By Josh Davis, Associate Editor
(Feb. 7, 2019) Not much in the way of public comment was made when the proposed budget was unveiled to Ocean Pines membership on Jan. 12, but that was not the case last Saturday when the “recommended” budget was presented.
That session generated several dozen comments over a two-hour period, most of them related to the budget’s inclusion of what would be the second-largest assessment increase in association history.
Speakers included three former board members, beginning with Marty Clarke, who said he was representing himself and the Stop Taxing Ocean Pines (S.T.O.P.) group.
Clarke said the assessment growth was unsustainable and over 50 percent of that was payroll, including $600,000 for payroll increases.
“The federal government ain’t giving out that kind of money,” Clarke said, adding it was ridiculous that an association employee oversaw the payroll study used to justify the increase.
“That’s like asking a wolf, ‘What do we need to do to guard the hen house?’” he said.
Far from happy with the $127 proposed increase, Clarke said even the $951 assessment last year was too high.
He said a staggering amount of money had been set aside for bulkheads and borrowing money for a proposed sports core pool expansion was unwise, as Ocean Pines “may have more money in the bank than the Bank of Ocean City.”
Clarke said other budget numbers were just plain wrong, including the $2.9 million depreciation figure that should be closer to $2 million.
“If you take out just that increase, $900,000, which we need like a snake needs shoes … that’s another $106.50 of assessment dollars that we’re giving you to put in a bank,” he said.
Lastly, Clarke said Ocean Pines has $14 million in total in the bank.
“Somebody’s gotta tell me why we need an increase and I’m pretty close to the track,” he said.
Joe Reynolds, who spoke shortly after Clarke, said he has watched the association budget process unfold for roughly 30 years.
“And I believe this year is the most convoluted process that I’ve seen in those 30 years,” he said.
Reynolds said the $400,000 road reserve addition to the recommended budget was “not a one-time shot,” adding “as I understand it, the board has decided to [permanently] add the roads as a depreciable item.”
“You may agree or not agree that we need to do more roadwork, but if this passes as it is, we will be paying $400,000 or so … every year from here to eternity,” he said. “And we have not depreciated the roads for 50 years.”
Reynolds said the police station expansion is needed, but most, including him, were under the impression it would cost $400,000.
“It came as a surprise to me that the cost is actually $800,000,” he said, adding that was apparently split between new capital and replacement reserves.
Moreover, he said paying $25,000 for debt services to borrow money when the association has so much in reserves is “the same as taking $25,000 and throwing it down a sewer because of semantics.”
“I don’t know what genius decided to do this, but it makes no sense,” he said.
He also said “the idea of loans” from one’s self was absurd.
“Again, I’ve watched Ocean Pines closely for 30 years. Ocean Pines Boards have decided to borrow money either from themselves or from banks over the past 30 years – sometimes substantial amounts of money,” he said. “In the end, every time a board borrowed money to try to play games with the assessment, a subsequent board paid it off – every single time. It makes no sense.”
Tom Colton said debt and the forensic audit were his two biggest concerns, and he focused on the latter.
“I still don’t think we have closure on that,” he said. “I would like to hear more about what has happened. The issues that were highlighted from this indicate a lack of internal controls, and I don’t think the board or the general manager appreciates how important these are in the business world.
“In accounting and in financial procedures and policies, these are how you’re managing your money and all the little hoops that you’ve gotta jump through, which sometimes seem very annoying to people in that particular business … but all have a purpose and a place,” he continued. “And I don’t think you all appreciate how important these are and we haven’t heard back on that audit, because it sounds like it’s one-and-a-half million dollars, and this is what’s created this huge problem.
“To me, the problem is not going to go away unless you get it fixed,” he added.
Cynthia Bartolomeo, on a related note, asked about theft allegations related to the administration building that surfaced several years ago.
“There was money missing … where did it go, who took it and why aren’t they behind bars?” she asked.
Kim Gorsuch said negative public perception is hurting the community, adding word of mouth in the area was “don’t buy in here because of our fees.”
“We get nothing for our assessment,” she said. “It’s community cleanup, we talk about the golf courses, fixing the yacht club and all that – we don’t benefit from any of that, yet we pay. I’m almost up at $2,400 between my assessment and taxes, and I get no benefit from it.”
“If you’re going to increase our fees, give us homeowners some kind of benefit,” she added.
Former board member and association president Tom Terry offered a history lesson, saying as recently as August 2016, the association had no deficit to speak of.
“It was in the black,” Terry said. “Within days of the announcement of that at the annual meeting, major decisions were made to go in a different direction of how this place was gonna be managed.
“For the next year-and-a-half we saw absolute mayhem … Let’s understand something: when you lose $1.6 million because of the actions you took, you can’t expect these folks to not have to recognize the loss and the mayhem that came from that,” he continued. “They have tried for two years now to … hold down some of the dues. They have tried very hard to do that. Someone finally had to say that in public, that we ended up with a mess for a year-and-a-half that these folks are trying to dig our way out of.”
Terry said earlier questions about the audit had “nothing to do with the way this place was run for a year and a half.”
“This place was run horribly for a year-and-a-half – completely out of control,” he said. “Half a million dollars being spent on the first floor of a building that may now have to be razed … There were decisions that just weren’t right.”
Terry went on to say Reynolds was correct roads had not been depreciated for 50 years, but that was because the state used to contribute $500,000 each year “until Annapolis decided to keep the money.”
He said casino funds were only about half that amount, and those funds last year were used to pay for a forensic audit “that is, in my personal opinion, a smokescreen for covering up how badly this place was run for a year-and-a-half.”
Terry said it is probably true that Ocean Pines has $14 million in the bank, as Clarke said, but much of it was operating dollars set aside.
“I’m not saying we don’t have money – we certainly do. And it’s a good thing that we do,” he said.
“These people sitting up here are trying to find a way out of a mess – out of a slump – and I’m not saying they’re doing a perfect job. I didn’t do a perfect job. I sat there for six years – trust me, I screwed up. I made mistakes, just like anybody did. But these are honest, reasonable members. This is part of a process,” he added.
Terry also addressed an earlier public comment “that we get nothing out of our dues?”
“Nothing? The folks in Berlin pay more taxes than we pay in fees … they don’t have anywhere near the amenities, or the facilities, or the number of roads, or the number of parks, or the number of lakes or anything else,” he said. “This is a very, very large, complicated HOA in a community that does, in fact, draw people – just ask people in the real estate business how things have been going in the last year.
“Ladies and gentlemen, we are trying to find our way back from an absolute disaster in this community … in August of 2016 this organization was out of deficit and within a year-and-a-half actions had been taken and a direction had been set to put us a million and six in debt,” Terry continued. “Let’s not blame these folks – there’s only one of them left up there, and he didn’t show up today.”
Another former board member, Jeff Knepper, addressed what he said was a tendency of Ocean Pines to “borrow from ourselves.” Knepper said that was “close to the dumbest idea I think I’ve ever seen.”
“I know why it’s done and I don’t like it,” he said. “I strongly encourage you to set up a reserve for new capital. Right now, the situation exists where if it’s a replacement, we have a reserve, [and] reserves don’t get assessments directly. They do for the contribution, but not for the individual expenditures.
“If it’s new capital, whoa, we don’t have reserves from that so, guess what, it hits the assessment,” Knepper continued. “You have just set up an automatic argument every time you want to do anything because, if you bias it one way – if you can stretch it and call it replacement – oh, you’re the hero, it doesn’t hit reserves. If you do it the other way, uh oh, it does.”
Knepper said he’s spent countless hours listening to board members debate both approaches, “and at the root of it is we do or we do not want to affect the assessment.”
“So, let’s get over that,” he said. “Let us set up a reserve for new capital. Let’s appropriately fund it … but then we will take away this idiot argument about things that don’t affect the assessment and things that do.
“We should, at the same time, take a position that says we are not going to play this game of borrowing from ourself. It makes no sense,” Knepper added.
As an example, he said the association was currently proposing doing just that for two different new capital items.
“The rate on one is 6 percent – the rate on one is 3 percent. Same organization, slightly different departments, and 100 percent difference in rate,” he said. “My dog can get a better rate than that.”
Ann O’Connell said the association should not spend money on any new items until it pays off the deficit.
“I think we found ourselves in a hole, and I think we need to quit digging,” she said. “I think we need to resolve all of the unfinished business before we undertake anything new.”
She said Ocean Pines didn’t need to spend money on anything extraneous, at one point citing wind shades for the tennis courts, “prior to taking care of our debt.”
“Quit digging. Let’s get out of this hole and see if we can’t deal with attracting new residents to the Pines after we resolve the problems we have here,” she said. “Our reputation proceeds us here – people know what kind of trouble we’re in moneywise. People don’t want to come in here, looking to buy, and a lot of the people that did come here and bought a property did not count on this escalation of the cost of living here.”
Greg Shahady said he wanted more specifics on spending items like ditches.
“I happen to live next to one of the major ditches – not the ones that go in front of everybody’s driveway, but the big one that all those driveways drain into,” he said. “There’s trash and debris and it’s not draining, and it’s mosquitos, and I have a 2-year-old daughter that could stumble into it because it’s got a foot of water in it year-round, rain or no rain.”
He said we has aware of the public works department and assumed they had equipment to clean the ditches. Shahady said he didn’t expect that to be done in a month, but there should be a regular maintenance schedule.
“I see them riding down my street in the trucks – they’re doing something,” he said. “It doesn’t take long. I could probably go out there with a garden rake that I could get from Home Depot and clean it out in like an hour myself.”
Audra Spalovsky addressed rising health care costs.
“In regard to benefits, I would simply ask the question, who is your insurance broker and what are they doing for you? They should be coming to you every year … to discuss what’s happening in the benefit marketplace,” she said.
“You should be questioning why [costs] are going up. It does happen – premiums are through the roof with health insurance, so I get that – but there’s ways that you can hopefully mitigate that,” she continued. “It could be through your broker, it could be through your carrier, it could be through employees paying a portion of their health care, which is the norm nowadays. Very few businesses can afford to fund 100 percent of medical costs.
“If you don’t have a good broker who’s helping you look into all of this, I think it’s definitely time to put that at the top of your priority list, to make sure that somebody’s working for you,” she said. “Don’t forget, all of these folks are working for you – your lawyer, your insurance broker, anybody that you’re paying as an outside service – you’re the client. They should be helping you make these best decisions for the homeowner’s association.”
In one of the lighter moments, one man who did not give his name said three days earlier someone on the radio announced Ocean Pines was “the best place in Maryland to live.”
“Listening to this place, by God, it makes [it sound like] this is the worst place in the world to live,” he said.
Director Ted Moroney closed the meeting by asking how many in attendance had actually read the budget.
“There’s one or two or three people that’ve done that,” he said. “Go online and actually look where it’s being spent.
Moroney added, “I have no problem cutting it, but remember every time we cut something … it affects services.”
Last year, for example, he said the summer newsletter was cut to save money.
“As soon as we said we weren’t going out with the newsletter … everybody went nuts and said that’s the number-one thing we need, so there are a cause and effect,” he said.
Moroney reiterated the board would make some budget reductions.
“But I’m also saying it’s a little more complicated than just saying you have ‘x’ number of dollars in the bank. You’ve really gotta look at where is the money being spent and I think that’s what a number of people in here said,” Moroney said. “Take a look at the budget … because there’s so much misinformation out here.
“The thing I like about this budget [is] this board, the seven people that’ll be sitting here making the decision, have to definitively decide what we are doing and not doing,” Moroney said. “It won’t be any hiding behind ‘the GM did this’ or ‘the GM did that’ – it’s seven board members, and so we can stand on that.”
Budget and Finance Committee Chairman John Viola added he once stood out in the audience asking many similar questions.
“I couldn’t figure it out, and that’s why I’ve done this and volunteered,” he said.
Viola said anyone who wanted to attend a budget and finance committee meeting is welcome, and he would be happy to answer any questions.
Association President Doug Parks asked anyone with additional comments to email the board of directors at email@example.com.
To view the fiscal 2020 recommended budget, visit www.oceanpines.org/forms-docs-cat/budget-for-fy-2019-2020.