at a council meeting. The other is to use town operating fund "reserves" of an equal amount.

This $2.5 million covers only 25% of the total golf course investment.  It covers the period from 2016 through 2019.

Where is the rest of the investment money going to come from in later years?

What if Troon's forecast of financial break even in a few years does not materialize?

This may be a question that a future council will have to answer.
About The Numbers
The Town of Oro Valley did not provide the financial analysis presented in this post nor has the town opined on their validity.

However, the financial numbers presented in this post are from the most up-to-date source documents from the Town Of Oro Valley.

These documents are the 2016 Town Manager Recommended Budget, the December 2015 Troon Management Forecast of Golf Revenues and Expenses, and a May memo to council by Town Manager Caton on the options to finance some of the expenditures for improving the golf course. We did confirm with Town Manager Caton that the Troon Forecast were the most recent financial numbers on the golf course.

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