In the hole: Duluth wrestles with golf course losses
If Duluth's Lester Park and Enger Park golf courses continue to operate as they have in the past, they're projected to lose $108,000 next year, adding to the $2.2 million in operating debt the pair of municipal courses already has amassed.
That's the unvarnished picture Jim Filby Williams, Duluth's director of public administration, painted for the Duluth City Council at a committee-of-the-whole meeting Monday evening.
"Duluth golf is a great Duluth tradition that's facing real and daunting challenges for which there are no easy answers," he said in a Tuesday interview.
The courses at Lester and Enger once enjoyed greater success, and they expanded from 18 to 27 holes each in 1988 as the popularity of golf surged nationally, fueling widespread growth.
Use of the Duluth courses peaked between the years of 1996 and 2006. At the pinnacle, golfers played about 108,000 rounds per year at the two courses.
In contrast, Duluth's municipal golf courses logged nearly 67,700 golf rounds in 2017 — 37 percent less than they did in their heyday.
Duluth's struggles are far from unique, according to Bill Rehanek, senior vice president of operations for Billy Casper Golf, the firm the city hired to manage its struggling golf courses in 2015.
"We manage many municipal golf courses, and there are success stories out there. But to sit here and tell you that there are any municipalities we're aware of that haven't suffered through the downturn in golf would be misleading. They've all suffered. Those that were very successful are less successful. Those that were at the cusp are now struggling to break even. And those that were losing money are now losing more money," he said.
Nationally, the number of active recreational golfers has declined 21 percent in a little more than a decade, Filby Williams noted.
He said the U.S. golf industry has been rapidly downsizing as a result, closing 230 courses and opening just 10 new ones in 2016.
Rehanek said that one in 15 golf courses across the nation have closed in the past five years, as the industry reacts to an oversupplied market.
"Golf was overbuilt. We got a little crazy with it, and then the recession was just exactly what golf did not need," he said.
Adding to the challenge, Filby Williams said both of Duluth's courses are in need of significant improvements to basic infrastructure, including irrigation, golf cart paths, facilities — and the list goes on.
Filby Williams said an investment of $12.7 million would be required to bring the courses back to good working order — $7.5 million at Enger and $5.2 million at Lester.
Duluth would be hard-pressed to come up with that kind of money, Filby Williams said.
He said many of the tax-free bonds, federal and state grants and other programs the city might use to fund other projects are not eligible for golf courses. Local tourism tax funding also appear to be off-limits, as Filby Williams said those proceeds must be used to support tourism alone, "and unfortunately our data suggests that Duluth golf customers are overwhelmingly locals."
As for conventional financing, he said: "Borrowing in expectation of increases in future revenue is risky for us, because if the revenue doesn't materialize, the general fund is on the hook for the difference. And the magnitude of the risk to finance these renovations is large. In order to finance $12.7 million in renovations to both courses on a 25-year revenue bond, it would be necessary to increase annual net income by nearly $1 million."
Rehanek said he couldn't offer a clear solution to financially right both of Duluth's courses.
"I will say: It's difficult for me to imagine that a $13 million investment will generate enough revenue to be self-sustaining, and I think I probably just need to leave it at that," he said.
While neither the City Council nor Mayor Emily Larson have proposed a course of action yet, Filby Williams said he hopes to bring forward some potential options at a follow-up City Council meeting in January.
"If our elected officials wish to adjust course for 2018, there's still time and room to do that, whether that's a minor adjustment or a more significant one," he said.
One of the possibilities previously discussed involves downsizing or even selling off one of the golf courses for redevelopment. That conversation has focused mostly on Lester, and 1st District City Councilor Gary Anderson, who represents Lester Park among other eastern neighborhoods, asked why Monday.
Filby Williams noted the city of Duluth stretches 27 miles from end to end, and placing the only remaining public golf course at the easternmost tip of the community would make less sense than Enger, which is more centrally located.
He also pointed out that Enger historically has enjoyed greater popularity, consistently attracting more golfers than Lester over the years.
What's more, Filby Williams said legal covenants could make it more difficult for the city to sell off portions of Enger than Lester, if the city decides to move in that direction.
Reflecting Tuesday on the Monday meeting, Anderson said: "I'm really glad that this conversation became fully public last night, that the council was able to hear from administration and from Billy Casper Golf, and most importantly that the public and the golfing public is now very, very aware that this is a conversation whose time has come, and that they are invited to fully participate."
"It's my job to make sure that my constituents' voices are heard and taken into consideration," Anderson said.