QA: Thompson details budget and priorities
OCEAN PINES — General Manger Bob Thompson left the relative comfort of a mortgage and insurance brokerage business to manage the eclectic and economically diverse community of Ocean Pines, the largest year-round community in Worcester County.
He said wanting to be an impact player who could help by being connected with his community drew him to Ocean Pines. But one can only guess (because he’s not saying) whether his 23 years in the military, active and reserves, prepared him for budget season in Ocean Pines.
Thompson was preparing for a Feb. 2 “town hall” event to explain the proposed fiscal 2013-2014 budget to a community that has few qualms with contention, when he agreed to this interview on Jan. 30.
Bayside Gazette: Could you describe what goes into developing the budget for a new fiscal year at Ocean Pines?
Bob Thompson: The process starts in September, when I have staff meetings with our eight department managers. They compile their annual department budget reports based on three factors: 1) what they absolutely need to stay operational; 2) which important additions they would want in order to grow their respective departments; and, 3) what they would desire if money were no object. The exercise is meant to stimulate my department leaders out of conventional thinking and encourage them to consider all options for making improvements in their areas.
The reports cover everything in their areas of responsibility, from staffing to efficiency tools, and are submitted in October, at which time our comptroller, Art Carmine, and I uate them.
After a review, I sit down to discuss the reports with each department manager individually. This will occur two or three times throughout the pre-proposal budget process until November.
Concurrently, I receive guidance from the Ocean Pines Association Board of Directors and, new this year, I additionally received input from the Budget and Finance Committee. In prior years, the committee’s considerations had been made once the new budget was officially proposed.
The final budget draft, which is completed in December, will include additional documentation, research, additional capital items, as offered by either the board or the committee. That draft will then be redistributed back to the departments for final adjustments before printing the final budget proposal for distribution to the directors and budget committee the first week of January.
The next phase of the budget process begins with two to three days of meetings with the Budget and Finance Committee chair, who this year is Dennis Hudson; the Comptroller Carmine; and the respective department heads, as the group goes through the final draft section by section. From those meetings, Hudson compiles a recommendation from his committee that will be presented to the board during the January meeting.
Next, I give the board a pre-budget overview of the final budget proposal. That starts a series of formal board meetings – at the first, the budget committee presents its formal consultation to the board.
There is no set amount of board meetings needed to review, uate and amend the budget proposal. But once that has concluded, I then schedule a town hall meeting to present the budget proposal with the board’s changes, to the members of the Ocean Pines community.
BG: Why are the people who live in Ocean Pines called “members?” Why not “residents” or “citizens?”
BT: Glad you asked. Ocean Pines is a homeowners association, not a municipality. Our members are the 8,447 property owners here, some of whom rent out their properties. Each property has one vote and only property owners, in good standing, can exercise that vote. With just under 12,000 residents – including renters and members – we are the largest year-round community in Worcester County.
BG: The board on Jan. 26 approved unanimously a motion by Director Martin Clarke to publish the names of, and to begin legal actions against, members with delinquent assessments. What do you think about that and how will you implement that new policy?
BT: I will provide an update on those accounts at the Feb. 23 regular board meeting. My biggest concern is there are many people facing genuine financial hardships in this economic climate. Publishing their names comes across as punitive, which I agree is justified for individuals with long-standing delinquencies who have been taking advantage of the system. But for the others, it will be hard for me.
BG: That being the case, how then do you justify the proposed $43 dues increase?
BT: It is easier to explain if we break it down into three clear components included in that amount. First, $30 of that dues increase represents the fifth and final increase that was authorized under a five-year funding plan of predictable increases in our annual assessments.
The additional revenues go into a separate reserve account earmarked to pay for facility infrastructure needs and for the replacement of major elements. For the past four years each board has approved that rate increase. This is the fifth and final $30 increase amount, so it should not surprise anybody.
Next, $3 of the proposed increased rate is directly related to our drainage improvement project. That is a plan to repair damage from erosion that has been occurring on the golf course over time. We are in the process of improving the golf course at holes 11 and 12 and re-piping the drainage system on Hingham Lane.
So, the project will also help those 1,400 homes that surround the golf course, because stormwater runoff due to the lack of proper drainage has been creating flooding problems for those homeowners. The project costs $550,000 and is being amortized over a 25-year period.
That leaves the remaining $10 portion of the proposed increase amount. This would allow us to allocate $84,470 to all of our operations across the board. Those departments received no increase for operational costs last year, even though costs for fuel, healthcare, and employer contributions for FICA and unemployment did increase. The proposed $10 increase would help offset the increased expenses that have accrued over the past two years.
BG: Still, that is likely to be a tough sell considering the actual income from the Golf Club’s operations do not appear to be living up to the budgeted projections. What’s going on there?
BT: The Golf Club is operated by a third party management company, Billy Casper Golf (which describes itself as an owner or operator of more than 140 facilities in 28 states). Billy Casper is a top tier golf management company. Part of the challenge facing the OP course is that the “product” has continued to worsen over the years from wear.
Factors that have contributed to the depreciation of the course include homebuilding construction that has impacted the drainage system, landscaping changes, growth of vegetation in the surrounding areas, all of which can contribute to erosion over time.
This is a 42-year-old course, depreciation starts on day one. We have had a continued slide in memberships in part because of course conditions. So we have to ask what’s causing this? How do we manage or solve these problems when we have an outside expert?
So by 2015 we will be focusing on the 42-year-old product, by starting to improve the greens – the most important component of the course and where OP has experienced the most inconsistency. Through soil sampling, a U.S. Golf Association inspection [and] core test results, we have received recommendations to replace the greens. I made a recommendation to the board in 2011 to replace the greens with the backing of Casper, USGA, and a soil consultant.
The cost estimate was $900,000 that was split into two projects, the front nine and the back nine. Work on the front nine was done last spring. The back nine consists of mostly drainage work and is expected to be completed by this spring.
BG: What is so important about the Golf Club and Yacht Club that justifies all the spending? A lot of resources seem to be directed toward their upkeep?
BT: The OP Homeowners Association is impacted by the features and amenities our community offers. When Boise Cascade first developed the area, it designed the Golf Club, Yacht Club and pools as vital elements of the community’s amenities offerings. Prior to the last four years of overall real estate downturns, those amenities were what drove OP homues up, because our members and residents have immediate access to our amenities.
It is the amenities that provide the types of quality-of-life conditions that create the favorablue gap between the higher property values in OP in relation to similar property values outside OP.
BG: But in relation to the additional proposed dues increase, how do you explain the rising expenses related to the Yacht Club and Golf Club, especially as income from those facilities seem not to be living up to expectations?
BT: We have seen the greatest losses from those facilities over the past 10 years and we have had to make really tough decisions over the past two years regarding the types of clubs that are needed, what improvements can or will the community support, and will we put the money into rehabilitating and upgrading those amenities. Over the past 18 months, we put together a final plan for the Yacht Club that passed by referendum last year. While I expected it to pass, I didn’t expect the level of support it ultimately received.
BG: How many pools does Ocean Pines have? What is the backup plan if the Yacht Club pool has to close?
BT: Five. The Yacht Club pool will be open and operational by Memorial Day.
About the pools, all of our pools are open to the public on either a daily use basis, by payment at the door, or on a package basis, by purchasing a membership. Everything we have is open to everybody.
BG: Given the discussion over whether last year’s Yacht Club pool shut-down procedures affected the OPA’s ability to file an insurance claim for damage the pool sustained from Hurricane Sandy, will the OP change its off-season shut-down procedures to avoid damaging the pool in the future?
BT: There was a bit of a misunderstanding about the correlation between the way we shut down the Yacht Club pool and our inability to file an insurance claim for flood damage. Let me explain.
Flood damage is offered through the National Flood Insurance Program and OP has flood insurance through the NFIP. But our policy does not cover outdoor pools.
(NOTE: The NFIP on its Web site specifically lists “Property and belongings outside of an insured building such as trees, plants, wells, septic systems, walks, decks, patios, fences, seawalls, hot tubs and swimming pools” as not covered.)
Moreover, a tidal surge is what damaged the Yacht Club pool. Our procedure would not change because our closing procedure for the Yacht Club pool, which is a deep well pool, was not to completely drain it anyway. Instead, the water already in the pool was topped off in an attempt to stabilize it in preparation of the storm. But despite that, the strength of the storm surge lifted the pool anyway.
Our other deep well pools might have been prepared differently, because the deep well pool at the Sports Core is covered and the deep well pool at the Swim and Racquet Club is elevated, so they might not have been similarly topped off in preparation of the storm.
BG: Why not scale back overall operations rather than propose the additional $10 fee increase?
BT: We have operated for several years with little to no increase in revenues by not proposing any new capital expenditures. We have held employee payroll increases to a minimum and have avoided adding employees. The increase proposal this year would allow us to make sure we were whole with the expenditures already in progress before reassessing where we are going forward.
BG: Part of the budget discussion included a question about why employees are not being asked to contribute to the healthcare plan. What is your answer to that?
BT: Employee healthcare contributions fall under scrutiny every year. Often what is misunderstood is the amount of time and energy we already spend uating existing healthcare plans and comparing ours to other plans for cost effectiveness purposes. We examine multiple other plans, strategies, and employers. We migrated from our previous carrier last year to one that now requires more administrative procedures from our employees. But nationwide healthcare costs are still sky rocketing. OP has 56 employees in its healthcare plan and we have a well-designed plan that has helped us keep our costs down.
BG: Will the Affordable Care Act affect your plan? If so, how?
BT: We are looking closely at the issue and have conducted several reviews of it over the past six months. There are still question marks, such as whether a state-run exchange is an option, how will the new law impact us when it is fully implemented, and how will the federal government respond to various state actions. We are watching and working closely with our carriers. Meetings are planned for October. So, as the year unfolds, we will continue to uate our position to see how to manage. (i.e. will work-hours have to be limited, what should be the extent of coverage; whether it would be better to choose to use the exchange, and what are the penalty rules.)
BG: Why is Ocean Pines paying for operational losses from its reserves?
BT: Typically, we would not; it would constitute a bad business practice. But we have been making significant capital investments with a focus on creating profitability. We are in a unique situation because the amenities we offer are for general use, which would typically be subsidized, but in our case they are designed to operate like a business, which would be expected to be self-sufficient. We must blend the two by making some tough decisions that will allow us to bring failing amenities back into profitability or at least to break-even status.
BG: And what are your assessments of the situation during the transition?
BT: Optimistic. For example, with the Yacht Club we have already taken appropriate steps forward and have started to see a turn in increased efficiency. Food and labor costs have begun improving under the new manager. With the new facility we should see more increases by next year.
For the Golf Club, with the investments that were made over the last 18 months we will have a clearer understanding where we stand by the end of the year. There are still feature elements that are needed, but the signature investment is in the product, which the management company should help us turn around. If that continues to fall short of expectations after the needed investment options have been pursued, all options should be on the table.
On the pools, we have made a lot of strides and are seeing a lot of improvements.
People tend to forget that we have had years of operating deficits in our amenities. We are making huge investment strides and it will take a little time to reap the benefits from them.
Long-term and lasting improvements start incrementally. I absolutely believe that we are working in the right direction.