A) Insurance rules the world.
B) To avoid and alleviate, play by Their Rules...it's their property, after all.
Can't blame them for the insurance gig, especially if they've had any law suits to contend with in the past - that tends to make any property owner skittish, even cities. Building the wall without permission was just boneheaded, imho, and hopefully it didn't sour their opinion of your group to the point that they won't work with you in a positive way from here on out. Seriously...if it's not your property, you don't have rights and you shouldn't be doing stuff like that - especially if it's city/government property. D'oh!
That sucks, but if the meets and the course are good enough to want to continue, you might get the club to look into insurance (it's really not terribly expensive). A million sounds like a lot, but for group/business coverage it really isn't - I think one of the clubs I was in doubled that and if I remember correctly it was only about $800/yr. If you don't already have a club, forming one can be a hassle but it's not too expensive either. Once you get into official status, however, you need to keep up with the small amount of annual legal paperwork, and of course take the normal business paperwork/officer positions/elections seriously. You'll still be at the mercy of the property owners and their laws/policies, but being a more official and "businesslike" group usually gives you a measure of legitimacy in officials' eyes and they may be more willing to work with you or to allow oversights. Of course, if your club wants to have more control over the course, they may have you enter into a binding contract spelling out the limitations, responsibilities, and liabilities...try to avoid that if possible since it's like a free lunch for them with usually minimal benefit to you.
This is kinda the norm everywhere with public use land. I don't think it's been an frictional issue with our local dg clubs (on the contrary, we seem to have great relationships with the cities, thankfully), but I've seen this exact thing in other clubs a few times over. So basically unless they're willing to relent from the goodness of their official hearts, you guys are sorta screwed and need to step up or step off. Stinks, I know.