Help With Numbers...John/Dave/Others?

Anyone who watched the Board meeting the other day got an earful...from golfers who told the board to just get er done, to frustrated long range planning committee who were angry at how this whole thing came down. It wasn't a pretty sight, with a lengthy explanation (kind of) how one of LRPC's motions ended up the agenda and the other three didn't.

What you didn't see were some of the discussions during the break and after the meeting. Nope, all of the discourse was good by my book, it's how we get to a better place. But, one of the remarks by the CFO threw me. It flew in the face of a statement i made at the mic, and worse yet, it made no sense to me.

I've freely admitted, i'm not a numbers guy. I can do them, but they bore me and frankly those of you who are good with them, i am more than happy to let those folks do the heavy lifting. Which is why i am turning to those of you who have a better understanding than i do.

At the mic, i reminded folks we rebuilt the North course in 2014; including the sand traps. In the good old days, golfers could putt out of about half our traps and the GM felt we needed to make them more challenging. I was opposed to expenses beyond irrigation and water distribution but was out-voted, always. I did support adding the expanded outside patio areas and pro shops.

The total price tag for the north course was just over 6 million dollars, with the patio enhancements. Mind you, our documents clearly spell out the criteria for any project to meet the PIF requirements: $300,000 and a 15 year life to qualify. North easily did that.

My argument was to rebuild the sand traps within that 15 year period would either disqualify them from being done/covered again; or at least until the 15 years had lapsed. On the other hand, one could argue they could be redone out of capital expenses (or CIF), but if they did that, the bunker work done in 2014 technically should be repaid to the PIF (an odd position and one to my knowledge we have ever addressed).

With all of that out of the way, i was shocked to hear the CFO claim the sand traps at the North course could be done this year or next and paid for by PIF. Huh? After the meeting i approached him and asked him how he came to that conclusion?

His answer was it would be covered because the RCSC had recovered their north course investment through "depreciation." For those who don't know, virtually all big ticket items that are allowable are depreciated. For lack of a better explanation, it is a smoothing affect on expenditures allowing the cost to be spread over varying periods of time based on what it is.

For those smarter, feel free to correct me; this is not an area i am very well versed in. It's always been curious, because non-profits use it as an accounting procedure where for-profits actually enjoy the benefits of using those expenditures as write-offs. Neither here nor there; just that we are different. We use it to keep our expenditures more balanced (i think).

Anyway, back to my point: Is there any logical explanation where-by that 15 year criteria regarding PIF qualifications is rendered null and void because of an accounting procedure (depreciation)? It would seem to me, if that were the case, it wouldn't say 15 years, it would "read after the investment had been fully depreciated."

What am i missing?

 

I think you're missing the fact that the rules only mean what the Board says they mean, not unlike the rule, (which doesn't exist) that said the LRP Committee wasn't allowed to call a Special meeting!

 

I hear you brother which is why i asked. I'm tired of being told stuff on the belief they have all the answers and we are just dummies for misunderstanding. If i'm wrong, which i am often, i am happy for someone smarter than me to explain it.

 

I think quite the opposite is true. And when you attempt to explain what us dummies believe is the truth, they don't want to hear your reasoning!

 

Without consensus, power and control is the norm. From my perspective the golf community has the power and control. So I guess we live with their agenda or vote them out. What happened to the more stringent PIF expenditure process?

 

If I may chime in with an observation. The self-imposed qualification requirement for PIF funding is that the asset must "have a depreciable life of at least fifteen (15) years". In this context, this means that RCSC has assigned a 15-year depreciable life to sandtraps based on accounting guidelines or experience. Bill's explanation of Kevin's answer would tend to indicate RCSC assigned a depreciable life of less than 15 years to the sandtraps. But this assumption can only be confirmed by examining the fixed asset ledger. Anita Borski, the Treasurer, has access to this ledger so she could provide a straightforward answer. I wouldn't hold your breath for that.

IMHO the elephant in the room is what was included when ADWR amounts were put on the PIF schedule. I think the amounts were set aside for expenditures directly related to meeting ADWR WATER REDUCTION requirements. This is what the LRP thought as well. Certain members of the Board disagree and believe these amounts can be spent on any golf course improvement. The feeble attempts by a certain board member to rationalize using ADWR funds to redo courses are IMHO pitiful and disingenuous. The debacle that unfolded at the last Board meeting with a prepared statement by the chair of the LRP was IMHO disgraceful. Yes, everyone knows Preston Kise sent out a plea to golfers to show up and included confidential communications with his plea.

Look, I tell it like I see it but am always open to being informed of mistakes of fact I may have made. So, if any Board member wants to provide a written response on TOSC as to why I am in error I will honestly and objectively analyze the written response. If I am wrong, I will promptly admit it.

Finally, let's be real. We are all tired of being treated like idiots and nuisances because we hold the Board accountable. The Board is either going to have the guts to be open, honest and transparent or, IMHO, we need a new board.

 

John, so you are against water reduction on golf courses because no signed agreement with the water dudes? So being proactive to reduce water consumption on the largest utilizer of water is wrong? Not being argumentative but if over 100 feet total is reduced from both sides of the South Course, actually should be 200 feet, plus low water required for the planned new turf, which is the largest user of water of all the courses is a bad thing explain how. After all we are in a 45 year drought,
Don’t know anything about what happened at the Board meeting as I wasn’t there so no comment.

 

Dave,

So redoing sand traps saves water? Must be a new type of water producing sand we are using. eh. My point is this, the members deserve to know what the overall plan is, what is included, why it complies with ADWR requirements, how long it will take, how much it will cost, how and why we are prioritizing projects so the ones that save the most water are done first, etc. etc. This is too important to just wing it and call it being proactive.

John

 

Curious that Dave had no response regarding how PIF criteria is met. A 15 year life and $300,000 is pretty straight forward. I purposely included him in the header because he has long tried to explain the nuances of depreciation. Now he falls silent; go figure?

The South course is the obvious target for addressing the massive problem we have with the 2025 ADWR water reduction. Replacing that rough should be done first, as some have suggested that alone would solve most of our turf reduction issues (apparently the agreement allows the RCSC to bundle the 8 courses rather than addressing each independent of one another). It was slated to be done immediately following the Quail Run course and then it was moved to the back of the bus as the North golfers demanded they get fixed first.

DUMB?

 

Bill, I have not been at home and my current ability to do the necessary research is limited. Sorry I cannot provide you an answer RFN. Be patient I will get back to you on PIF.

 

2017 seems to be a important date in the determination of eligibility of a qualified improvement to be reclassed from 39 years to a 15 year schedule. It has been a minute since I had to utilize my old accounting knowledge. Per google:

Depreciation Schedules for Golf Course Improvements
Depreciation schedules for golf course improvements, under US federal tax laws, generally fall under the Modified Accelerated Cost Recovery System (MACRS). Here's a breakdown of the key elements:
1. Land vs. Improvements:

• Land is not depreciable: The cost of acquiring the land itself is not subject to depreciation.
• Land Improvements are depreciable: Improvements made to the land, unlike the land itself, are depreciable assets.

2. Depreciation Periods:

• Standard Depreciation: Commercial property, including golf courses, typically uses a 39-year depreciation schedule for the clubhouse/buildings.
• Accelerated Depreciation through Cost Segregation: A cost segregation study can potentially accelerate depreciation for golf course improvements by classifying them into shorter recovery periods:
  • 5, 7, and 15 years: Cost segregation can reclassify qualified real property and depreciate it over 5, 7, or 15 years instead of the standard 39 years. This includes land improvements and assets that don't affect the structural stability of the building/clubhouse.
  • 15-Year Period for Certain Improvements: Depreciable land improvements, like certain golf course components such as underground drainage tiles or pipes and closely associated land preparation costs, generally have a 15-year recovery period under MACRS.
• Qualified Improvement Property (QIP): QIP regulations allow for reclassification of newly constructed/non-structural components from 39-year to 15-year depreciation if placed in service after December 31, 2017.

3. Specific Golf Course Features:

• Modern Greens: Land preparation costs associated with modern greens, which include components like underground drainage systems, can be capitalized and depreciated over the recovery period of the underlying depreciable assets.
• Bunkers: The depreciation of bunkers depends on their construction. If a bunker is constructed similarly to a modern green, with a depreciable liner or drainage system, then the associated land preparation costs can be depreciated.

4. Bonus Depreciation:

• 100% Bonus Depreciation: In addition to accelerated depreciation, bonus depreciation allows up to 100% of 5 and 15-year property to be depreciated in the year the property was acquired or placed in service.

In essence, while the standard depreciation for golf course improvements is 39 years, utilizing a cost segregation study and considering QIP regulations can lead to a more accelerated depreciation schedule, often over 5, 7, or 15 years, providing significant tax benefits for golf course owners.

 

Cheryl,

You inadvertently brought up a good question: What standard applies to determine if an asset has a 15-year depreciable life; tax, US GAAP, or IFRS? The bylaws do not say so I would argue that whatever depreciable life RCSC has used for assets of this type is controlling unless the asset is significantly different from other sand traps.

John

 

I apologize for the rant I posted earlier. I am truly so exasperated with golf believing their spending deserves more than any other community needs. I am so upset that one small group feels that it’s okay to spend around set parameters.
I am offering my condolences for my post.

 

No condolences are required. It is virtually impossible not to become enraged when the entire board railroads a committee that has the community's best interests at heart. Sadly, I can honestly say there is not one individual on the board that I trust.

 

My WAG at this would be GAAP, I wish I had more familiarity with golf course construction as the standards seem to delve into many areas with differing depreciation schedules which have of course evolved in their definitions from when the course was initially built (costs of improvements to land added to cost basis) or how these various improvements have been historically booked once RCSC entered control.

Does anyone have access to any historical depreciation schedules to compare to the current schedule? I have always wondered if this information is available to members. Has there been audit oversight in the past to ensure any asset was properly scheduled before it was booked? Does budget and finance committee have access to these?

You may find this informational as well, however unless we know how they were initially booked and if in fact they were booked correctly, it's anyone's guess.

Depreciable golf course land improvements and the impact of Rev. Rul. 2001-60 | Internal Revenue Service https://share.google/bH2sd58VCGpaT3JEW

 

Thanks Cheryl, i never got as far as accounting 101, so i almost always defer to those who have a firm footing on how things work.

Your and John's remarks sent me scurrying to the document how PIF monies can be spent. I don't know how golf course PIF expenditures are allocated, but as you mentioned C, there are various schedules that can be used. So perhaps the CFO is correct, because here is the language from the Board Policies:
D. Projects funded from the Preservation and Improvement Fund must:

1. 1. be approved by the Board of Directors;
   2. be a minimum of Three Hundred Thousand Dollars ($300,000); and
   3. have a depreciable life of at least fifteen (15) years, and
   4. are not to be spent for normal operating or maintenance expenses.

If in fact, the RCSC uses a 7.5 year depreciation schedule, then the board members can just keep hiring a golf course designer every 7.5 years for new designs on our courses. Of course, some of those sand traps became unplayable because we didn't do proper maintenance on them, but what the hell, we have money to burn when it comes to our golf courses...don't we?

So, there you go, spend away; it's only money eh?

 

Bill,

If RCSC uses a five- or seven-year depreciation schedule, the sand trap expenditure would not be PIF eligible. Interestingly, by not being eligible for PIF funding it could be eligible for CIF funding. OMG pass the asprin. I am sure board members are reading this and saying better lucky than good or gotcha!

John

 

I think i said it at the meeting John, the money could come from the CIF or capital expenditures to redo the sand traps. Why would the traps not be allowable under a 5 or 7 year depreciation schedule, if they were done 11 or 12 years ago? Clearly, the director's goal was yet another golf course remodel as opposed to just fixing the problem traps.

A better question and far more logical one would be: How many traps can't golfers chip out of and why not just redo those without hiring a golf course architect? Makes one question if said traps can be fixed for less than $100K?

 

I will not go off the deep end again today. All I ask is that the board stop promoting pet projects. This goes against their sworn oath to uphold the fiduciary duty of being a director of the RCSC board. Their duty is to do what is in the best interest of all of the members, not just a select few. To hear that the group was campaigned by a sitting board member for the specific purpose of promoting a pet project is deplorable. It’s even more agonizing and absurd that other members of the board are allowing this action to continue.
This is a demonstration of self governance gone awry and not single person of integrity will stand up to say “No”. This brings actual tears to my eyes and breaks my heart. I had such high expectations and hope for our board. Nope, just another lockstep back room good old boys rigged card game. Who’s turn is to deal the next hand?

 

Carole, I agree with you. It is simply not believable that all of the board members did not participate in this. I was told that five of the nine directors were present at the LRP meeting, and they interrupted the discussion at will. And the chair and co-chair somehow convinced a non-golfer on the committee to make a golf motion by having a secret discussion with him before the meeting. Hmm? Two great members of the committee quit. This stinks to high heaven. John