I feel obligated to comment on the article by Sheila Cherry on
the Ocean Pines Board of Directors’ Training Retreat, which appeared in the
September 19, 2013 edition. My comments relate specifically to depreciation
expense on the new Yacht Club and its impact on the OPA annual assessment. I
believe Ms. Cherry made a sincere effort to provide some useful information to
your readers, but the article may well have resulted in an incorrect
understanding of the facts. My intent is to provide some clarification and to
correct certain misinformation for the benefit of your readers and the
community.
My financial presentation to the Directors included how
the Association’s Reserve Funds work, as well as depreciation expense and its
impact on the annual assessment. Depreciation expense, which is just as real an
expense as salaries, utility costs, etc., has been and continues to be a key
element in each year’s annual assessment. So efforts to provide a better understanding
of it are appreciated. My specific comments on the article follow:
·
Depreciation expense relates to all of the
Associations more than 1,500 depreciable assets ($35 million cost), not just to
the “large capital assets” as suggested in the article.
·
The article states that there will be an
“additional assessment” for the new Yacht Club, just as there was a “similar
assessment” for the new Community Center following its opening. There will be
no “additional assessment”. Yes there will be an increase in depreciation
expense, which will have an impact on annual assessments, as was fully
disclosed in the Referendum process. The distinction in this community is
important!
·
The article attributes to Director Dan
Stachurski a comment that depreciation expense on “large capital assets” has
not been part of previous discussions. As stated above, all 1,500 + individual
assets are depreciated and the expense and impact on assessments has been a key
part of every Budget presentation in recent years, whether to the Board, the
Membership, or the Budget & Finance Advisory Committee. In addition, it was
specifically addressed in the Yacht Club Referendum process. More emphasis and
discussion, however, can only help.
·
Ms. Cherry’s “informal calculation” of a $17
increase in the annual Assessment for the new Yacht Club is incorrect for two
reasons. First, the Building’s expected life is not 30 years, but 40, although
some components will be less. More importantly, the $17 does not take into
consideration the fact that the current depreciation expense on the old
building, which is included in the current assessment, will be totally eliminated.
The Referendum materials provided to members included a Frequently Asked
Questions section and the 3rd item was exactly this issue. The
answer stated that the annual net effect of old and new depreciation was
estimated to be $6 ($13 less $7). Also pointed out was the fact that the new
building would result in lower operating costs, due to improved operating
efficiencies, lower utility costs, etc., which would at least partially offset
the net increase of $6 from depreciation expense.
I hope the above provides some clarification on this
somewhat bewildering subject. Thank you.
Pete Gomsak, OPA Assistant Treasurer