(July 28, 2016) A July 20 work session in Ocean Pines had one major item on the agenda: “reserve study discussion.”
Indeed, plenty of discussion was had on that subject – about two and a half hours – but when pressed for action or a follow-up work session, the directors could not find common ground.
“After this working session, where nothing has been accomplished, we’re going to once again do nothing until there is a reconstituted board? Is that what you’re asking us to do?” Vice President Cheryl Jacobs said.
Jacobs was filling in at the leadership role for ailing President Pat Renaud.
“Yeah, because it’s going to take months and months and months to come up with this, and [the new board is] going to be a huge part of what gets decided,” Director Tom Herrick said. “How could you just dismiss them?”
The meeting started with an extensive presentation by General Manager Bob Thompson titled, “Break Out of Darkness: Understanding the Reserve Study.”
Thompson retraced the steps of the $31,000 Design Management Associates study, which was approved by a previous board of directors last July.
In January, the current directors got their first look at a draft of the study, followed by a more detailed presentation in April from Design Management partner Doug Greene.
What the study found was that Ocean Pines had about $17.4 million worth of depreciable assets, while reserves covering those assets totaled less than 20 percent.
How much the OPA should have in reserve, however, has been a matter of debate, with “widely divergent views regarding the nature and purpose of reserve funds – and the level of funds,” Thompson said.
“We’ve had previous ones (studies), but as usual if we get something we don’t like, we don’t understand and we’re not sure of, we just put it in the drawer and we don’t do anything with it,” he said. “We’re hoping we do a little different with this one.”
Thompson recommended the board set a 10 percent funding threshold for roads and bulkheads reserves. Bulkhead repairs are generally spread out over a number of years, and casino revenues cover the majority of roadwork.
For general replacement and golf, Thompson recommended a 50 percent threshold, but said those levels did not have to be raised all at once.
An $800,000 increase in reserves, for example, would cost homeowners about $4.75 a year in assessments if it were spread out over a 20-year period.
Assistant Treasurer Pete Gomsak added that the reserve study was a “snapshot at a point in time.” He admitted the study was somewhat limited in that Ocean Pines could fund depreciation for any of its assets and then decide to replace it with something that is “large or smaller [with] more features [or] less features.”
The community center was an example of that. Although about $300,000 was collected in depreciation to cover the old building, its replacement ended up costing the association more than $1 million, because it was larger and had more amenities.
Still, a majority of the study would be accurate – and useful – Gomsak argued, because a majority of depreciation “has nothing to do with buildings.”
“Two thirds of our accumulated depreciation … doesn’t relate to a building. It’s vehicles, it’s software, it’s umbrellas, it’s police cars, it’s backhoes, it’s lawnmowers,” he said. “If you’re going to operate an association that has a department of parks and recs and a police department and an administration function … those are the assets you need day to day.”
Gomsak said the study needed to be supplemented by “specific knowledge about specific plans,” including a board-approved capital improvement plan (CIP).
Stevens agreed, but said he wanted to nail down the CIP before tackling a specific reserve threshold.
“First you figure it out before you just put the money in,” he said. “Don’t put the money in there and end up with something entirely different – or more – than we actually need.”
Stevens also advocated breaking the reserve study into smaller pieces, with board members – or possibly homeowner volunteers – going over each asset in Ocean Pines in detail.
Herrick called the study “a good tool” that provides an outline of assets and replacements, but added, “Our organization doesn’t hold true to the replacement [schedule] – when it should be replaced and when it shouldn’t,” he said. He used the recent purchase of three fairway mowers as an example.
“One of them shouldn’t have been bought for two more years,” he said. “It’s a good tool to give us an outline, but I don’t think we can hold true to it because we don’t hold true.”
Pressed by Jacobs to comment on a funding threshold for reserves, Stevens suggested the reserve study, in its current form, was invalid.
“We have to determine what the true requirements are,” he said. “If you don’t start with the right amount, what difference [is] what percentage you have? Fifty percent of an invalid amount is an invalid amount.”
“We’ve been given a CIP [in January] by management,” Jacobs said. “Do you want to use that as our starting point?
“We’re talking about working sessions,” she continued. “We’re here at a working session and all we’ve done so far is bring us up to date with the reserve study that we have and what went into it. We’re supposed to be taking the next step.”
Stevens said the board had “not spent 10 minutes discussing” the capital improvement plan.
“That’s only the fault of the board,” Jacobs said. “The management gave us that CIP and asked us to provide feedback. It’s only this board that has not taken any steps towards dealing with that.”
“I do not recall being asked to provide feedback, as a matter of fact,” Stevens said.
Gomsak, trying to move the meeting forward, said the issue was not as complicated as some board members were making it out to be.
“This … report was undertaken by the board, and it was to provide a snapshot of where we are with respect to reserves,” he said. “And I think you’ve seen that snapshot, and the snapshot is no different than [what] our books and record indicated.
“We have a reserve fund, cash … which is about 20 percent of where the accumulated depreciation is,” he continued. “If 20 percent is acceptable then make a decision that 20 is acceptable. If you want to try to get to a higher recommended level, as DMA, I believe, has suggested, then undertake that.”
He argued against Stevens’ proposal to “send out teams to go validate” individual parts of the reserve study.
“Accept this for God’s sake,” he said. “I think you need to move on with it … you could spend three years doing this.”
Referring to the $16,500 Ocean Pines paid Salisbury University group BEACON to help create a comprehensive plan that went nowhere, Jacobs said, “We certainly don’t want to be in the same position with this reserve study. [Thompson] has given us a handout of a starting point, so we need to make a decision as a board, what elements in that CIP are we in agreement about and how can we marry that with this reserve study?”
Jacobs said it was not appropriate” to cull through “line item after line item” of the study, looking at Stevens.
“Dave, if you want to take that on and share that with us later, I’d be happy to take a look at it, but I don’t think that’s where we want to go next with this,” she said. “And I don’t think we want to … spend the money for something and put it on the shelf. Let’s not be in that position. Let’s use this.”
Herrick said he wanted to see the results of another study being developed by the comprehensive planning committee, and suggested the directors wait to make any decision on reserves until after the August election.
Stevens agreed.
“If I’m going to spend time on this – and I’ve spent a lot of time – I want to make it worthwhile. And I don’t have any confidence that I’m going to make it worthwhile. Not with the current board, anyway,” Stevens said.
“That’s your duty as a board member, but however you decide to deal with that, that’s certainly up to you. But, certainly you have a responsibility as a board member to spend the time on this and not let this drag on and drag on and drag on,” Jacobs said.
She called for a vote to adjourn the meeting, which passed 4-3. Stevens, Herrick, Renaud and Jack Collins voted “yes.”
Indeed, plenty of discussion was had on that subject – about two and a half hours – but when pressed for action or a follow-up work session, the directors could not find common ground.
“After this working session, where nothing has been accomplished, we’re going to once again do nothing until there is a reconstituted board? Is that what you’re asking us to do?” Vice President Cheryl Jacobs said.
Jacobs was filling in at the leadership role for ailing President Pat Renaud.
“Yeah, because it’s going to take months and months and months to come up with this, and [the new board is] going to be a huge part of what gets decided,” Director Tom Herrick said. “How could you just dismiss them?”
The meeting started with an extensive presentation by General Manager Bob Thompson titled, “Break Out of Darkness: Understanding the Reserve Study.”
Thompson retraced the steps of the $31,000 Design Management Associates study, which was approved by a previous board of directors last July.
In January, the current directors got their first look at a draft of the study, followed by a more detailed presentation in April from Design Management partner Doug Greene.
What the study found was that Ocean Pines had about $17.4 million worth of depreciable assets, while reserves covering those assets totaled less than 20 percent.
How much the OPA should have in reserve, however, has been a matter of debate, with “widely divergent views regarding the nature and purpose of reserve funds – and the level of funds,” Thompson said.
“We’ve had previous ones (studies), but as usual if we get something we don’t like, we don’t understand and we’re not sure of, we just put it in the drawer and we don’t do anything with it,” he said. “We’re hoping we do a little different with this one.”
Thompson recommended the board set a 10 percent funding threshold for roads and bulkheads reserves. Bulkhead repairs are generally spread out over a number of years, and casino revenues cover the majority of roadwork.
For general replacement and golf, Thompson recommended a 50 percent threshold, but said those levels did not have to be raised all at once.
An $800,000 increase in reserves, for example, would cost homeowners about $4.75 a year in assessments if it were spread out over a 20-year period.
Assistant Treasurer Pete Gomsak added that the reserve study was a “snapshot at a point in time.” He admitted the study was somewhat limited in that Ocean Pines could fund depreciation for any of its assets and then decide to replace it with something that is “large or smaller [with] more features [or] less features.”
The community center was an example of that. Although about $300,000 was collected in depreciation to cover the old building, its replacement ended up costing the association more than $1 million, because it was larger and had more amenities.
Still, a majority of the study would be accurate – and useful – Gomsak argued, because a majority of depreciation “has nothing to do with buildings.”
“Two thirds of our accumulated depreciation … doesn’t relate to a building. It’s vehicles, it’s software, it’s umbrellas, it’s police cars, it’s backhoes, it’s lawnmowers,” he said. “If you’re going to operate an association that has a department of parks and recs and a police department and an administration function … those are the assets you need day to day.”
Gomsak said the study needed to be supplemented by “specific knowledge about specific plans,” including a board-approved capital improvement plan (CIP).
Stevens agreed, but said he wanted to nail down the CIP before tackling a specific reserve threshold.
“First you figure it out before you just put the money in,” he said. “Don’t put the money in there and end up with something entirely different – or more – than we actually need.”
Stevens also advocated breaking the reserve study into smaller pieces, with board members – or possibly homeowner volunteers – going over each asset in Ocean Pines in detail.
Herrick called the study “a good tool” that provides an outline of assets and replacements, but added, “Our organization doesn’t hold true to the replacement [schedule] – when it should be replaced and when it shouldn’t,” he said. He used the recent purchase of three fairway mowers as an example.
“One of them shouldn’t have been bought for two more years,” he said. “It’s a good tool to give us an outline, but I don’t think we can hold true to it because we don’t hold true.”
Pressed by Jacobs to comment on a funding threshold for reserves, Stevens suggested the reserve study, in its current form, was invalid.
“We have to determine what the true requirements are,” he said. “If you don’t start with the right amount, what difference [is] what percentage you have? Fifty percent of an invalid amount is an invalid amount.”
“We’ve been given a CIP [in January] by management,” Jacobs said. “Do you want to use that as our starting point?
“We’re talking about working sessions,” she continued. “We’re here at a working session and all we’ve done so far is bring us up to date with the reserve study that we have and what went into it. We’re supposed to be taking the next step.”
Stevens said the board had “not spent 10 minutes discussing” the capital improvement plan.
“That’s only the fault of the board,” Jacobs said. “The management gave us that CIP and asked us to provide feedback. It’s only this board that has not taken any steps towards dealing with that.”
“I do not recall being asked to provide feedback, as a matter of fact,” Stevens said.
Gomsak, trying to move the meeting forward, said the issue was not as complicated as some board members were making it out to be.
“This … report was undertaken by the board, and it was to provide a snapshot of where we are with respect to reserves,” he said. “And I think you’ve seen that snapshot, and the snapshot is no different than [what] our books and record indicated.
“We have a reserve fund, cash … which is about 20 percent of where the accumulated depreciation is,” he continued. “If 20 percent is acceptable then make a decision that 20 is acceptable. If you want to try to get to a higher recommended level, as DMA, I believe, has suggested, then undertake that.”
He argued against Stevens’ proposal to “send out teams to go validate” individual parts of the reserve study.
“Accept this for God’s sake,” he said. “I think you need to move on with it … you could spend three years doing this.”
Referring to the $16,500 Ocean Pines paid Salisbury University group BEACON to help create a comprehensive plan that went nowhere, Jacobs said, “We certainly don’t want to be in the same position with this reserve study. [Thompson] has given us a handout of a starting point, so we need to make a decision as a board, what elements in that CIP are we in agreement about and how can we marry that with this reserve study?”
Jacobs said it was not appropriate” to cull through “line item after line item” of the study, looking at Stevens.
“Dave, if you want to take that on and share that with us later, I’d be happy to take a look at it, but I don’t think that’s where we want to go next with this,” she said. “And I don’t think we want to … spend the money for something and put it on the shelf. Let’s not be in that position. Let’s use this.”
Herrick said he wanted to see the results of another study being developed by the comprehensive planning committee, and suggested the directors wait to make any decision on reserves until after the August election.
Stevens agreed.
“If I’m going to spend time on this – and I’ve spent a lot of time – I want to make it worthwhile. And I don’t have any confidence that I’m going to make it worthwhile. Not with the current board, anyway,” Stevens said.
“That’s your duty as a board member, but however you decide to deal with that, that’s certainly up to you. But, certainly you have a responsibility as a board member to spend the time on this and not let this drag on and drag on and drag on,” Jacobs said.
She called for a vote to adjourn the meeting, which passed 4-3. Stevens, Herrick, Renaud and Jack Collins voted “yes.”