March 15, 1997
On Municipal Golf Courses
by
Stephen Shmanske
Department of Economics
As an avid amateur golfer who regularly plays on the many municipal golf courses in the Bay Area it is with mixed feelings that I write this essay. There is no doubt that I am a beneficiary of the subsidies provided to golfers by the tax paying public. There is also no doubt in my mind that city funds could be and are being spent in ways much worse than in support of public access golf. As an economist, however, I must question the efficacy of the land use policies that subsidize golf.
Not all municipal golf courses are heavily subsidized. Unfortunately, it is impossible for the public to know how much of a subsidy there is in any particular case because large portions of the cost are hidden from view. Indeed, some courses even profit on their daily operations, returning funds to the city coffers, in the form of lease payments or revenue sharing. However, it is not strictly the net flow of funds that is important; it is the net revenues that the city collects compared to what the city would collect from the best alternative use of the land. In most instances we have no idea what this alternative amount is because the land is not freely traded in open competitive markets.
Economic logic and common sense indicate that when land is traded in competitive markets it ends up in its highest valued use, because the entrepreneurs putting the land to its highest valued use can afford to outbid everyone else for it. This is one of the basic insights behind any argument for privatization. The traditional exceptions to this argument involve cases in which private entrepreneurs cannot collect revenues commensurate with the value to which they put the land. This happens because of the difficulty of collecting money either from the beneficiaries of a particular land use policy (known as the free rider, or nonexcludable public goods problem) or from third parties who indirectly benefit from the land use (known as the positive externality problem).
For golf courses, however, neither of these traditional arguments for public sector involvement seem to apply. Most of the benefit created by a golf course accrues to the golfers themselves who can easily be charged for their use of the golf course. There is some unpaid for benefit received by passersby who enjoy the view and smell of the golf course. This is likely to be balanced on the downside by the feelings of those who would rather see the land used as fallow open space, or as housing, than to have their tax dollars subsidize the leisure pleasure of golfers. Simply, if a golf course were the highest valued use of the land, there is little reason to think that competitive markets would not lead to that result. This is true for very high valued land such as Pebble Beach, and is even more true for marginal land that is not suitable for residential housing such as landfill sites or land under airport flight patterns.
Perhaps many supporters of municipal golf course subsidies mistakenly believe that if there weren't municipal golf courses, there wouldn't be any public access golf courses. This is simply not true. Where municipal golf courses don't exist, privately owned, daily fee golf courses serve the golfing public without subsidies from the nongolfing taxpayer. In fact, the existence or possible future existence of a subsidized municipal golf course is one of the main factors deterring the establishment of daily fee courses. Daily fee courses are essentially locked in an unfair competitive battle for survival because they must pay their own way without subsidies.
Furthermore, because municipal courses typically charge city residents lower prices as part of the subsidy, the overall price level in the golf course industry is depressed, which depresses profitability and lowers the rate at which new courses are developed. It is altogether likely that with municipal golf courses there are fewer golf courses, which charge low prices, and therefore, are overcrowded with long waiting queues, and which do not have to be maintained in tip-top condition to attract golfers. Without municipal golf courses, there would be more daily fee golf courses in better condition (because of competitive pressure), with higher prices, but less crowding, and requiring no subsidies from the non-golfing public at large.
A variation on the theme of the public goods argument holds that a municipal golf course is a civic amenity, much like a city-owned park, which raises property values more than the implicit tax cost of the subsidy and, therefore, is an efficacious land use policy. In fact, as open space, a golf course has an advantage over a park in that it actually earns revenue for its upkeep. This type of argument is easily made but practically impossible to quantify. For those who believe that property values are raised it becomes a matter of faith. The decision becomes a political one, and if believers are in the majority, then a municipal golf course will result. The logical culmination of the "municipal-golf-course-as-civic-amenity" argument is the desire to subsidize the broad based benefits that citizens receive from association with a professional sports franchise. If you like municipal golf courses, you'll love this stadium deal I've got for you.