Club Stuff

It's a difficult environment for golf clubs of all kinds these days, and we have a few unconnected stories we'll throw together in one post.

Desert Dreams - John Strege picked up on an interesting conflict brewing in the Palm Springs area.  Shall we let him set the table:

There is trouble in paradise, California’s Coachella Valley, otherwise known as the Palm

Little boxes made of ticky tacky...

Springs area, home to 123 golf courses, many of them in gated communities. 

The economy and changing priorities are creating battle lines between homeowners, including many who don’t play golf, and the golf courses around which their communities were constructed. 

Rancho Mirage Country Club recently was closed by its new owners, who want to use the land for housing, to the dismay of many, particularly those who bought homes on the course with the expectation that there would always be a course.

Rancho Mirage is not to be confused with Mission Hills, longstanding host of the the ladies first major that I still call the Dinah Shore, which happens to be located in the community of Rancho Mirage.

OK, so the area is overbuilt with golf courses and the owners of house on that particular golf course are quite unfortunate but, you know, buyer beware.  But the real subject is the Golf Club at Morningside, also in Rancho Mirage, where lawyers have been retained and lawsuits commenced:

And on Monday, the Desert Sun reported that 29 residents of the the Club at Morningside in Rancho Mirage have sued the homeowners association for proposing a $250 monthly fee — this on top of their $1,050 monthly HOA dues — to support the club to which they might or might not belong.

Here's more detail from that Desert Sun piece:

Next, in March, the board announced a proposal to charge every homeowner $250 per month — on top of the $1,050 they already paid in HOA dues — for support of the club. According to Randy Zien, president of the board, 94 percent of the membership cast votes on the proposal and 63 percent of them voted in favor. The HOA’s governing documents were amended and homeowners began paying the fee. 

Later, plaintiffs learned the club had offered its members a $250 credit each month, offsetting the fee. In their complaint, they argue the fee is a burden only on homeowners who aren’t members of the club. 

“Now, no homeowner can be sure about their financial future,” said Ted Schneider, who has lived in Morningside for 11 years. “You build your economic plan on a certain set of assumptions, and one of those assumptions is, I’m going to be treated fairly.”

It's quite the interesting conundrum, since the basic premise is that the golf course substantially enhances property values.  Here's the case for the HOA's actions from an industry insider:

“You bought the home on the golf course assuming that the course would be there always. But the reality is, you have no control over the course in most cases. The course is not attached to your home, and it could disappear tomorrow,” said Mark Dodge, president of Associa Desert Resort Management, a company that manages 165 desert homeowners’ associations. 

“If (the HOA) sees impending doom with the club, you could argue that they have an obligation to see that that doesn’t happen. That’s a philosophical discussion, as far as whether the HOA should be responsible or not,” Dodge said.

And as we saw above, perhaps it won't be there forever.  We've also not made the case that the club's demise is imminent, but it seems to this spectator that the plaintiff's have a strong moral claim of unfair treatment.

The HOA and its Board are obviously comprised of people differently situated, some club members and others not.  To me the single critical fact is the credit that club members have allegedly received on their club bills.

To the extent that the HOA, through its board and/or membership, deem it to be in their interest to support the club, that burden should be borne equally.  While the club is under separate ownership and management, clearly they have conspired to obtain support for the club from non-members, ensuring an endless supply of awkward encounters at the local grocery store.

But we can expect an increasing number of such stories in the future.

The Border Fence - Bad For Golf - A once-popular Brownsville TX municipal golf course has closed and everybody is sad about it.  Here's the gist of it:

Yet the demise of Lucio’s business is seen by observers as a poignant reminder of the

enduring effect the fence has had on border communities, especially as leading Republican presidential hopeful Donald Trump has rekindled the contentious debate with his proposal to continue building a wall along the 2,000-mile border with Mexico. 

“I think it’s really unfortunate that the community’s recreational spaces were sacrificed for a symbolic effort to look tough on immigration,” said Denise Gilman, a professor at the University of Texas School of Law and a member of the UT Working Group on Human Rights and the Border Wall. “It takes its toll on people’s psyche.” 

Laid on the ruins of Fort Brown, the 6,000-yard, 165-acre course debuted in the 1950s as a reasonably priced alternative to the Brownsville country club. It quickly became the training ground for generations of Brownsville golfers, including Lucio, and home to the Pan American Golf Association, which promoted the sport in the impoverished and predominantly Hispanic community.

It is a sad story, both because of the loss of this golf course as well as for the practice of journalism in this day and age.  Like me, you might be confused as to why the fence caused the demise of this golf course, but placement is everything and the author considers it more important to allow Ms. Gilman to vent her spleen unrebutted than to provide important factual information.

Scrolling way further down than most will, we finally get to this seemingly important nugget:

Business was robust right up to 2005, Lucio said, prompting him to extend his contract with Texas Southmost College, which owns the land, for an another 25 years. A year later, however, the government let slip details of the Secure Fence Act of 2006, revealing plans for hundreds of miles of fencing and wall across the Southwest border. 

Building along the banks of the Rio Grande was deemed impractical; instead, the fence would be built just north of the river on a levee. Because of the meandering nature of the Rio Grande, some land on the U.S. side was stranded on the southern flank of the fence, caught between it and the river. 

“Right away, even before the fence went up, it affected our business,” Lucio recalled. “We started having people not renewing their membership.”

I can see where that could be a problem....the golf course is not in Mexico, but is on the Mexican side of the fence.  I certainly feel sorry for the owner, but the routing of a fence is an engineering issue.  But if only it was more than a symbolic gesture to look tough on immigration...

But now we go really deep into the piece to find there might be another reason for all those cancelled memberships:

Further complicating matters, drug cartels across the river engaged in a brutal war, committing shocking acts of violence even as sections of the fence were put in the ground between 2008 and 2009, hastening the decline of his business. 

“It scared people,” said Gilbert Fasci, a longtime club manager. “People would hear the news up north, and it clung to their minds.”

Yes, shocking acts of violence will often be a further complication.... But Ms. Gilman is safely ensconced in Austin, which last I looked is not a border town experiencing shocking acts of violence.  But nowhere to be found in the article is a hint of how the locals feel about the fence.... well, except for this from another geographically removed "expert":

“The reality is the border fence is there. It’s not going away,” said Antonio Zavaleta, an instructor in the sociology and anthropology department at the University of Texas Rio Grande Valley in Brownsville. “People who live here don’t even think about it any more.”

I beg to differ, the author found one that does.... Heck, I could even be open to the proposition that the routing of the fence constitutes a "taking" as that legal term is understood, requiring compensation.   It's a truly unfortunate set of circumstances, but I find it quite aggravating that there's no sense that the fence serves a larger purpose.

Easement Exigencies - Our last item concerns the dreaded IRS going after golf clubs over this:

Known as the conservation-easement tax break, the rule lets people claim a charitable deduction for giving away the right to develop land they still own and can use. The measure has encouraged protection of millions of acres of pristine land. It has also spawned litigation requiring judges to wade into dueling testimony from ecologists and appraisers.

The source article here is the Wall Street Journal, but it's not in any ways a better practice of journalism than the prior item from the San Antonio Express-News.  This one should come with a Surgeon General's warning label concerning the abuse of metaphors, and never answers the most basic of questions.  Among the metaphorical excesses are these:

The IRS won vindication last month when the U.S. Tax Court ruled it was unimpressed by the courses’ natural splendor. In short, there were too many sand traps and not enough Venus flytraps.

The ruling marked a green-jacket moment for the IRS

The IRS’s first major attempt to challenge a golf course break—a $30.6 million Alabama deduction—ended in an embarrassing bogey in tax court.

That 10-foot putt for a tax break, in other words, doesn’t look so easy anymore.

More troubling, the author cites some cases (though I'm struggling to understand how the terra cotta facade of the Ritz Carlton is relevant), but provides no incite as to how the easement is drafted and how it works in practice.

I;m assuming from the large dollar values of the deductions that this is a one-time deduction at the time the property is set aside from development, though the author doesn't see fit to help me here.  Similarly I assume that often what's at dispute are the valuation metrics, i.e., what that portion of the property would be worth.

I'd also be curious as to whether the IRS provides any advance rulings to developers, or if it's a complete crapshoot.  In any event, while the author provides some numbers, I'm guessing that this is actually a rather small issue in our little world, since most golf clubs are not taxpaying entities.  Some resort and daily fee courses could obviously qualify for this easement, but since no one is building new course the caseloads should be slimming.