The Perfectly Logical Illogic of Golf Course Tax Breaks
Posted on July 17, 2023
Billy Hamilton is the deputy chancellor and CFO of the Texas A&M University System . In 2015 Hamilton led Texas Republican Gov. Greg Abbott ’s Strike Force on the Health and Human Services Commission to complete a management analysis of the agency. Before that, Hamilton was the deputy comptroller for the Texas Office of the Comptroller of Public Accounts from 1990 until he retired in 2006. He is also a private consultant, advising on numerous state tax matters.
In this installment of State Tax Merry-Go-Round, Hamilton examines tax breaks for golf courses, finding that although they are not good policy, they are unlikely to be discontinued.
I don’t play golf or follow golfing news, but a couple of articles about golf courses and taxes caught my eye recently. From them, I learned that golf courses, those serene acres of meticulously groomed fairways and greens, dotted with pure white sand traps and well-heeled men and women in gaudy golf wear, have been drawing some unwanted attention because of their property tax breaks.
The tax breaks are baked into some property tax statutes and affect how some golf courses are valued for tax purposes. Most states require real and personal property to be assessed based on fair market value, which often is described as the value of its “highest and best use.” However, that’s not the way golf courses are taxed in some states.
The reason has to do with state open space and recreational land preservation incentives under which qualified lands held as open space or for recreation — hiking, camping, and so on — are assessed based on the value of their current use rather than their highest and best use, which usually is higher.
According to a 2013 study for the Connecticut General Assembly , 23 states have current-use assessment programs for open space and recreational land. Seven of those states name golf courses as eligible open space or recreational land uses. In the other 16 states, golf courses may be eligible depending on the state’s definition of open space or recreational and the program’s eligibility requirements. The study identified four states — Arizona, Hawaii, Maryland, and Nevada — where golf courses are a separate land use category eligible for current-use assessment. 1
These golf course incentives turn up in the news every few years when someone notices that private golf courses are receiving large tax breaks that strike critics as unfair. For example, a Texas state senator introduced legislation in 2013 to end a green space property tax break for golf courses, only to have the bill go nowhere, which, it turns out, generally is the fate of any legislation to end these incentives. 2
The bigger of the recent golf course stories in the news surfaced in June when The New Republic ran a blistering article about this year’s U.S. Open venue, the Los Angeles Country Club ( LACC ). 3 Writer Timothy Noah wrote that the Open, one of golf’s Big Four tournaments, was “being staged on the most expensive piece of undeveloped and privately owned land in the United States” — and also one of the most exclusive. The club is, Sam Farmer wrote in the Los Angeles Times, “the greatest course people have never seen.” 4
The club has a fabled history. It was founded in 1897 in west Los Angeles before there was a west Los Angeles. It relocated to its current site between Beverly Hills and Westwood in 1911 “as part of the adjacent area’s evolution from a lima bean field with a few oil wells into a housing development (later a small city) called Beverly Hills,” according to Noah. The country club is “freaking enormous,” he writes, at 313 acres. Most courses are around 200 acres, depending on the number of holes involved.
Hugh Hefner once owned the Playboy Mansion behind the 13th green of the club’s north course. He was never allowed on the course because the LACC was — and remains — a place that does not seek out celebrities for its membership. “You used to be able to see straight into the [Playboy] backyard,” one member told Sports Illustrated in 1995. “Early tee times Sunday morning were quite popular because you could look in on all of Saturday night’s partyers passed out by the pool.” 5 Maybe the rich aren’t so different from you and me.
The Playboy Mansion is long gone, as is Hefner, but even without that obvious draw, the golfing world, apparently, was excited about catching a televised glimpse of the legendary course. “It’s like an unveiling,” said Gene Sykes , president of the club. “A lot of golf people kind of know of it or have heard about it but have never been there. It’s mythic in some ways.”
In case you’re interested in joining the LACC and haven’t achieved an unacceptable level of celebrity, Golf.com recently reported that the club’s initiation fee is about $250,000, although that number can fluctuate from year to year based on capital assessments and club improvements. 6 Annual dues run a modest $20,000 to $30,000 a year. Now the bad news: It takes an invitation to join, has only about 300 members, and its membership list is a closely guarded secret, at least for the likes of you and me.
In his article, Noah was less interested in catching a glimpse of the L.A. myth than he was in exposing the club’s history and current tax benefits. Long a bastion of the L.A. elite — meaning older white men — the club’s membership has broadened in recent decades. It now even admits “show people,” meaning movie people.
What Noah really focused on, though, was the question of why so much undeveloped land near some of the wealthiest neighborhoods in the country and used by only a few hundred people, was benefiting from a massive tax break: “It shouldn’t make economic sense for the L.A. Country Club to still exist, given what you’d expect it to pay in property taxes — it’s less than a mile down Wilshire Boulevard from downtown Beverly Hills. Property tax appraisals are calculated based on something called ‘the highest and best use,’ meaning that use which yields the greatest monetary benefit given the size and location of the property. The highest and best use of 313 acres straddling Beverly Hills (median home sale: $3.6 million) and Holmby Hills (median home sale: $5.7 million) is pretty obviously not a golf course.”
In a 2017 podcast, Malcolm Gladwell gave shape to what Noah meant. He estimated the value of the LACC property at $6 billion to $9 billion, meaning $60 million to $90 million a year in property taxes at that time. 7 Last year, the club paid about $300,000 in property taxes, according to public records.
This almost unimaginably generous subsidy represents the combined effects of two California laws. The first is a 1960 ballot measure, Proposition 6, that lowered the value at which local officials could assess nonprofit golf courses. Comedian Bob Hope was brought in by the country clubs to promote the proposition, which adopted the slogan “Keep California Green,” which was both true and entirely misleading since its sole purpose was to shield golf clubs from most of their property tax bills.
The strategy was inspired both because Hope was an avid golfer and because, in the 1940s and 1950s, few entertainers were more popular than Hope. As Gladwell pointed out: “The genius of picking Bob Hope as the face of California’s country clubs is that his whole persona, his whole act was about being everyman. He’s self-deprecating; half his jokes are about how he’s not part of the in group even though, of course, there’s no one more in than Bob Hope .”
“How would you like the golf courses nearest your home to be converted into noisy factory layouts, clamorous supermarkets, traffic-jammed shopping centers, or brick-and-mortar apartment units?” Hope’s wife Dolores asked in a letter to potential supporters. 8 “Proposition 6 is designed to save these courses and their benefits to you and your family as wooded, planted, open space areas giving greenbelt breathing space to California’s growing cities.”
With Hope’s endorsement, Prop. 6 passed with 62 percent of the vote, and 63 years later, the LACC’s subsidy continues, as it does for other lavish golf meccas in L.A. and around the state as long as they are organized as nonprofit 501(c)(7)s and owned by their membership collectively, meeting the requirements of Prop. 6.
Given the LACC’s historical exclusivity, not everyone was happy with the tax break. In 1971 two Jewish taxpayers challenged what was then known as the “ Bob Hope Exemption” in court on the grounds that an organization that discriminated (at the time) against Jews, women, and people of color shouldn’t be given a tax subsidy. The state’s appellate court disagreed, citing Prop. 6’s argument to voters that “the courses were considered beneficial because they provided wooded, planted, open space areas giving greenbelt breathing space to California’s growing cities” — and even though a bare fraction of the state’s residents would ever see them, much less play 18 holes with Bob and his friends.
The second law also originated as a ballot measure, Proposition 13, in 1978. The infamous measure rolled back most local real estate assessments in the state to 1975 market value levels, limited the total property tax rate to 1 percent plus the rate necessary to fund local voter-approved bonded indebtedness, and limited future property tax increases to a maximum of 2 percent per year as long as the property didn’t change hands and regardless of how far or fast its actual value rose.
The upshot of the two measures was essentially to freeze the value of golf courses in time insofar as property taxes were concerned. Over the years, various people have pointed out this seeming inequity and called for changes. In 2010 a freelance reporter for a now-defunct small weekly newspaper, the Los Angeles Garment & Citizen, noticed that private country clubs were grossly undervalued and offered evidence to prove it. “Yet records kept by the County Assessor’s office indicate that the 313 acres have an assessed value of $17.6 million, or approximately $5,623 an acre,” the article noted. 9
The article compared the LACC’s valuation with the value of a home on Mapleton Drive adjacent to the club that sold for more than $18 million less than a year earlier. “Based on the Mapleton Drive sale,” the article says, “if the Los Angeles County Club was developed only with low-density single-family housing on two-acre lots, annual property tax revenues would rise from the current $200,000 to $25 million.”
The reporter asked Rick Auerbach , the Los Angeles County assessor at the time, a blindingly obvious question: Why didn’t the inevitable turnover in the club’s membership constitute a change in ownership and therefore necessitate reassessment under Prop. 13? “I didn’t have a good answer for him,” Auerbach later admitted. Auerbach , who had worked in the assessor’s office for 39 years, also said the question literally had never come up before. Such, presumably, is the magic of Bob Hope .
Auerbach punted the question to the state Board of Equalization . The board released a memo that argued that because there is continuity in the golf course’s membership, the ownership never really changes hands, since it, in effect, continues to be owned by the collective “Membership,” however its parts may change over time.
Noah argues that something needs to be done about the situation. “Now, at least, Americans can glimpse this Shangri-La on their TVs,” he writes. “That’s a start. The next step should be an eminent-domain seizure of the club by Los Angeles County so it can be turned into a public park. If the public is going to pay for this greenbelt, it should be allowed to use it without shelling out hundreds of thousands of dollars.”
It’s a nice sentiment, but based on the likely membership of the club — and the other major private clubs in L.A. and the state — it’s about as likely to happen as me winning next year’s U.S. Open. (American golfer Wyndham Clark won this year’s Open and not only received $3.6 million in prize money but got to tour the LACC up close and personal in the bargain.)
The other country club in the news lately is the Brae Burn Country Club in Newton, Massachusetts, a Boston suburb about 7 miles from downtown, which was the focus of a Boston Globe report in May. 10 The club, which also dates back to 1897, is another secluded golf Valhalla, which the article says is guarded “with no-trespassing signs and a chain link fence that earned it the nickname ‘Fortress Brae Burn’ among some of its Newton neighbors.”
Like the LACC, Brae Burn enjoys a generous tax break from a decades-old state program intended to help preserve open space and recreational land, although Brae Burn’s tax break isn’t nearly as generous as the one the LACC receives — it totals, according to the Globe, about $600,000 in tax savings annually, a fact the Globe says is particularly galling to local residents this year because the city faces “soaring costs to fund schools and public services, and leaders asked residents to increase their own taxes by more than $9 million in March.”
Although more limited than the LACC ’s tax break, it still provides an important subsidy to Brae Burn and others around the state. Even if they’re part of some massive conglomerate, golf clubs aren’t massive operations. ProPublica ’s Nonprofit Explorer shows tax filings for various nonprofit organizations, including golf courses. In its public tax filing for 2020, the latest available, the Belmont Country Club, a private club in Belmont, Massachusetts, a western suburb of Boston, reported revenue of more than $21.1 million, including nearly $5 million in membership dues. After expenses, it reported net revenue of about $11.7 million. It could pay the tax, but paying less is always a good business strategy.
It’s just that in Newton this year, the tax break’s optics aren’t great. Frustrated with having to deal with a politically difficult tax hike and public grousing about the club’s tax break, some city officials began to question why Brae Burn and two other clubs for wealthy members in the town should continue to get a combined tax break of $1.75 million while other Newton residents pay more. “That’s a huge deal. That could pay for teachers, firefighters, and police,” said Victoria Danberg , a city councilor who opposes the tax breaks. “The taxpayers of the city of Newton are 100 percent footing the bill for these private clubs.”
The reason they are footing the bill is chapter 61B of the tax code enacted in 1978 when Massachusetts voters adopted a constitutional amendment to allow the state to classify real property into as many as four separate classes and thereafter to tax each class differently. Chapter 61B deals with the classification and taxation of open space and recreational land. It limits property taxes on qualifying land to no more than 25 percent of its fair cash value and applies only to the land and not buildings or other improvements, which are taxed at their fair cash value. Chapter 61B requires that recreation land be open to the public — or to members of a nonprofit organization.
Participating landowners must meet certain conditions, including giving the community the right of first refusal if they ever decide to sell, but while the club is operating as it is, it gets the tax break. Brae Burn and other private country clubs qualify as “social club” nonprofits.
Jane Malme of the Lincoln Institute of Land Policy wrote in 1993 that the Massachusetts Golf Association and conservation-land advocates were “the prime movers behind the extension of preferential taxation to recreational uses,” including golf courses. 11 They threw their support behind lobbying and campaigning for the constitutional amendment and the subsequent 1979 legislation. Conservation-land advocates’ “support was necessary to achieve its passage,” she noted.
According to the Globe, not every private country club in the state takes advantage of the program — and it’s worth emphasizing the program does benefit recreational and open space areas unrelated to golf and open to everyone. However, the Globe identified at least 100 golf courses across the state that participate in the program. “While the bulk of the clubs reported taking property tax cuts of less than $60,000, the Globe found 10 courses that received breaks of about $100,000 or more, according to public property and tax documents gathered in response to records requests,” according to the article.
In response to the situation in Newton, Mayor Ruthanne Fuller said in a statement that she appreciated the overall intent of the program in preserving recreational land, but she was encouraging the state “to reexamine the financial benefits” provided to recreational properties like golf courses and presumably those that were exclusively available to a few hundred select members. She added, “The level of abatement that state law currently allows deserves a second look.”
Politics makes strange bedfellows, as the saying goes, and that’s certainly the case here. As they did with the original passage of chapter 61B, conservation groups urged the Globe reporter to focus on the program’s big picture. The golf course provision is just part of a larger land preservation program that encompasses a wide range of land uses, including hiking or camping. There are other programs meant to protect forests and agricultural land. “It’s a very important, and supported, program from a land conservation and an environmental perspective,” Jennifer Ryan , deputy director of advocacy for the Charles River Watershed Association, told the Globe. “The golf courses are just a piece of it.”
Similarly, Heidi Ricci , director of policy and advocacy for Mass Audubon , said, “That gives communities some opportunities to conserve land. These are large properties, so they do have open space value for the community.”
Fuller will find support for her uncertainty about the wisdom of the golf course tax breaks in other Massachusetts towns if she looks. One such place is Swampscott, a town of about 15,000 on the coast north of Boston. A 2021 article on a local news website cataloged the city’s unmet needs: “The Swampscott Middle School’s leaking roof requires costly repairs in the hundreds of thousands of dollars. A vote on a new elementary school that could come with a price tag over $100 million is on the horizon. A future silver tsunami’s arrival will demand more senior-center services. Dozens of costly infrastructure and capital projects exist from replacing archaic town pipes to fixing up the Swampscott Fish House.” 12
The article pointed out that the 143-acre Tedesco Country Club , the town’s largest property owner, paid just $63,085 in Swampscott property taxes in 2020 and asked: Why should Swampscott taxpayers subsidize the recreational land of an affluent private club with an invitation-only policy?
The article quoted one Swampscott local, Herbert Belkin , who has raised this issue to city officials over and over for several years. “Fewer than 1 percent of Massachusetts residents belong to a private country club such as Tedesco, where membership is reserved only for those invited by existing members,” Belkin said. “It is time for Tedesco Country Club to pay its fair share like everyone else.”
That sentiment is still around in Swampscott. Sean Fitzgerald , the town’s administrator, told the Globe that it’s time to eliminate the tax deduction for private golf courses such as Tedesco. “Every citizen, every property tax payer in Swampscott is actually gifting the Tedesco Country Club $133,000 so they can enjoy a very exclusive club,” he said. “From a public policy standpoint, this is unjust and wrong.”
According to the National Golf Foundation , 25.6 million people played on a golf course last year. That’s less than 8 percent of the country’s population and is fewer than half the number of people who bowl annually. In fact, it’s only about 20 percent of the people who play miniature golf each year. Although about 6 million people under 35 visited courses last year, golf is mostly played by just who you imagine: Older, well-to-do men and some women looking to spend a sunny afternoon in beautiful surroundings, cut a few business deals, and get a little exercise (800-1,300 calories burned per round). The average American golfer is 54 and earns substantially more than the average income of most Americans.
The reality of the sport, as Gladwell explained in his podcast, is that it requires a lot of space to entertain a relatively few participants. “The typical golf course is 200 acres, give or take. That’s a lot of land. You have to landscape it, mow it, drench it in pesticides, keep the sand traps perfect. . . . But at the same time, because golf involves launching a potentially lethal projectile at great speeds across enormous distances, you have to severely limit the number people on the course at any one time. Typically, a good private course can handle no more than 72 golfers at once, so that’s one golfer per 120,833 square feet. Can you imagine if basketball had the same population density as golf?”
There are costs associated with maintaining all that space and sublime beauty. Golf.com reported in 2020 that the cost “to achieve the condition players expect — or will tolerate — ranges from about $500,000 a year for a daily-fee course to $1,000,000 a year for a private club,” and that’s just to maintain the grass and sand traps. 13 The club facilities cost more, and someone has to pay. Some courses are publicly owned, free of frills, and open to all. Their costs are covered by fees, concession sales, and tax dollars. Private clubs, though, offer exclusivity and a level of luxury not seen at any public course. That luxury and exclusivity is even more expensive, and even with the exorbitant fees charged by clubs like the LACC, it would still be impossible to cover costs with a $90 million tax added to the bill. The clubs saw this and recognized that something needed to give, or they would be “taxed into oblivion,” as Gladwell put it.
That reality gave birth to Prop. 6. It also explains why golf courses were slipped into incentive programs in other states that were, on their surface, designed to promote the broader — and more “feel-good” — concept of preserving open space and recreational land. Any economist will recognize that such thinking is faulty at its core. Most taxpayers might agree if they paid attention to the issue. But the apparent illogic is very logical to people who want to maintain their exclusive retreats and who happen to be wealthy and politically connected. So the concept has survived even in the face of brief outbreaks of outrage about it from time to time.
In a rational world, golf course tax breaks would be discontinued, but that’s unlikely to happen anytime soon. Politics change, but one political reality remains constant: Money talks. Offloading part of the cost of doing business onto the taxpayers is as American as apple pie and the U.S. Open. That is, after all, what tax incentives are all about.
1 Rute Pinho , “Property Tax on Golf Courses,” Connecticut General Assembly Office of Legislative Research, Report 2013-R-0273, Aug. 13, 2013.
2 Dave Fehling , “Teed Up: Slicing Texas Tax Breaks,” National Public Radio, State Impact, Mar. 11, 2013.
