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Oakmont News, Opinion & More

Oakmont Golf Club – Countdown to Zero Hour

As we are about to end one year and look ahead to a new one, we take inventory of the past and plan for the future.

As I write these lines, the East Recreation Center is nearing its completion, a $3 million facility that will serve the Oakmont residents for many years to come.

Awaiting us are new challenges. First and foremost is the question of an ailing Golf Club, whose finances are, according to the latest report, in “dire” condition. What exactly does this mean? Are we looking at a looming bankruptcy? What is the given time frame?

We know that the OVA and the OGC have formed respective committees that ostensibly are negotiating toward a resolution. But little to no information is available and, therefore, the residents are reduced to making assumptions to the best of their abilities.

After a long summer of impassioned debate, all manners of proposals have been consolidated and offered to the appropriate agents; they range from soliciting voluntary contribution to the Golf Club, to reserving special funds by OVA to rescue the struggling entity, to carrying its expenses for six months in order to gain time.

One school of thought consists of waiting until foreclosure to acquire the assets of the Golf Club. Another opinion urges the immediate purchase of land, or a buy-in of part or the entire business (all against the background of the IRS; legal and practical obstacles which seem daunting, almost insurmountable.)

A central fact revolves around a $2.5 million loan from the Legacy Bank and some lesser amount from the Small Business Administration for disaster relief. If a default takes place, bank ownership of the operation would occur with a subsequent sale to the highest bidder.

This scenario entails the risk that an outside entity/developer could acquire the assets (225 acres of land and the Quail Inn), thereby denying the OVA control over the future of the golf courses.

A potential scheme has the OVA assuming the outstanding loans for a majority interest in the Golf Club business. In this context, the existing management would continue, under the supervision of the Association, to operate one golf course and the Quail Inn, and abandon a second 18 holes.

This plan would allay the collective anxiety about OVA taking over administration of the entire Golf Club operation. A point of discussion, if not contention, will be the measure and size of the majority stake.

An amount of 51 percent has been floated. Uniformly rejected as much too low, opponents maintain that in a bankruptcy proceeding, the Golf Club would end up empty handed and that neither moral nor ethical considerations should dictate the financial arrangements.

A prior article mentioned the environment of privacy, secrecy and opacity surrounding the negotiation of the Golf Club issue. One fear is prominently voiced, namely the real possibility of a fait accompli announcement by both OVA and the OGC. A decision arrived at without prior informing, let alone consulting, the residents of Oakmont, who will pay the bill, but are compelled to resort to more or less educated guesses about the future of their community.

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18 Comments

  1. Lyn Cramer on December 11, 2018 at 8:54 am

    The scenario unfolding before us, if Yvonne’s report is accurate, goes well beyond the risk that of an outside entity controlling 225 acres of land in the heart of Oakmont. It includes the increasing likelihood that this Association will entangle itself financially with an entity that has been duplicitous in its appeals to Oakmont members.

    What is one to believe? Not many months ago the OGC’s financial was described as “fine” by its leaders. Their request (demand really) was based on fairness. “It is time for Oakmont to cease enjoying a free ride, to pay its fair share of water management costs.” Now, it appears, the OVA is about to face a fait accompli: Bail us out or everything spins out of control. Absent hard financial information it is impossible to know what is true. The OVA board, which in many ways has set new standards for transparency and deserves due credit, has done the opposite on this issue. Time to change.

  2. Debbie Kiddoo on December 11, 2018 at 9:11 am

    The proposal outlined by Yvonne doesn’t make sense to me in regards to assuming the loan and then abandoning the east course. The loan includes the value of the land of the east course which does generate revenue. If the east course operation is abondened how will the Ova get value from the land and what will they do with it. The east course abuts many homes in Oakmont and will need to be maintained which will require money.

    • Bruce Bon on December 11, 2018 at 3:12 pm

      Debbie — I think your questions are good ones. The lender would have to approve any assumption of the loan, and the collateral might have to be changed — is the collateral the property alone, or the total OGC as a business? Would OVA have to put up current OVA property as collateral? That would certainly be an argument against assuming the loan. But because of OVA’s reliable income stream, and ability to assess 4800 members, if necessary, OVA probably is a much more attractive borrower than is OGC.

      Whether or not to close the east course should depend on whether it is making net income, which I think it highly questionable, but it is a question that needs to be answered before making such a decision. Almost any resolution is going to end up costing us money, one way or another, and you are certainly correct that maintenance of the east course would cost us.

    • Ruth Levy on December 12, 2018 at 4:27 pm

      I totally agree with Debbie. I support both courses be maintained & since all home owners land value is influenced by Both Golf Courses” an added fee of $3-5 a month be added to our OVA dues to help with the maintenance.

  3. Bruce Bon on December 11, 2018 at 11:59 am

    I agree with Yvonne’s evaluation of the situation, with the caveat that the secrecy surrounding the OGC financial situation, the conflicting messages sent by OGC management concerning their financial health or lack thereof, and the opacity which the OVA Board has consented to in negotiations with OGC, mean that we can’t really know for sure.

    What we do know is that the golf courses present a very large financial risk to OVA which has been increasing for the past two decades and which threatens to come to a head within the next few months or years. It was documented in John Williston’s report for the LRPC several years ago. It hasn’t been a secret, but it has been ignored by successive OVA Boards, as well as by the rest of us.

    My current thought, given the situation documented by this article: The OVA Board should propose, to OGC and to the membership, to purchase the property of OGC. The price should be the cost of retiring all OGC loans. The property should then be leased back to OGC for a nominal amount, with the condition that OGC continues to maintain the property, with or without continuing the golf operation. The OGC’s business outlook would be improved a great deal by removing the burden of the monthly payment on its loans. If appropriate to their business plan (assuming they create one – I have seen no evidence that one exists), OGC could negotiate with OVA to release the east course from the lease contract, allowing OGC to contract their golf operation. If that happened, OVA would have to take over maintenance of what is now the east course, which would not be an insignificant expense. As for financing the purchase, OVA might (1) take over the principle OGC loan, (2) if that doesn’t work, obtain a new loan for the purpose, or (3) propose to use a special assessment for the purpose.

    Whichever financing scheme is used, the OVA Board should put it to a vote of the membership. This would be required by law if a special assessment is used and the amount exceeds 5% of the “budgeted gross expenses of the association for that fiscal year”, or about $200,000, and the OVA Board should not try to avoid a vote by finagling the financing, e.g. by spreading it over enough years to avoid the threshold. One way to make it absolutely clear that the Board is not responsible for the consequences of the decision, as some directors claim to fear, is to structure it as a special assessment that requires an owner vote for approval.

    Adding all of the land and buildings belonging to OGC to OVA would be a enormous change to what OVA is, and absolutely should not be done without the consent of Oakmont owners, regardless of whether or not the OVA Board and its lawyer can find a legal way to do it. If the Board can’t make a strong enough case for the action to convince OVA members to vote for it, then the action shouldn’t take place.

  4. Yvonne Frauenfelder on December 11, 2018 at 4:28 pm

    To Lyn, Debbie and Bruce with my thanks for their responses.

    Each compelling comment touches on topics that deserve further exploration and call for information from the OVA and OGC Boards.

    Until particulars, facts and figures are shared with the residents, we remain constrained in our ability to assess the true conditions of the Golf Club and the progress of the negotiations.

    I sincerely hope that the OVA Board, at their December 18 meeting, will add members of the Oakmont Community Development Committee to their deliberating panel, and concurrently advise the community of the status and advances in their transaction with the OGC.

  5. Gerry Gwynn on December 11, 2018 at 4:54 pm

    OVA cannot retain its current non-profit status if it owns or leases or participates in financing a golf course that is open to the general public for any fee.

    The vast majority of OGC’s current revenues are derived from rounds played by non-Oakmont residents. Hence, no more fee-paying general public and no more fee-paying non-Oakmont private owners of OGC would equate to such dismal revenue that it could not even support keeping one course open.

    The Oakmont community would incur the added costs of taxes and the re-gearing of accounting systems to a taxable basis and the endless future bailout via community’s dues of a big-$-losing “golf” operation.

    So I think that these proposals that OVA should buy OGC assets, or assume OGC’s debt, or buy-and-lease, etc., are not rational or realistic. And I know that OVA’s current non-taxable status explicitly prohibits any of these relationships under CA Law.

  6. Yvonne Frauenfelder on December 12, 2018 at 7:00 am

    Hello Gerry –

    Thank you for your input, and I invite you to comment on the statutory changes that would allow social clubs, such as the Oakmont Association – IRC 501 (c)(7) – to receive investment income and income from nonmember use of its club facilities without jeopardizing its tax exempt status.

    * The effect of IRC 501(c)(7) being changed to provide that “substantially all” of a club’s activities must be for recreational purposes is to allow social clubs to receive some investment income and income from nonmember use of its club facilities without jeopardizing its tax exempt status.

    https://www.irs.gov/irm/part7/irm_07-025-007

  7. Gerry Gwynn on December 12, 2018 at 11:17 am

    YF,

    You wholly ignore the crucial first issue and thus, I presume, are led to assume a egregiously nonsensical position.

    “Its facilities” implies OVA ownership of such facilities, i.e., certain current OGC assets.

    So the issue is whether or not the current non-profit OVA registered in the state of CA can have an ownership interest in a for-profit, private enterprise deemed OGC.

    OVA, as registered now with the state of CA and the CA Tax Board and the IRS,, CANNOT do this and still exist as “OVA”, a non-profit association of residential homeowners.

    The totality of what you’ve described is clearly irrelevant to the OGC issue, but well describes the current OVA arrangements/relationships with, e.g., the various for-profit providers of exercise programs that use OVA facilities. OVA has zero ownership interests or other relationships with these small, for-profit businesses that would make OVA current tax-exempt status null and void.

    Let me be very clear here: Should OVA, as now recorded with state of CA, assume an ownership interest in a private, for-profit entity like the nearby golf course operation then “OVA” ceases to exist as such by law. Because “OVA” to continue to exist must meet the requirements of the State to register as a tax-exempt enterprise.

    Hence, no “OVA” and consequently NO governing “OVA” Board of Directors, and NO dues of any kind required of Oakmont residents.

    Whatever newly-registered and newly-named for-profit entity that replaces the extinct “OVA” CANNOT deem to collect any “dues” whatsoever from residents. Each and every resident would have to agree to explicitly agree to join this newly formed for-profit entity as a member.

    Do you get it? No one can force another to be a member and pay “dues” to any enterprise — taxable or exempt —whether it be General Motors, or the current nearby golf club, OR whatever is the new, taxable entity that replaces — should the state of CA agree to such a new, taxable entity.

    No “OVA” as currently registered and entitled per CA laws obviously equates to NO existence or legal authority of the current “OVA” Board of Directors and NO dues whatsoever owned said non-existent entity by any resident.

  8. Yvonne Frauenfelder on December 12, 2018 at 12:11 pm

    Hello Gerry –

    You state that “‘It’s facilities” implies ownership of such facilities …”

    Precisely. That is implicit in my comment. The OVA acquires all assets owned by the Oakmont Golf Club, and, thereby, falls under the 1976 revision to the statutes governing 501(c)(7) entities.

  9. Gerry Gwynn on December 12, 2018 at 1:28 pm

    YF,

    Those OGC “assets” are now open to the public. And the public is the primary revenue generator.

    Should the current “OVA” acquire any ownership position in said assets then the public is excluded from use of those assets and “OVA” cannot operate those assets at profit. In order not to bankrupt the current “OVA” the acquired assets could never be operated as an Oakmont-residents-only golf course or Oakmont-residents-only restaurant. Attempting to do so would only incur substantial losses of the community’s funds.

    IMO you insist on espousing a nonsensical course of action: Why, pray tell, would the current “OVA” have any interest in acquiring OGC assets that you’ve repeatedly (with no back-up facts) claimed are not operationally profitable and that are encumbered by debt covenants and zoning restrictions UNLESS the current “OVA” chose to bid on those assets post-OGC-bankruptcy with the intent of converting the land to real-world “open space” for the use of all resulting Oakmont residents/owners.

    There is no possibility whatsoever that an entity claiming to be tax-exempt has any hope of TWISTingG the intent of a 1976 (42 yr. old) law while that same entity has chosen to remain in blatant non-compliance/violation of CA’s D-S laws.

    Your citation of 1976 is completely irrelevant to the legal issues inherent in your proposals to force Oakmont residents to assume OGC’s huge debts and, IF they exist, any OGC operating losses.

  10. Yvonne Frauenfelder on December 12, 2018 at 2:06 pm

    We disagree on fundamental issues, Gwynn. I, contrary to you, believe that the OGC issues are real and – while challenging – can be solved with the assistance of expert opinions, accessible to our board of directors.

  11. Jeannette Luini on December 12, 2018 at 10:24 pm

    Bruce presented an interesting strategy for transferring money to the OGC. OVA would certainly be getting something valuable in return for our dues money if OVA bought the two golf courses and the Quail Inn in exchange for paying off the OGCs debt. If, as suggested by Bruce, OVA leased the West Course and Quail Inn back to the OGC for a nominal fee e.g. $1 a month, it seems that OVA would not be making a profit on the lease so its status as a tax free social organization would not be jeopardized.

    The arrangement would be similar to the various instructors who use OVA space and make a profit by charging participants in their classes. OVA itself doesn’t make a profit because the instructors don’t pay rent.

    I’m glad that Bruce indicated that the OGC would only manage the West Course and the Quail Inn. Meanwhile the East Course could become minimally maintained open space managed by OVA. Perhaps a dog park, a tot lot, and a new fitness trail? For sure the East Course roads and paths could be used by Oakmont residents for walking and jogging. Also a few well placed benches would allow residents to enjoy nature and the magnificent views of the golf course.

    And what if the OGC still fails and is forced out of business? Then OVA could take over the Quail Inn and use it for office and additional meeting space. Would OVA want to maintain a 9 hole members only golf course? Perhaps.

  12. Ellen Dolores on December 13, 2018 at 9:29 am

    Legally this is not complicated- the OVA cannot force a dues hike or special assessment to bail out a business we do not own, and I think the highest court in the US would agree with me. I leave it to the complicators to decided the affects of a non-profit involvement with a for-profit business on the statis of the OVA with regard to CA law, because my first statement demonstrates this nit-picking is irrelevant. My vote if the secretive and patronizing Board lets me have one, is a resounding NO to pay for any debt or maintenance cost incurred by the OGC. But even if they “let us vote” whatever the outcome, I won’t pay and logically know I cannot be forced to. Let them do what all other failing businesses do- find an investor, sell the business, make some deal with the loan holder, or bankruptsy. I doubt the people whose yards are on the golf courses even if willing to pay on a voluntary basis would add up to enough. Personally all this fear mongering is only a sign of desperation for a lost and failed business. Our property values will be fine because a developer will figure out something attractive and useful to do with 225 acres- some large houses with lots of space around them paid for by people who will only buy if the property looks attractive to us and them.

  13. Gerry Gwynn on December 13, 2018 at 11:39 am

    Jeannette,

    I think that your thought process and proposal is unrealistic.

    Should OVA purchase OGC assets for the price of OGC’s current debt and lease it back to OGC for a buck, then if OGC fails the party that is responsible legally for all of these purported losses is the land owner = OVA.

    Why, pray tell, would or should OVA pay funds to relieve the private OGC owners of their debt and financial losses and thus assume total responsibility for the inevitable financial failure of an incompetent private financial enterprise?

    Why?

    Yvonne, I am looking for some rational coherence, some consistency to your “opinions”. Am I to understand that you explicitly are now proclaiming confidence in the current OVA Board that you, simultaneously, proclaim to be “vague, obtuse” etc. and disinterested in a community vote?

  14. Yvonne Frauenfelder on December 13, 2018 at 11:50 am

    Gerry – your ex-cathedra pronouncements fall on tired ears.

  15. Gerry Gwynn on December 13, 2018 at 12:32 pm

    YF,

    Likewise.

    And I must assume that you are therein seeking to avoid addressing the issue of your conflicting claims.

  16. Gerry Gwynn on December 13, 2018 at 4:43 pm

    Jeannette,

    I misunderstood your comment about OVA doing a buy-leaseback of some of OGC’s golfing assets.

    The comment that I made in my second paragraph above is completely wrong: OVA would not —under the terms of the typical commercial lease contract — bear responsibility for OGC’s operating losses.

    Please accept my apology for my mistake.

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