How Golf Courses Rob their Cities of Tax Revenue
Today we welcome Spencer Gardner, a Strong Towns member who lives in Madison, WI and recently investigated the economic loss that results from the golf courses in his community.
One of the key Strong Towns principles is: “Land is the base resource from which community prosperity is built and sustained. It must not be squandered.” In general, Strong Towns-oriented discussions on this topic revolve around transportation and zoning. There are of course, other ways in which cities squander precious land.
Consider the golf course. Born in the Scottish countryside, it has grown and evolved into a semi-major sport. It is not uncommon for municipalities to provide dedicated space for a variety of sports as the tennis courts and baseball diamonds dotting parks across the country attest. Golf is unique, however, in the sheer amount of land required - as much as 200 acres, not including unusable areas such as wetlands and water features.
From Google Maps
On a tight municipal budget, the problem of dedicating scarce resources to maintaining the needy landscape of a golf course is obvious. Even many private courses, which are able to charge much higher green fees, have difficulty turning a profit. It seems safe to assume that public courses are equally challenged.
I ponder this topic almost daily as I commute past a golf course near my house. Glenway Golf Course is one of four - count ‘em - four golf courses operated by the City of Madison. That’s some 750 acres of land dedicated to the exclusive use of at most a couple dozen people at a time.
Let’s assume that the City of Madison is willing to charge enough to completely cover the costs of operating the course (the 2016 budget indicates that course operations break exactly even, although I’m not sure what accounting tricks might be employed to make it so). Even then, we may be losing money. How? Opportunity cost!
Opportunity Knocks
Ah, opportunity cost - the sometimes mysterious value of what might have been. In basic terms, opportunity cost is a result of making a decision that excludes other options. You gain whatever benefit comes from your decision, but you also lose the potential for doing other things with your resources. If I spend $10 on my favorite musician’s new album, my opportunity cost might be the glowing slap bracelets that I didn’t buy instead.
In Madison’s case, the opportunity cost of reserving 750 acres of land as golf courses is that the city cannot collect tax revenue on the productive use of that land. How much would that tax revenue be worth? Well, that’s the tricky part about opportunity costs - since it’s a decision that wasn’t made, it’s hard to be sure. But we can get a pretty good idea by comparing nearby taxable properties.
Let’s assume that the land which is currently occupied by the Glenway Golf Course (42 acres) was never set aside as a golf course and was instead developed at densities and use patterns similar to nearby neighborhoods. An unscientific sampling of residential properties in the neighborhoods to the south and west of Glenway (a total of 473 properties) has a total property value of nearly $140 million on about 83 acres of land (including roads and other public areas). If you’re keeping score, that’s an average of about $1.7 million dollars for every acre.
Under the 2016 budget linked above, the final tax rate - called a millage - for the City of Madison property tax comes out to $9.45 for every $1,000 of taxable value. This means the city expects to pull in about $1.3 million from the sample area, or about $15,500 for every acre in the neighborhood.
If we apply the same tax revenue to each acre of Glenway Golf Course, the missing taxes - the opportunity cost - amount to about $660,000!
As usual, there are some caveats. To begin with, I have omitted some very high value commercial properties from the nearby neighborhood. In other words, there’s probably more tax revenue at stake. Second, these tax calculations didn’t factor in millage from other taxing jurisdictions such as the school district or the county. And finally, this scenario assumes the golf course has the same land use characteristics as the surrounding neighborhood. Given the proximity to transit, shopping, and a world-class bike path leading to the university and downtown, it’s safe to assume this area could be significantly more productive than nearby development patterns indicate.
Now to be fair, it appears that the golf courses in Madison include in their budget what’s called a Payment in Lieu of Taxes (PILOT). PILOTs are payments made by non-taxable entities to a municipality in recognition that the city is missing out on tax revenue due to the presence of the non-taxable organization.
Annual Tax Revenue Lost on Golf Course
The 2016 budget indicates that golf courses will contribute a PILOT of $172,230 to the city’s general fund, so we can credit them for contributing an equivalent amount in “taxes” compared to our development scenario. With the PILOT credit, the total tax revenue that the City of Madison is leaving on the table at Glenway golf course is somewhere around $490,000. That’s money the city could be using every single year to fund causes which I suspect most Madison residents would prefer to the upkeep of yet another golf course.
Not Just Operations
As with roads, fire departments, and other municipal services, it’s easy to focus on the operations side, but let’s also remember that even covering the cost of operation (as Madison’s budget indicates is the case) doesn’t account for necessary capital improvements that will crop up from time to time.
I couldn’t find any capital improvements related to golf courses in the 2016 budget but someday a clubhouse will need to be rebuilt, or a parking lot will need to be repaved. Rest assured when the bill comes due, that money will come out of the pockets of ordinary citizens - many of whom never have and never will swing a golf club.
Conclusion
There is nothing inherently wrong with golf as a game. I’m even willing to be convinced there’s a place for golf as an item in the Madison city budget. But there is something wrong with reducing services to the homeless and cutting back other important municipal functions while subsidizing the existence of four different courses that serve a small sliver of the population.
I've focused this analysis on the economic loss that results from the golf course, but there are other important community concerns too. On environmental issues, the record is mixed for golf courses generally; stewardship has improved in recent years. It would be interesting to hear from experts on the impact to Madison’s unique water resources. Golf also has a history of racial and gender discrimination that it is still in the process of working through.
Nonetheless, based on economics alone it’s time to use a mulligan and figure out a way to make more productive use of this land.
(Top photo by the author)
Spencer Gardner is a transportation planner based in Madison, WI. He spends his spare time chasing his children, riding bikes, doing hobbyist computer programming, and very occasionally writing about urban issues. You can read his thoughts about transportation at http://roadsarelike.tumblr.com/