Board still looking for ways to cut assessments ahead of Saturday adoption vote
By Josh Davis, Associate Editor
(Feb. 14, 2019) A basketball game was going on next door, with scoreboards buzzing and crowds cheering, but the real sporting event Saturday morning was in the adjacent Marlin Room of the Ocean Pines Community Center, where board members and a few dozen others spent four hours vigorously debating how to reduce the proposed $127 increase in the next fiscal-year budget.
Efforts to lower that number focused on payroll and health benefits, bulkheads and roads, and paying off the remainder of a $1.6 million deficit.
Personnel costs account for $33 of the increase, according to General Manager John Bailey, who attributed that to implementing the results of a pay study, offering merit raises, and “estimated benefits inflation.”
To counter that, Director Ted Moroney suggested eliminating the pay study increase, thus saving almost $128,000 overall and trimming roughly $15 from the increase.
Moroney also suggested reducing health benefits from 100 percent coverage for some, to 80/20 for all, with Ocean Pines paying for 80 percent of costs and workers handling the remaining 20 percent.
Again according to Bailey, 41 employees have full coverage and 28 were contributing to it.
Treasurer and Budget and Finance Committee Chairman John Viola said Moroney’s suggestions were in line with his own recommendations, but added his committee last year recommended, “the whole package should be looked at.”
“Apparently, it didn’t happen,” Viola said.
Association President Doug Parks explained the budgeted 2-percent merit raises meant 2 percent of the total payroll would be available for “high performers” or “folks that may just be under the minimum required for a specific job.”
“It’s up to the discretion of the general manager, based on his assessment of staff performance,” Parks said, adding that amounted to $72,791.
Director Frank Daly called payroll as a whole “an unmitigated mess,” while Director Slobodan Trendic said the issue was “an elephant in the room that needs to be addressed.”
“I feel like, in a way, that we’re in a reaction mode instead of being proactive,” he said. “We had an opportunity since last year to begin the work on that and I’m disappointed that … hasn’t happened.”
Rather than give merit raises, Trendic suggested a one-time bonus for certain employees.
“If you look at our payroll, we have positions that have continued to increase in salaries to the point where some are actually over the top of the scale. If you keep doing that, how do you fix that problem?” Trendic asked, adding solutions could include layoffs, outsourcing and restructuring “to eliminate those highly paid positions.”
Parks said the payroll study done in-house this year was flawed, but suggested comparing it to an outside study done about five years earlier. He added, “That’s certainly going to take some time.”
He said the association had a fiduciary responsibility to scale back health benefits, but that would amount to a “hit to the employee.”
“Now, all of the sudden, you’re going to take 20 percent out of your paycheck and you’re going to have to forward that for insurance and benefits payments,” Parks said. He said the notion of a “one-time payout” might help to “soften the blow to the employee.”
“If that’s a palatable idea, my question would be how much is that really going to cost us?” Parks asked.
If that were done, he added, it would be a one-time adjustment.
“As responsible employers, when we make this change to benefits … [it will] hit them in the pocketbook,” Director Colette Horn said. “They have a window during which they can make decisions to change how they get their health care coverage. And this bonus gives them an opportunity to make that decision during the open enrollment period, before they have to take that financial hit. And I’m favor of doing that.”
Viola said it was not ideal that the directors were still talking about these subjects in so much detail, so late into the budget process.
“The fact that we’re talking about payroll, and we’re talking about benefits, and we’re taking adjustments and merit raises to this degree today – several weeks into the budget process and over a year from our last budget … when this was all brought up … it wasn’t executed during the year properly – that’s why this board is where they are today, unfortunately,” he said.
“If we take out the payroll adjustment … if we go to 80/20 and keep the 2 percent [for merit raises] … it would definitely lower the assessment from that infamous Jan. 3 ‘no assessment increase,’” Viola added, referring to Bailey’s initial budget proposal.
As for the Ocean Pines Association deficit, Parks said the original concept in Bailey’s proposed budget was to pay $100,000 toward the remaining $1 million deficit balance.
“We’ve since rethought that as not being an appropriate way to use those funds,” he said, adding the budget and finance committee asked the board to “consider paying a third of it, or approximately $334,000.”
“We’ve already floated the idea of knocking it down to $250,000 as a way to reduce the assessment, so I think there’s a couple of options on the table,” Parks said.
Viola said the board voted last year to spend $71 per household to pay off $600,000 of the deficit. He said the guidance this year was for a three-year plan to pay off the remaining balance.
“That was guidance from [the budget and finance committee],” he said. “That’s what should’ve been there and that should’ve been there on Jan. 3 … that would’ve made everything transparent for everybody.
“That didn’t happen,” Viola added.
Trendic complimented Viola for asking tough questions and “holding the board in check from a fiscal perspective.” He added he agreed with Director Esther Diller’s comments in this paper a week ago that, “if our general manager had done a better job … we wouldn’t be having such difficult discussions now.”
Moroney said he would prefer a three-year deficit payoff, but could live with reducing it instead over four or five years. He said if the yacht club starts to become profitable or any remaining residential lots owned by Ocean Pines were sold, they could contribute to deficit reduction, but added, “hope is not a plan.”
Parks, acknowledging calls by some for across-the-board cuts, said at some point “it’s the law of diminishing returns.”
He said he’d rather pay the deficit off sooner than later, because it’s more fiscally responsible to do so, and because boards change.
“Next year, a board could come in and basically undo what we’ve done and say, ‘No, we’re not going to pay it back and we’re just going to carry that loss on the balance sheet,’” Parks said. “The idea of trying to make sure that we address this in a way while we can a) recognize it and b) act on it is a little more important than trying to save [a few assessment dollars].”
Bailey said the difference between a three and four-year plan was about $8 or $9 dollars.
Daly also said he would rather pay down the deficit sooner rather than later “because it’s your money that was blown,” but said he could be convinced to vote for a four-year payoff.
Assistant Treasurer Gene Ringsdorf added if the board did not properly address the deficit now, it would essentially be denying resources for future boards.
Besides the deficit and personnel cost problems, bulkhead costs are going up, Moroney said.
He said basic costs have gone up 30 percent and it may require another 25 percent to no longer use the swim and racquet club area as a staging ground.
“What we did when we looked at this was … we said, for bulkheads, at the end of 2025, we want to have a carry-forward balance of $500,000,” Moroney said. “And when we ran the numbers, we were actually in the negatives a little bit.”
He said the association needs to explore other staging grounds, because over time “we will save … a tremendous amount of money” if that could be done.
All of that being said, Moroney was comfortable waiving the $19 bulkhead charge this year paid by all lot owners, but suggested keeping in the $465 differential paid by waterfront owners.
“I will say this – everybody needs to understand that costs are going up and they will be going up [in the future],” he said.
Trendic said he is not comfortable collecting the entire $465 because “there’s no project plan.” He suggested cutting the number in half.
However, Parks and Ringsdorf said there was adequate information for now in the reserve study for bulkhead planning.
The “big whack” to the assessment, according to Moroney, is the $47 per homeowner for road depreciation.
Viola said his committee last year recommended funding road depreciation, but that money was instead used for the forensic audit. He said other priorities also came up this year.
“The more I see what’s going on [with] the amount on the GM’s plate … maybe we don’t fund it this year,” he said.
Ringsdorf said road reserves are about $500,000. He said without depreciation, the balance would likely drop to about $100,000 by the end of fiscal 2020. Ocean Pines currently allocates casino revenues for road maintenance and receives a small amount of state funding, but does not collect additional money from membership for that purpose.
Bailey said if road depreciation is not funded, it would not affect plans to replace four large drainage pipes under the roadway, estimated to cost $600,000 in total.
Moroney said the guidance for Bailey is to remove money associated with the pay study and road depreciation, but to keep in bulkhead collections. No decision was made on deficit reduction.
Moroney said new board members campaign on flat assessments every year, adding, “Every single person that walks into here gets their eyes opened up when … they start to look to look at what it costs to operate and where the money goes.”
“We all try to hold [assessments] down,” Moroney said. “I don’t think there’s a person sitting at this table that [wants] to … pay more than we need to.”
Trendic said he wanted to see 2.5 percent across-the-board cuts. He said legal fees should also be reduced, because about $40,000 this year went toward negotiating a new deal with Mediacom and that was likely a one-time expense.
Daly said the board owed it to homeowners to keep the budget as low as possible, while still properly maintaining the association. He said any item cut from the budget should be outlined, so the public understands why and what those items are.
Diller said she would like to see some manner of “perk” for homeowners who pay assessments on time, potentially in the form of amenity passes.
She added, “We are working really hard to try to fix this.”
“Some of this we inherited. It’s unfortunate, but we did,” she said. “I can tell you, this board does work very well together. I feel we are very cohesive and we do appreciate the community being involved with this.”
Association Vice President Steve Tuttle said he wanted more information on interest rates, if the association planned to borrow money from itself rather than pursue bank loans for some items.
Moroney encouraged homeowners to read the current budget draft online.
He also encouraged those with questions to attend budget and finance committee meetings.
Parks, in closing, offered, “I firmly believe that we’ll reduce the assessment increase by a significant amount.”
He asked homeowners to email questions to firstname.lastname@example.org, adding phone numbers for individual directors were posted online. For board of director contact information, visit www.oceanpines.org/administration/board-of-directors.
To view the latest fiscal 2020 Ocean Pines Association budget draft, visit www.oceanpines.org/forms-docs-cat/budget-for-fy-2019-2020.
The board is scheduled to vote on whether to adopt the fiscal 2020 budget during its regular meeting this Saturday, Feb. 16, at 9 a.m. in the Assateague Room of the Ocean Pines Community Center on 235 Ocean Parkway.