Private Benefit Issue Wells Up in Cincinnati Golf Courses

An interesting story in the July 4th issue of the Cincinnati Enquirer raises the hard to define private benefit issue.  Seems the owner of a private golf in Cincinnati is challenging the state property tax exemptions of city owned golf courses.  His challenge, according to the article, is based on the argument that the city has hired a private management firm to operate the city owned golf courses, which private firm havsmade over $2 million per year in food, beverage and pro shop fees.  All city golf courses are apparently operated by private management firms, though not all by the same management firm:

Macke claims that public properties making money for private operators should not be exempt from paying property taxes. Hamilton County Auditor Dusty Rhodes has asked the Ohio Tax Commission to sort it out. IIt’s about the government being in a business that is being served by private enterprise,” Macke said. “If they are paying the same thing as me, I don’t have a problem with it.”

Management contracts wherein private for-profit companies essentially gain so much operational control — and reap so much revenue over and from an exempt entity raises interesting issues regarding the appropriateness of tax exemption.  This particular controversy is actually a variation of the United Cancer Council issue, in which the government expressed concern that a private for profit entity “captured” a charity to such an extent that the charity actually became the money making tool of the for profit entity.  On the other hand, charitable organizations ought to operate as efficiently as possible and if doing so requires paying market rates to the most efficient vendors and suppliers, there should be no objection.  The problem, one that has never been resolved, is how to draw the line between operating for the public benefit without unduly conferring wealth on select private individuals. 

This is a good case study article for use in a discussion of joint ventures, UBIT and even the definition of “charity.”

dkj