Campus Commons Golf Course Lease

Subject of Investigation

The 1994-1995 Sacramento County Grand Jury examined the operations of the four golf courses owned and operated by Sacramento County: Ancil Hoffman, Cherry Island, Mather and Campus Commons. Subsequent to issuance of its final report, a citizen complaint to the 1995- 1996 Grand Jury resulted in further investigation. Information furnished by County Counsel essentially resolved the concerns left unanswered in the responses to the Final Report and reiterated in the latest complaint, except for the responses to the Grand Jury recommendations relating to Campus Commons Golf Course.

Recommendations in the 1994-1995 Final Report that the Campus Commons lease be reexamined to determine whether the return to the County is fair and whether revisions were necessary to give the County a degree of financial oversight were met with equivocal response, leading to further inquiry and the identification of issues not raised in last year's final report.

Reason for Investigation

The golf course operations conducted at Ancil Hoffman, Cherry Island and Mather are conducted under either a concessionaire or management contract structure and are subject to periodic financial audit by the County. The operation of Campus Commons is governed by a long term lease providing for a flat rental which fails to reflect the revenues collected or the costs of operating the golf course. The County is afforded no right to inquire into the financial affairs of the tenant operator.

The County of Sacramento is governed by the provisions of Government Code section 50402 which provides in part:

A city, county, or city and county owning property or leasing property which is devoted to park, amusement or recreational purposes may make a charge for use or services provided therein in the amount as may be provided by resolution by the governing body. No charge shall be imposed which exceeds the cost of the service provided.

The existing tenant operator of Campus Commons Golf Course provides no mechanism by which it can be determined whether this statutory obligation is being met by Sacramento County.

Procedures

Interviews with a member of the County Parks and Recreation Department and with the County Counsel were conducted. The Jury was furnished with copies of the original lease between the County and the tenant operator of the golf course property entered into in 1972, the revised lease to the present tenant and legal opinions from the office of the County Counsel concerning green fees at county golf courses, the right of the county to require audits of financial records of the Campus Commons Golf Course operation, and the legal sufficiency under Article XVI, Section 6 of the California Constitution, of rental payments to the County under the terms of the present lease. In addition, the Jury was furnished with memoranda and correspondence setting forth the history of the property and the negotiations which culminated in the present Campus Commons Golf Course lease.

Findings

The Campus Commons Golf Course property, under the ownership of Commons Development Company, had been planned for golf course development prior to 1972, which conflicted in some manner with development of American River Parkway. The matter was resolved through condemnation proceedings under which the County acquired fee ownership and the development company was granted the right to lease the property for the construction and operation of a golf course. Construction of the golf course and attendant facilities was at the sole expense of the tenant with all improvements to become the property of the County upon termination of the lease. The rental for the initial term of 20 years was $650 per month commencing in April 1973. Rentals were to be adjusted during a renewal term of 20 years to provide for $650 per month base rent or 6 percent of all gross revenue, whichever was greater. All financial records of the tenant were to be subject to inspection and audit by the County.

The leasehold was assigned to a partnership following which the parties negotiated a new lease in 1991, in connection with which a parcel of property adjacent to Gibson Ranch with an appraised value of $121,700 was donated to the County. The new tenant agreed, at its expense, to construct a new clubhouse and parking facilities.

Under the new lease the tenant presently pays a flat rental of $1500 per month, increasing to $2500 per month over the initial 20-year term. The term may be renewed for an additional ten-year period, subject to adjustment to reflect any change between the Consumer Price Index (CPI) as of 2002 and the CPI as of 2012. No authority is granted to the County to inspect and audit the financial records of the golf course operation either during the initial term expiring in 2012 or during the extended term of 10 years thereafter.

About 75,000 rounds of golf are played at the course annually. Weekday green fees are $7.50 and weekend green fees are $8.50 totaling over $500,000 annually. Rental of a driving cart is $8.50. The tenant did not supply information concerning annual revenues and expenditures as requested in 1994, nor has such information been furnished for any subsequent period.

The County acknowledges that it receives no revenue from and has no regulatory authority over golf course user fees charged by the private operator, whether related to green fees, cart rental or food and beverage service.

Under the original lease of 1973, the County would now be receiving approximately $33,750 from green fees alone. Under the current lease, the County receives only $18,000 in flat annual rental payments.

The County is required by law to insure that, "No charge shall be imposed which exceeds the cost of the service provided." No authority can be found under which the County of Sacramento is relieved of its statutory mandate. Whether the compensation to the County under the lease is adequate under Article XVI, Section 6, of the California Constitution is not at issue. The issue is whether the contract entered into by the County in 1991 is void.

Recommendations

The Grand Jury recommends that:

· A course of action be undertaken by the County in recognition of the fact that the County could not enter into the Campus Commons Golf Course Partnership lease of 1991 and at the same time comply with the statutory mandate that charges would not exceed the cost of the services provided, as follows:

· A complete inspection and audit of the Campus Commons Golf Course operation be ordered

· The County of Sacramento renegotiate the lease, bearing in mind the legitimate interests of the present tenant, but at the same time including strict controls over the rates for green fees, cart rentals, food and beverages service and revenues from any other source

· Rents paid to the County under the lease be subject to annual adjustment in accordance with the most appropriate price index

· The County consider offering a management contract to the present operator in place of a lease

Response Required

The Penal Code requires responses to the recommendations contained in this report be submitted to the Presiding Judge of the Sacramento County Superior and Municipal Courts by September 30, 1996, from:

Sacramento County Board of Supervisors