By Greg Ellison
(Sept. 5, 2019) With Ocean Pines Association leadership in general agreement that further work is required before a new capital reserve fund can be established, newly elected director Larry Perrone withdrew a related motion during the board of directors’ meeting on Saturday.
Perrone had proposed creating a new reserve stream, drawn from up to 10 percent of annual replacement reserves, beginning in fiscal 2020/2021. The fund would not exceed $1,000,000.
Funding for new capital requests is currently derived from the operating budget, Perrone said. Since the effect of new capital costs are directly added to annual assessments, Perrone said numerous projects were stymied in the past to avoid boosting costs for property owners.
New capital is defined as assets with functionality not previously owned by the OPA and also includes increases in design capacity.
Perrone said the proposal would restrict using the new capital reserve fund for other expenditures without unanimous board approval and includes an annual spending limit of $500,000.
“This would allow for better financial planning and control without directly impacting the Associations’ yearly assessments,” he said.
Board member Dr. Colette Horn voiced hesitation with the concept as presented.
“I would be a lot more comfortable with a lower maximum spend and … total,” she said. “I think these are excessive based on previous spending patterns.”
OPA Vice President Steve Tuttle echoed those sentiments, while noting the need for capital reserve funding was valid but would require proper vetting.
OPA President Doug Parks said before pursuing the proposal it should be confirmed the approach does not violate legal guidelines or established accounting procedures.
“I understand the intent, but I think we absolutely have to go back through and look at the process because this isn’t the way to do it,” he said. “We do need to follow established rules on how to address … setting up a new fund.”
Parks also said the proposition should be reworded to establish a “capital expense,” fund.
“Part of me says we’re just creating a fund to do stuff that we don’t know what we want to do with,” he said. “I’d much rather have a group of folks get together with input from the community to say what are the areas that we should consider.”
Parks, while not backing the proposal as presented, did express support for the general concept.
“We have to do some homework to go back and get things right,” he said. “Put it in line with our bylaws and have a target for spending over the next 1-3 years.”
Perrone said although new capital costs were only around $27,000 this past fiscal year because of having to address a previous deficit of roughly $1,000,000, over the past five years the figure has averaged about $117,000.
“What these numbers do not entail were the projects brought forward by the department heads … that were discussed and not approved because of attempts to control the assessment,” he said. “The reality of it is we’re spending between $125,000 to $150,000 a year on new capital.”
Perrone said lowering either the fund maximum balance or annual spending limit could be examined.
“There should be a method to fund our new capital without having to directly impact our profit/loss statement,” he said.
Speaking by phone, board member
cautioned that establishing the fund through resolution leaves open the potential for future boards to bypass and rescind the order.
“If we need something for new capital … as much as it might be distasteful, we may have to go to referendum to … lock down the way we collect … and the way we preserve it,” he said.
Instead of tabling the matter, Parks suggested that Perrone withdraw the motion.
“I think this is a good start,” he said. “It proves it isn’t a simple transaction [and] requires a lot of thought and future proofing so we understand how this money will be used.”