By Greg Ellison

Staff Writer

(Oct. 17, 2019) Opinions varied about the viability of establishing a new capital reserve account during a first reading of a proposal to amend resolution F-03 for financial reserves during the most recent OPA Board of Directors meeting.

Board member Larry Perrone introduced a motion during the Oct. 2 meeting after withdrawing a comparable version at the September meeting.

“The reserve is for assets with functionality that were never previously owned by OPA,” he said.

After pulling back an initial motion in September, Perrone consulted with Bylaws & Resolutions Committee Chairman Jim Trummel to review F-03 and create revisions to establish the new account.

“The changes were done in conjunction with Jim Trummel to make sure the Bylaws Committee would be on board,” he said.

Perrone said funding for new capital requests is provided through the operational budget.

“The effect of new capital costs are directly added to the annual assessment,” he said.

Minimizing increases in annual assessment fees has continued to encourage board members in many instances to forgo new capital purchases, Perrone said.

“A reserve account dedicated to new capital expenditures will allow for better financial planning and control without directly impacting the association yearly assessment,” he said. “It will also forgo the tendency to forgo new capital purchases and projects.”

Perrone said funding for the proposed account would be obtained from up to 10 percent of annual replacement reserves. Additionally, the account would be capped at $1 million with a maximum annual spend of $500,000.

Board member Frank Daly raised concerns about maintaining established target ranges for existing reserve accounts.

“With the exception of the road reserve, we are either at the minimum or approaching the minimum for each of those accounts,” he said. “Is that factually correct?”

While acknowledging Daly’s assertion was accurate, Perrone said the proposal would not affect the bulkheads or road reserve accounts.

Estimating it would take three years to reach the projected goal of 22-28 percent for the replacement reserve account, which currently sits at 18 percent, Perone said implementing the new account would stretch that mark to four years.

“It’s delaying it one year [and] that’s if we allocated 10 percent of the incoming reserve dollars,” he said. “The motion says we would do up to 10 percent and not a straight 10 percent every year.”

The new capital reserve account would gradually increase over the years, Perrone said.

“We’re only averaging about $150,000 a year in new capital expenditures, which does not include the projects that have been requested year after year that were not approved,” he said.

Daly questioned the impact of drawing 10 percent from replacement reserves.

“Then, as we consistently spend that $150,000, we’re either going to be consistently below our targets, or we’re going to have to increase our assessment to cover our reserves,” he said.

Perrone reiterated that fiscal projections indicate the proposal would delay achieving the 22 percent replacement reserve goal by one year.

OPA President Doug Parks questioned the accuracy of estimating annual new capital expenditures at $150,000.

“We’re funding something at a high rate [and] shifting off the reserve account to build something,” he said. “Then we’re stockpiling at a different rate than we’re actually spending.”

Parks inquired why 10 percent of reserve funding would be earmarked, “to put something in there that we’ve traditionally not had that level of spending.”

Planning issues were another area of contention for Parks.

“Do we have a list of things that are upcoming capital asks?” he said. “I, for one, have no interest in putting money into an account without a plan on what we’re going to do to use it.”

Perrone said planning processes have been included with the proposal.

“We will start keeping a rolling new capital project plan,” he said.

Highlighting the importance of further examination, Parks said following the first reading that evening that the matter should be sent to the Budget & Finance Committee, along with the underutilized Strategic Planning Committee.

“Perhaps it’s time to get the Strategic Planning Committee to look at it from a more holistic [and] maybe a different perspective,” he said. “Then have both committees coordinate to understand what needs to be done over the next 5-10 years.”

OPA Board member Steve Tuttle scrutinizes Larry Perrone, while Dr. Colette Horn reviews text for a proposed new capital reserve account during a first reading at its Oct. 2 meeting.