Reporting on the CAFR: you’re doing it wrong

On Tuesday night, after the whole business about the Golf Complex was completed.  The decision was that the City Council would give City Staff time to review the proposal by Ron Cowan before making any definitive decisions.    KemperSports seemed sufficiently chastened by prospects that any number of alternate operators might be able to fill in for them and came in a lot more flexible than before.   Acting City Manager Lisa Goldman confirmed that our former Interim City Manager had made promises to KemperSports that the City would issue tax-exempt bonds to finance KemperSports’ capital improvements to the site (in the neighborhood of $5 million) and that KemperSports would pay the debt service on the bonds, which Lisa Goldman put the kibosh on because it wouldn’t be kosher.

The City Council asked to have City Staff work on a pinning down a few more items in the Alameda Junior Golf Association term sheet and then to bring back a lease to the Council.   I’ll talk more about the Cowan plan when I get a chance to review it, but another equally interesting conversation occurred after most people vacated the room last night that John P. hinted at in yesterday’s comments.

The Golf Commission had prepared a very detailed report to the City Council based on some strategic Public Records Requests and — for lack of a better term — “forensic audit” by Joe Van Winkle.  Essentially what was presented by Golf Commission chair Jane Sullwold was that for many many years the City has been overcharging the Golf Complex for transfers that go out of the Golf Course Enterprise Fund and into the City’s General Fund.

Let me first caveat this by writing that there is the argument that the Enterprise Funds exist as sort of revenue generation for the City’s General Fund and what’s his is mine and what’s mine is his and all that jazz.   I think that is a valid argument, but on the other hand when individual funds are being charged more than what past policy dictates and the lack of funds for that asset is being used as an argument of why it is a money suck on the City’s General Fund then there is a bit of a disconnect.   Anyway…

So just to remind everyone, there are three different — for lack of a better term — “taxes” that the City takes out of the Golf Course Enterprise Fund: surcharge, cost allocation, and payment in lieu of taxes (PILOT).

The surcharge is levied on green fees and was supposed to pay down the debt service on bonds that were used for capital improvements.   According to the Golf Commission, the surcharge was taken out, but on top of that more money was charged to the Golf Fund to service the debt that the surcharge was supposed to handle.   The good news is that Lisa Goldman has indicated that the surcharge has now been “zeroed out” and will not be charged for the next budget year.   Of course once the Golf Complex is leased out to a private operator (be it Kemper or someone else) this surcharge will disappear.

Cost allocation is essentially to pay for services that City employees provide to the Golf Complex because it is essentially still a City asset.   The Golf Commission’s contention is that this charge should have been reduced dramatically after KemperSports was brought on as the operator.   Lisa Goldman stated that the City still has some costs that will be charged under this line item, but that she would review to see how much would be appropriate.   The Golf Commission suggested that the amount should be — at least — the amount of the management fee that is being paid to Kemper and that the charge to the Golf Commission to pay the Rec and Park director salary should drop from 20% to 10%.

And the biggie, the PILOT.   This is where it gets really icky and this is where serious oversight was missing.  Let me excerpt for you the history from the Golf Commission report, because I can’t digest it better than they did:

On September 22, 1993 , the City initiated PILOT on all City Enterprise Funds, including the Golf Enterprise Fund, assessing a charge of 1 % of the value of the entity s fixed assets as of June 30, 1992. On January 19, 2005 PILOT was modified to provide that the base for determining the amount of the payment would be the value of fixed assets as of June 30, 1993 , adjusted upward annually for inflation since that date in the amount of the lesser of 2% or the increase in the Consumer Price Index for all urban consumers for the San Francisco Bay Area. The current budget for FY 2010- 11 puts the Golf Complex PILOT charge at $202 000, which implies a fixed asset value of $20. 2 milion. At the same time, however, the City currently reports to the State Controller that the fixed asset value of the Golf Complex is only $7.4 million.

And, according to the report, the starting point in June 1993 was that the Golf Complex was assessed at $1,508,734, but in 1996 the Golf Course was assessed an additional $13,838,971 exceeding the cap of 2% for inflation, quick and dirty math is that the assessment ended up being more than $15 million in 1996.     And in this market there is no way that the Golf Complex would be assessed at $20.2 million which is what the PILOT charge at $202,000 would assume.   The good news is that despite overcharging the Golf Course by at more than $1.5 million by Golf Commission calculations, Lisa Goldman announced that for the 2011-12 PILOT would no longer be collected like the surcharge above.

The biggest “uh oh” moment was the revelation from one of the public speakers that the City was not reporting the transfers correctly on the City’s Comprehensive Annual Finance Reports (CAFR).   Now this may have been a surprise to the City Council who isn’t really in charge of the CAFR or the auditing of the CAFR.  Considering the questionable word choice that has been used previously (which then gets quietly removed) in the CAFR’s, I just figure that no one reads them anyway.   The result was that the Mayor asked that the Golf Commission’s report be sent to the City’s Auditor, Kevin Kearney, for comment.   Councilmember Doug deHaan also suggested that the transfers from Alameda Municipal Power be examined in light of this information as well.

It’s unclear what should be done to remedy the plundering that has been done to the Golf Enterprise Fund.  Given the budget problems, it’s clear that simply transferring back the overcharging isn’t really an option.    I guess the City could start by stopping all the “the Golf Course is a drain on City finances” talk, that might be a small boon.   The Golf Commission has a good policy recommendation that a $200K operating reserve be established for the Golf Complex that cannot be touched by the City for any transfer.   At this time, the Acting City Manager has indicated that the only transfers that will be made will be for “Cost Allocations” so I think that policy would be good for the City Council to adopt while there is not a long term lease in place with a private operator.   Of course, if or when a lease is negotiated with a private operator  then the $200K operating reserve for the Golf Fund would be moot, but in the case that it takes more than one budget year to work out these negotiations — some safeguards need to be in place so that there is some padding to run the Golf Course in leaner times.

But in good news, even though the Golf Commission report pointed to a loan that was made from the Golf Enterprise Fund to the Alameda Reuse and Redevelopment Authority in the amount of $300,000 that had been yet unpaid.   Lisa Goldman indicated on Tuesday night that the amount would be repaid this fiscal year which is a much different story then former Interim City Manager Ann Marie Gallant was telling the Commission.   According to the report, at a December 2009 meeting she informed the Golf Commission that there was “substantial doubt” that the loan would ever be repaid.

Although this post is already running really long, I just want to say that the Golf Commission and Golf boosters have really done a phenomenal job at providing oversight.   While all the Boards and Commissions have amazing civic volunteers that give more time and more dedication than the average citizen, the level of oversight and work that the Golf Commission and the Golf Course boosters have done is unfathomable.   And, I have to also add that Acting City Manager Lisa Goldman has stepped up to the task of running this City and has gone above and beyond anyone’s expectations.    She had some huge shoes to fill and a lot of crap to clean up after, but her poise, thoroughness, and professionalism has really been a pleasure to watch.   Even though the City is in a pretty grim place right now given the budget problems currently being faced and even though the City doesn’t have a permanent City Manager yet to set a clear vision for Alameda,  Lisa Goldman has done an amazing job keeping the City on the right path in the interim.