By TOM STAUSS/Publisher 1/1/2006

Ocean Pines Association director Heather Cook called this column recently to report that she had checked with OPA staff and had discovered that certain golf-related capital expenditures pertaining to the ongoing rebuilding of the Ocean Pines golf course’s irrigation system and sand traps have not been included in golf’s operating budget.

To ferret out possible mislabeling that could be making the golf operating budget look worse than it would otherwise is one of her announced goals for the coming budget process. In a recent meeting with the Ocean Pines Golf Governors, she speculated that capital expenditures paid for out of reserves or directly from the base lot assessments by all property owners might have been charged to the golf operating budget, making its accumulating deficits look much worse than they would have otherwise. By properly charging these expenses to the capital budget, the golf budget deficit could improve or might even drop to zero, she had suggested.

That turns out to have been a vain hope, at least for the two capital items she had in mind.

If Cook was off the mark on those items, this column also had it wrong when, in the mid December edition, it suggested that such items have been included in the operating budget as the result of a board policy decision of about ten years ago. There was no such formal policy, and capital expenditures have never been routinely included in the operating budget, for golf or any other amenity. Any suggestion to the contrary is flat out wrong.

What caused that unsolicited brain cramp is anyone’s best guess. Before the more recent era of golf deficits, some directors liked to suggest that ongoing golf surpluses were more than sufficient to offset any golf-related capital expenditures in any particular year. There may have been some directors in years past that would have argued that rebuilding sand traps, repaving cart paths or even replacing an irrigation system was closer to routine maintenance than a capital project, and therefore properly funded in the operations budget.  In some years, expenditures that were arguably capital in nature were funded out of operating funds. It depended on the board, how robust the cash flow, and other intangibles lost in the mists of time.

There have been debates over the years about what constitutes routine maintenance and what constitutes a capital project, so Cook’s revisiting of the issue in the coming budget deliberations is not without precedent. But the guess from here is that there’s not much in the golf operating budget that can be transferred to the capital budget to make golf look better, even if that approach were desirable. (Heather and this column have a friendly disagreement on that score.)

Anything that is debatably capital is probably already there in the capital budget.

The days of golf surpluses are long gone. It appears the golf deficit in FY ’06 could reach the $150,000 level, barring some spectacular spring weather that could boost outside play and revenues. Were certain golf capital projects included in the operating budget, that $150,000 loss would be a distant, and fond, memory.

If someone really wants to know how much golf is costing the association in any given fiscal year, simply add the operating deficit to golf-related capital expenditures for that year. You’ll have to dig for it, though, and make use of a calculator, because that exercise of simple arithmetic won’t appear anywhere on OPA budget or year-end audit documents.

This column will try to ferret out the number in the FY ’07 draft budget that will be made public shortly, just for some good, clean fun. And maybe see what the current year’s golf total would look like with both budget numbers totaled.

The sum will be clinically depressing, or at least not for the faint of heart, and yet it’s one “unofficial” way – if not the way of accountants and CPAs or the OPA – to measure the cost of golf to all Ocean Pines property owners.

If the OPA routinely presented its golf-related expenditures this way, the clamor from non-golfers would be horrific. There would be a demand for higher golf dues which, if responded to, could easily result in fewer memberships and, perversely, an even greater subsidy of golf by all property owners resulting from an ever-growing golf deficit.

In fairness, as Cook mentioned to this column, the same could be true of the aquatics operation, in which capital items such as pool deck improvements and new lounge chairs are routinely paid for by all property owners, not just those who pre-pay annual swimming memberships. The premise is that we all benefit from the presence of these amenities, whether we use them or not. They are available for our use, require maintenance and, eventually, replacement of certain items, and for all that we are, as part of the bargain, fairly and appropriately responsible for any operating losses that may result in any given year. That, at least, is the argument, and it’s one not easily refuted. Anyone who doesn’t like to subsidize others’ recreation can find communities with fewer or no amenities to support.

Clearly, if swimming-related capital items were funded out of swimming dues and revenues, aquatics would not look as good as it has in recent years. Tinkering with the way the budget is presented, both before and after, could have unpleasant unintended consequences not in the interests of property owners, who will make up any losses however they are accounted for.

So, upon reflection, retaining the existing method of budgeting and presenting results is probably in the best interests of the association. But the most accurate? Not necessarily.

It has been suggested from time to time, sometimes even by Pines’ golfers, that the Ocean Pines golf club could be made truly private, with all expenses, operating and capital, to be borne by members. Were this to be done, annual dues could triple, quadruple, or rise even more dramatically than that, with a one-time initiation fee that only the most affluent could afford. Contrast that with the Ocean Pines that most of us are familiar with, where the current $1,000 initiation fee enacted last year might very well be discarded this year as a deterrent to increasing memberships.

Whether there are enough well heeled golfers in Ocean Pines to pay $3,000, $4,000, $5,000 or more in annual golf dues is debatable. Probably not, which means that expensive memberships would have to be marketed to non-residents, making it less the Ocean Pines amenity that it is today.

In the meantime, the objective is to work toward break-even golf operations, a difficult enough goal in its own right. Adding capital items to the mix would make the march to break-even all the more daunting.