Updated, 2:17 a.m., full story
NORWALK, Conn. — One of Norwalk’s financial gurus tentatively endorsed Thursday the validity of a $3.2 million expenditure to build a driving range at Oak Hills Park while cautioning that perhaps the proposal should go through normal capital budget procedures.
Director of Management and Budgets Bob Barron, while admitting that he is no golf expert, told the Common Council Finance Committee that he had studied the figures presented by the Oak Hills Park Authority and found the revenue projections to be conservative and the expense estimates to be realistic. He recommended spending the $25,000 requested by OHPA to do a feasibility study on the driving range, a.k.a. “golf learning center.” Barron also outlined some financial gymnastics that would reduce the loan payments Oak Hills is obligated to give the city, giving the Authority significantly more wiggle room on its “historically thin operating margins.”
Both Barron and Finance Director Thomas Hamilton said these are “loose recommendations” in “an ongoing discussion.”
“We are not putting a proposal on the table, the mayor hasn’t signed off on this saying this is a proposal he is in support of, but he certainly has been involved with meeting with the Oak Hills Authority and has indicated that he wants us to continue pursuing the discussion to see if there are avenues or areas where we could reach an agreement that would provide the Authority with the ability to put themselves on firmer financial footing,” Barron said.
This discussion started in March at the behest of Finance Committee Chairman Bruce Kimmel (D-At Large), who invited Oak Hills Park Authority members to explain their financial situation and plans to the committee. This resulted in a forceful pitch from OHPA Ad Hoc Driving Range Committee Chairman Ernie Desrochers to have Norwalk forgive the debt the Authority incurred when it built the restaurant at the course during the Knopp administration.
“The debt exists and the debt is going to be paid, it’s going to be paid and the bond holders are going to be paid so really what you’re saying is you want the taxpayers to pay it instead of Oak Hills Authority to pay it and the golfers to pay it,” Hamilton said in March.
“We thought it is an obligation of the Authority that we think they should continue to pay back,” Barron said Thursday. “However, to address the historically thin operating margins, we thought perhaps we could restructure the debt to our current cost of capital.”
OHPA has met with the city finance department twice, once in April and once in May, to negotiate, he said. The Authority suggested the city take over the debt service for the restaurant, and take in the lease payments from whatever business was using the space, he said. OHPA also suggested restructuring the debt to the current cost of the capital, he said.
Authority members did not request financing from the city for the driving range, but said that would be least expensive option, Barron said.
The Authority’s debt has been restructured twice, but each time the interest rate remained set at the original rate, Barron said. The city has refinanced the money, he said.
“Our cost for the debt is lower than what they are paying us in interest, so we thought it would be a reasonable proposal to say let’s reduce the remaining balance to our current cost of capital,” Barron said.
Additionally, the Authority has been required to put $40,000 a year into a reserve account since it came up empty three years ago and requested a $150,000 bridge loan to make it through the winter, he said. The goal was to get the account up to $200,000 in the event Oak Hills defaulted, and there is $120,000 in the account now.
Hamilton and Barron said the city should give that money back. Oak Hills will not have to make the $40,000 payment in September, Barron said.
“This provision was put in there modeled after a revenue bond structure,” Hamilton said. “… That’s not really the situation we are in. The situation we are in is in fact, we own the land, it’s city-owned property, it’s a city-owned asset, it’s a city golf course. At the end of the day we are going to be responsible for it one way or another.”
The city has a $320 million budget with $36 million in its fund balance, Hamilton said. “We don’t really need the added security that this $200,000 debt reserve provides,” he said.
Oak Hills owes $2.215 million on its principal. The loan payment is $161,000 a year, at the original 4.56 interest rate, and would drop to about $131,000 at the current interest rate of 2.43 percent.
But Barron said Oak Hills has to make the $161,000 payment this year because that’s what’s been budgeted. The $30,000 in excess would be applied to the principal, he said. The balance would be $2.1 million after the payment is made in September, he said. Next year Oak Hills will owe $129,000 as its payment.
“It’s kind of a wash. Their budget planned on making that $161,000 payment … plus $40,000 (for the reserve payment). Now we are saying don’t give us the $201,000. We will give you this $120,000 from our reserve. Instead of giving us $201,000 they have to give us the difference between the $120,000 we are giving them and the $161,000. So I think it’s a reasonable accommodation for that. So that was our discussions. I think we have gone back and forth a few times. I think there is a general consensus.”
On to the “more debatable” golf school, he said.
The Authority has made this proposal for the last three or four years and Barron said he has become familiar with the figures, making an analysis based on his years working for FedEx, where he would do a cost/value appraisal on such things as buying airplanes, he said.
“I think their revenue projections are conservative. I think they could be better. I think their expense projections are right on,” Barron said.
There’s not a lot of labor associated with a driving range, so “not a great lot of expenses associated with it,” he said. Oak Hills projects $381,000 profit in its first year with a 1 percent growth increase over 10 years, which is “not an aggressive growth figure,” he said. The payment on a 15-year loan would be about $287,000 a year, he said, and Oak Hills plans to set aside $30,000 a year for capital improvements.
The break-even point for a $3.2 million loan would be 12 years after it opened, Barron said.
Kimmel and Council President Jerry Petrini (R-District D) fidgeted simultaneously at that remark.
The 15-year loan, even if you imagined the golf school went away at that point, would get a 6.6 percent rate of return, Barron said, calling that “healthy.”
“I think the golf school proposal has a real opportunity to bring a surplus back to the golf course as a whole and help them accomplish those goals that we mentioned at the beginning of the presentation: Shore up their financials, help them weather the fluctuations in revenues and expenses due to the seasonality of golfing and have more money to invest back into the park,” Barron said. “… I think we have a loose consensus that would give them what they need and it would from a financial perspective protect the city.”
He recommended that the city spend the $25,000 requested by DesRochers to fund a driving range feasibility study by an independent third party to see if the numbers are viable. Oak Hills could then make its $3.2 million request in December as part of the capital budget process.
Committee members said they supported the $25,000, with an eye toward expediting it and getting the study under way. Present were Doug Hempstead (R-At Large), David McCarthy (R-District E), Kimmel and Petrini; John Igneri (D-District E), Travis Simms (D-District B) and David Watts (D-District A) were absent; Igneri was out of town, Hempstead said.
Kimmel suggested sending it straight to the full Council after it runs through the Board of Estimate and Taxation, but Hamilton protested that he needs to talk to Mayor Harry Rilling first.
The loan modification would be voted on by the committee on July 9 and go to the full Council on July 14, Kimmel said.
NORWALK, Conn. — One of Norwalk’s financial gurus tentatively endorsed the validity of a $3.2 million expenditure to build a driving range at Oak Hills Park on Thursday, while cautioning that perhaps the proposal should go through normal capital budget procedures.
Director of Management and Budgets Bob Barron, while cautioning that he is no golf expert, told the Common Council Finance Committee that he had studied the figures presented by the Oak Hills Park Authority and found the revenue projections to be conservative and the expense estimates to be realistic. He recommended spending the $25,000 requested by OHPA to do a feasibility study on the driving range, a.k.a “golf learning school.” Barron also talked about refinancing the debt that Oak Hills owes the city, given that the city is paying a low interest rate on the funds.
Both Barron and Finance Director Thomas Hamilton said these are “loose recommendations” in “an ongoing discussion.” Mayor Harry Rilling wanted the feedback from the Council, before discussing things further, they said.
“The mayor has not signed off on this,” Barron said. “He has indicated he wants us to continue pursuing the discussions.”
The return on investment for a driving range would be 6.6 percent, with a break-even point 12 years after it opened, Barron said.
Council members said they supported the $25,000 for a study, with an eye toward expediting it and getting it under way.
“We own the land, it’s city owned property, it’s a city owned asset, it’s a city golf course… at the end of the day the city is responsible one way or another,” Hamilton said.
This story will be updated.