A look behind the numbers . . .

For that feel good, warm and fuzzy, disney like experience, property owners should look no further than the August POA board meeting. With a “trust me” attitude ever absent any full disclosure of facts or information, leadership continues to boast their perceived accomplishments, all without ever acknowledging the property owners who finance every Association endeavor, good or bad, via dues and assessments.

That said, recognizing that things are never quite as they may appear, let’s take a look behind the numbers and delve into the recently posted July 31^st financial information.

Ahead of Plan . . .

By now, it should be obvious to all that the GM places spectacular emphasis on the financial results as compared to budget or plan with little, if any, discussion of similarly if not more important comparisons to the previous year as would be standard practice in the business world.

In fact, the year to date “Net Income from Operations” (net income) of $994k is celebrated to be a whopping $232k (30%) ahead of plan. (1) (2a) And yet, as wonderful as this might sound, it begs the question . . . is management really that good or has the budget been padded? Interestingly, a quick look at the previous year end (2021) indicates financial performance at $719k (61%) ahead of plan! (3)

Now clearly, variances of this magnitude are unrealistic making it reasonable to suspect that both year’s budgets may have indeed been padded. And whether these unrealistic performance results are used to determine incentives or bonuses to management is unknown. Regardless, with the 2023 budget plan now in process, perhaps it is time for our board to require a more accurate and realistic forecast from management.

Looking back . . .

And now, contrary to the extraordinarily favorable comparison to plan, a look back to the previous year will paint an entirely different picture with decreasing net income fueled by ever increasing expenses.

First, even after an increase in property owner assessments, y-t-d net income is $333k (25%) LESS than 2021. In other words, increased expenses continue to consume and surpass the revenue increases. Obviously, this is not progress.

Most notably, operating department expenses increased $579k as compared to the previous year (2a) with the bulk of these increases found in the following departments: (2b)

• • Grounds, landscaping and Environmental Protection increased $57k or 16%.

  • Public Works including Housekeeping increased $184k or 21%; and

  • Public Safety increased $207,761 or 26%.

Breaking it down further, while increases in Public Works are attributed to increases in operating expenses, increases in the other departments are primarily due to payroll increases. (2c) And even with today’s inflation rates, these increases appear excessive.

Once again, with the 2023 budget process underway, one can only hope that leadership will rein in some of these runaway expenses rather than looking to the property owners for any additional revenue.

And then there’s the Cash Flow . . .

Due to the influx of “below the line” revenue earmarked for Master Plan projects (CCF fees at $389k and the legally questionable capital assessments [7] at $896k) as well as the ditching of the ill-advised Chimneys project ($1.25 million), the Association currently finds itself with $992k positive cash flow.

In fact, the majority of the finance committee chair’s board presentation was aimed at emphasizing this increase.

And while this is a very good thing, it is a trend not at all likely to continue as demonstrated below:

• • First, the cash position is likely a temporary anomaly due to the board’s appropriate decision to leave the Master Plan Fund (recipient of the CCF and capital assessments) untouched until the latest and newest Master Plan is completed and approved in the next few months. But what happens once that Master Plan is approved? Predictably, property owners will once again see the cash flying out of the coffers of the POA.

• • And further, with only a small portion of the expenses for road improvements paid as of the last financial report, (4a) substantial capital replacement expenditures remain forecast for the remainder of the year. Further, depending on the scheduling of these projects, it is questionable whether the Capital Replacement Fund (specified for these projects) will even be sufficient to cover those expenditures without tapping into other sources. (5)

One must wait and see, but for now, it is apparent that the CCF and the capital assessments are the life support of the POA’s current cash flow analysis.

And about that ever changing Master Plan . . .

It is impossible to know what new and wondrous capital projects might be unveiled in the November presentation of the new Master Plan. (4b) But make no mistake, this will be just another Master Plan in a series of many propelled by consultants paid for with property owner dollars. One might look only to a recent Big Canoe Master Plan “reserve study” prepared hardly a year ago (6) as confirmation of the repetitive processes. And will this new plan now render that “study” immediately obsolete? Most certainly so.

Property Values . . .

In closing, it seems the finance committee chair wished to demonstrate to the community and the board that the Association’s cash position would in turn “help” property values. (4c)

Unfortunately, whatever perceived benefit to property values that might be assumed from that statement is quickly negated and overshadowed by the Association’s failure to direct any of that cash to the underfunded restricted Capital Reserve Fund coupled with the board’s decision to secure the $20 million dollar credit facility.

In fact, this very concern was expressed to the board privately and discussed in another article on this site (7) prior to the closing of the Wells Fargo credit facility. The post referenced an article found on the Community Associations Institute website (8) suggesting that future purchasers might not only be reluctant to invest in a community that is in debt but also a community with inadequate reserve funding. Unfortunately, nothing has changed. Big Canoe continues to fit both descriptions.

.  . . . .

As always, please feel free to post comments or contact me at thepcrosses@gmail.com for questions or further discussion. Likewise, should you wish to see additional articles posted in the future, please subscribe for an email notification or check back frequently. Meanwhile, take care, stay safe and thank you for your readership.

Patricia Cross (10438 Big Canoe)

References:

1) Big Canoe Board of Directors meeting minutes, dated August 25^th, 2022. (POAwebsite>login>meetings>Minutes>2022August25)

2) July 2022 Financial Package, Summary of Operations, (a) pg. 1; (b) pg. 4; pg. 7

(POAwebsite>login>POA>financials>2022July)

3) December 2021 Financial Package, Summary of Operations, pg. one

(POAwebsite>login>POA>financials>2021December)

4) Big Canoe POA Board meeting, August 25^th, 2022, video on Youtube at a) 33:20; b) 40:50; and c) 33:55

5) “All for Naught”, bcmatters.org, December 27^th, 2021, https://bcmatters.org/all-for-naught/

6) Big Canoe Master Plan, Reserve Management Plan, beginning January 1^st, 2021, pgs. 41 – 91

(POAwebsite>login>POA>Reports&Studies>ReserveStudy2021

7) “What If”, bcmatters.org, February 21^st, 2022, https://bcmatters.org/what-if/

8)   https://www.caionline.org/HomeownerLeaders/Association%20Governance%20Mgmt/Reserves%202.pdf