The Brookings City Council is going to stay the course – granting the financially-strapped Salmon Run golf course another chance at staying solvent.
For the second consecutive year, the council has agreed to offer the Claveran Group, which operates Salmon Run, a dramatically reduced annual lease — even though the company has only once made good on a lease payment in 13 years.
The original lease was for $35,000, with increases of $2,500 a year, said City Manager Gary Milliman.
The council had three options from which to choose at its regular meeting Monday night. The first option was to extend the lease for another year at a $15,000 lease rate. The second option was to authorize a 30-day extension and work with the principal investor, Steve Muir, to develop a lease termination and transfer agreement. The third option was to take no action, leaving current terms in place at $35,000 and due by April 1.
If a payment wasn’t made by then, Milliman said, the lease would be in default.
The new, proposed lease approved Monday is $20,000 a year — and would place lease funds in a special account to obtain a permanent water source for the course. The motion passed on a 3-2 vote, with Mayor Ron Hedenskog and Councilor Brent Hodges voting against it.
“It helps,” said Salmon Run Manager Ed Murdock Tuesday. “It’s a step in the right direction. There are things we have planned that we’re not sure will fit into the time framework we have.”
Hedenskog said he would have voted for the third option and allow the lease to default if the payment isn’t made on April 1.
“April 2, they’re out of time. They’re in default,” he said. “But we’re giving them one more chance, drawing one more line in the sand. I am totally confused with our city council about this golf course issue.”
He said he proposed six years ago to put golf course lease payments in an account for parks.
“We never got the money to do it,” Hedenskog said. “It’s a great idea, but we still haven’t received a dollar.”
The Claveran Group, a group of investors based in Brookings, built the 18-hole course, located about 3.5 miles up the South Bank Chetco River Road, in 1998 on 182 acres of land donated to the city specifically for golf course purposes by South Coast Lumber Co.
The city council deferred lease payments on the course for the first decade to allow the course to get under way. But the golf industry hit a slump — and the Great Recession followed — pulling Salmon Run to the brink of insolvency.
The course lost an average of $41,000 annually from 2006 to 2010, according to its 2012 business plan.
“They’ve not recovered their investment in the construction of the course,” Milliman said, “and they’ve had continuing losses.”
Two years ago the city council extended the payment deferral for another two years, and last year agreed to drop the lease rate to $15,000 and use those funds for a golf course consultant to evaluate operations at Salmon Run.
In anticipation of the 2013 season, the city late last year proposed a new $15,000 lease with an amendment that the city would provide mowing services and work toward creating a driving range and a vegetation management plan. The amendment is not included in the new lease agreement.
But the Claveran Group never responded, Milliman said, and when he contacted course Murdock Feb. 20, was told the lease had been rejected. Murdock also said the Claveran Group would not be making its 2013-2014 payment of $35,000, due Feb. 2.
City councilors were in slight disagreement about how to pursue the situation, considering they believe Muir wants to realign the Claveran Group’s corporate structure. Any transfer of the lease agreement is subject to council approval.
“I think the lease agreement seems kind of high,” said Councilor Kelly McClain. “I also don’t want this coming up every year. I want to see it paid on time. I want the golf course to succeed, but we need some tough love here.”
Councilors emphasized the city has no intention of making a profit on a golf course — and has actually lost money due to legal fees and staff time relating to agreement extensions and deferrals.
On March 8, Murdock ask Milliman if the city would be willing to reduce the lease payment to $15,000. Muir also noted in a letter that he is in negotiations concerning a possible transfer of the lease agreement to another party.
“It sounds like he does (want out),” Milliman said. “There are other parties in the LLC. And Ed (Murdock) is involved in it, but I’m not sure who the other parties are, or what arrangements he’s made with them.
“But Muir really wants to see the golf course succeed,” he added. “He’s been willing to underwrite it to see if he can make it work.”
Murdock said abandoning the lease is a possibility.
“The ownership group doesn’t see any huge return from this golf course in the near future — or in the distant future,” he said.
Obtaining a permanent water source is a priority, Murdock said.
“But it depends on what the solution is,” he said. “Some are difficult and expensive and there are other solutions that aren’t. We don’t have all the money in the world.”
The termination agreement is an option he sees as “still on the table.”
As it stands ...
In the proposed lease agreement, the Claveran Group will pay $20,000 that will go into a separate city account to acquire water rights and fund other improvements needed at the course. It now goes to the Claveran Group for approval.
The council debated if the city should recoup its legal and maintenance fees from money in the special account or if those fees should be additionally charged to the golf course.
“I’m concerned how much it costs the city,” said Councilor Jake Pieper. “There’s staff time, attorney fees; I’m tallying these up and it’s costly.”
“Most everyone knows what their mortgage payment is,” Hodges said. “And if you have to replace your roof, that (expense) is on top of that.”
Milliman noted that $15,000 lease rates added to attorney fees to obtain a permanent water source would quickly exceed the original $35,000 payments the golf course is supposed to pay under the terms of the lease.
Pieper added that while having a golf course is a valuable asset for the city, he’s heard around town that it shouldn’t be subsidized by tax dollars for the “upper crust” it primarily serves.
“We’d like to see it continue, to be a vibrant part of the community,” Murdock said. “We’re going to try everything we can to make things work.”
Milliman hopes to know by April 2 if the Claveran Group agrees with the terms of the new lease.