I think the problem here is that we are all going to have a different definition of the word "fair" depending on our views of government. From a positive standpoint, clearly the municipal courses do take revenue away from the daily fee courses.
I do, however, think that the degree any particular public course has an advantage over a daily fee is a more nuanced question, however. After all, there are a variety of reasons that governments own courses.
Some are for historic or cultural reasons - Bethpage most clearly comes to mind. In these rare instances, the simple circumstances may mean that daily fees are going to have to take their lumps. However, even Bethpage can only handle so many golfers, and when I go back home I generally avoid Bethpage - mainly due to the guaranteed 6+ hour round.
Others is to give someone a cheap place to play. Here, the daily fee can't really compete. But the only reason the public loss-leader is taking that is because there is no natural competitve market for golf at that rate. In that sense, public courses are growing the game by providing a service that the market won't bear. I think the benefit in the growth of the game exceeds the loss to someone who would otherwise suck it up and pay out double the cost.
The more interesting question at this level is whether/how much the government should be spending on subsidizing golf rather than on the needs of the poor, returning money to taxpayers, etc.
A third reason that municipalities may own golf courses is for revenue. But if a particular course is not bringing in more revenue than it would if privately-owned and taxed, then there is no value to the Government in owning the golf club. So I think the "subsidy" that the Government is giving these courses by being tax-free is really illusory. Here, the government is competing, quite fairly, as a player in a private market. Whether the government should be able to do so generally is a longer, political question - one that will not be resolved in our little thread.
A fourth reason is for development purposes. But once again, once the development occurs, if the government can make more money by selling the course (with whatever assurances necessary to protect the development), it should do so.
I think alot of people don't appreciate the pressure government officials have on budgetary matters. Non-profitable golf courses are the easiest to withdraw money from, because of the lack of benefit. This is why you see so many shoddily-maintained public courses.
The real problem with daily fee courses is an inability to keep costs down. In DC, every decent course is in the 75-125 prime rate range, but most of them are 5 hour rounds. That means, at least in part, that they're fully booking. And yet the market indicators that I've seen says that daily fee courses are saturated. That means courses are either undercharging, or that if they are charging the proper rate, that there is barely a market for golf, given the cost structure these courses are currently facing. That's not a public course competition issue - that's a "need to rethink your business model" issue.