Chapter 7, Problem 14C

Enterprise Fund Golf Course Management.* (LO7-1) Kaui County has operated a popular oceanside municipal golf course for more than 30 years. Local patrons as well as tourists enjoy reasonable rates in a picturesque setting. Ten years ago, the course was quite profitable, so the county created an enterprise fund and moved accounting for the golf operations from the General Fund to the new enterprise fund. Over the years, however, course usage has declined and costs have increased. During the current year, the course suffered a $650,798 shortfall that had to be covered by the county’s General Fund. In the upcoming fiscal year, the county projects the shortfall to be more than $1 million. Many have criticized the county for injecting money into a business that should be primarily funded through user charges. Supporters of the golf course note that the municipal course is part of the county’s Parks and Recreation department, which benefits the entire community, hence county support of the course is warranted.

Required

1. a.      Is the Kaui County golf course required to be accounted for as an enterprise fund? What are the accounting implications of operating the golf course as part of a General Fund department rather than an enterprise fund activity?
2. b.      Assume you are a member of a task force that the county has appointed to address the current golf course situation. Consider each of the following options and draft a list of questions that come to mind as you evaluate the potential for each option.
   1. (1) Status Quo. The county could continue to operate its golf course with all revenues, expenses, and employees belonging to the municipality.
   2. (2) Concession Agreements or Management Contracts. The county could hire a management company to operate all aspects of the golf facility, or grant a license to an outside vendor to operate a portion of the facility. This option offers several combinations, whereby the county maintains control of the golf operations but outsources the golf pro shop, food and beverage operations, and course maintenance to one or more concessionaires.
   3. (3) Operating Lease. The county could lease the golf facility to a private operator in exchange for an annual (or monthly/quarterly) lease payment to the municipality. The lease could be established to include certain lessee requirements, including capital investment in facility improvements, minimum standards of maintenance, and greens fee restrictions.
   4. (4) Selling the Golf Course. The county could place the golf course up for sale. This removes the facility from the books of the municipality.