WestOne Bancorp Golf Course Expansion LetterWest One Bancorp
Yost Office Box 8247
Boise, Idaho 83733
208 383-7000
8/23/95
WSTONE
BANCORP
Mayor Grant Kingsford
City of Meridian
33 East Idaho
Meridian, Idaho 83642
Dear Mayor Kingsford;
You have requested an overview of our thoughts regarding golf course financing
and I will try to be concise and to the point. West One Bank has been involved in
several golf course financings and it has been our experience that they are the most
difficult of all municipal loan requests. This is because the basic purpose is "non-
essential' when compared to various other governmental responsibilities and as
such could be the first municipal function to suffer in case of economic hardship.
The second problem area deals with the ownership of the land as it is usually owned
by the municipality and as such not subject to collateralization. The third area of
concern is any management contract that might be entered into or in place must
comply with rigorous IRS requirements if borrowed funds are used for the facility.
Due to these problems we frequently are unable to develop suitable financing
proposals for golf course expansion or creation.
In trying to develop a workable financing plan we consider a variety of options and
usually need to combine several or all of the options to be successful. It helps to be
able to include as many of the following parties as possible;
A.) Users ---- via a special prepaid membership program that enables the
individual to play so many rounds per year for a specified number of years,
B.) Developer (s) ---- a special fee on adjacent or nearby lots that will benefit
from the golf course being in the neighborhood,
C.) Course Operator --- either through an equity contribution or an
adjustment in the terms of the management contract due to the projected increased
usage,
D.) Government Entity ----- by means of a cash contribution or a pledge of
other legally available revenues.
Of course, if any one of these parties can carry the entire financing burden then the
project can be more readily evaluated and more forward in a timely manner. Of
the four parties listed above, the magnitude of the government entity's participation
is by far the major factor. Having strong user support through the membership
drive is also important. The operator and the developer participation are always
welcome but are more subject to change than the user or the municipality element.
Municipality moral support is usually strong but there are seldom financial
resources available to devote to the project.
If projections show that course operations and related sources of revenue will cover
maintenance and operation costs as well as service the debt, then funding the project
with internal funds can be a win/win situation. Internal funding can reduce costs,
minimize risk and speed up actual construction. The interest rate on the internal
borrowing can be approximately equal to that that would have been earned by
otherwise investing the funds so that the lending department or fund does not
subsidize the golf operation. The golf course obtains funding quickly and at a fair
cost while the lending entity is reasonably compensated for the use of its funds.
However, it is rare when a municipality can provide a substantial portion of the
funding but when possible it is frequently the difference between success and failure
of a project.
The project seems to have two main areas of cost: 1.) the clubhouse, and 2.) the
course improvements. One possible plan would have the current manager finance
the cost of the new clubhouse, while the City uses its funds and those generated
through special memberships to fund the course expansion.
These comments are admittedly general in nature as I am unaware of the details
surrounding the costs, timing, current performance of the course and the nature of
the operating agreement with the current manager. It is my opinion ,however, that
the greater the role the City plays in funding the project the greater the chances are
of success.
If the City would like to actively pursue the nine hole expansion project, I would
welcome the opportunity to learn more about the operation of and projections for
the course in order to develop a more comprehensive financing plan. Please let me
or Terry Smith know how we can help the City in their decision process regarding
this project as we anxious to assist in whatever manner suits the City. Thank you.
Sincerely,
W t' •
Robert E. Hildeman
Vice President, Public Finance