After a studied review of the recent POA Board Eblast regarding Big Canoe’s finances that references communications from several property owners, an explanation provided appears to be directed, at least partially, in response to recent posts on this site. (1) (2) But first, it must be emphasized that an accurate representation of this writer’s research, ideas and observations can always be found on the pages of this blog which is maintained exclusively by this writer without collaboration. Any attempts by leadership to characterize otherwise should be disregarded.
The message . . .
That said, this is a response to that section only of the POA Treasurer’s message that seems to respond to this writer’s recent call for an explanation regarding the discrepancy found in the $2.8 million restricted Capital Reserve Fund balance versus the $1.8 million indicated on the recently updated Capital Reserve Study (Reserve Study). The Treasurer indicates that the wrong account was referenced by this writer as the Reserve Study now actually refers to or ties to the Board Designated Capital Replacement Fund (“Replacement Fund”) established in 2020 rather than the Capital Reserve Fund. This is clearly an abrupt change of past applications.
(It is perplexing that this explanation was not readily provided when the first article was posted on the subject June 3rd. It is likewise perplexing that when asked directly on June 15th, the POA President considered any written response to this writer’s specific question to be inappropriate.)
But regardless, an explanation has now been provided whose acceptability can now be openly debated.
A change in course . . .
Somehow along the way, without fanfare, board discussion or documented consensus, a decision was made to effectively disregard the long standing Capital Reserve Fund from any association or relationship to the Reserve Study. Instead, any reference to reserve funds in the updated Reserve Study now corresponds to the Replacement Fund. Surely this decision was discussed somewhere, voted on and understood by all members of the board prior to it’s application? Further, this change is problematic on multiple levels and thus questioned.
Our governing documents . . .
A subsequent publication by the Treasurer at Inside the Gates, (3) provides additional details while accurately noting that the Capital Reserve Fund was established by property owner vote in 2010. Much later in the same article it is noted that Big Canoe covenants require that an updated Reserve Study be performed every three to five years. However, the discussion fails to establish the nexus between the two (Capital Reserve Fund and Reserve Study) and fails to reference that the requirement for BOTH was established by the same property owner vote and covenant. It is important to recognize that this covenant has not been rescinded by the property owners, and the removal of the Capital Reserve Fund from the equation relating to the Reserve Study circumvents the intent and language of the covenant as found in our governing documents.
The debate . . .
In addition to the requirements to establish a Capital Reserve Fund and obtain updated reserve studies, the covenant further states that the amount of the Reserve Fund shall be managed consistent with projected reserve requirements identified by the Reserve Study. (4) Obviously, adherence to this requirement would be difficult, if not impossible, if the actual reserve fund balances are no longer used as the benchmark. In addition,
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- The Capital Reserve Fund and Reserve Study are inextricably bound by legal statute,
- have been interrelated and in tandem since 2010,
- are consistently referenced throughout audited financial statements and finance committee minutes from previous years,
- And in fact, an example of this nexus is supported by the excerpt of a legal opinion copied to this writer by a current director which states, “. . . if the Association has used any of the Capital Reserve Funds for capital or emergency funds in recent years, the Association IS required to replenish the amounts used in accordance with the recommended levels needed per the Capital Reserve Study (which must have been updated at least within the last five (5) years.)”
- The newly created Replacement Fund is not a reserve account. It has not been established by statute; it fails to include the word “reserve” in it’s title; and it is a transaction account.
For all of the above reasons, the restricted Capital Reserve Fund should have continued to be the account referenced in the Reserve Study, and an appropriate funding plan and goal should have been established going forward.
Funding balances . . .
And while this writer respectfully disagrees with the applicability of the explanation offered, it is even more regrettable that the shell games, red herrings and constant shifting of the various POA funds have become a distraction from addressing the real problem at hand which is Big Canoe’s lack of adequate reserve funds. (Note: For a comprehensive article on the subject of reserve funds go to: https://bcmatters.org/time-to-talk-about-our-capital-reserve-fund/)
Without including Disharoon dam repairs, Lake Petit repairs and Master Plan components, the reserve specialists estimate the 2021 fully funded balance to be approximately $18 million. (5) Lake Petit repairs and Master Plan components addressed in a separate report by the reserve specialist estimate an additional $15 million. (6) Regardless of what funding goals are established, given those estimates, it is very clear that the community’s reserve funding has a very long way to go.
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To see additional articles posted in the future, please check back frequently or subscribe for an email notification. Likewise, please feel free to contact me at thepcrosses@gmail.com for questions or further discussion. Meanwhile . . . take care and stay safe.
Patricia Cross (10438 Big Canoe)
References:
1) https://bcmatters.org/ask-the-board/
2) https://bcmatters.org/ask-the-board-yields-no-real-answers/
3) “A message from POA Board Treasurer Amy Tropfenbaum on Big Canoe’s Finances”, June 22nd, 2021, Inside the Gates
4) Second Amendment to the Covenants, dated August 21, 2010 – (POAWebsite>login>POA>Governing Documents>Covenants>Capital Reserve2010)
5) Big Canoe POA – Reserve Management Plan, beginning January 1 2021 pg. 7
(POAWebsite>login>POA>Reports and Studies>Reserve Study 2021)
6) Big Canoe Master Plan, beginning January 1, pg. 47 ( (POAWebsite>login>POA>Reports and Studies, Reserve Study 2021)
Once again Patricia, your comments, analyses, and conclusions are wonderfully stated. Your professional approach is obvious to all who read your blog.
I will say that our “POA” Finances are very difficult to follow.I personally feel our Board and General Manager are working hard, honestly, and diligently to guide Big Canoe through difficult times, e.g., Petit and Disharoon Dams. However, multiple funds and financial management nuances
create questions that could be avoided. Because of the complexity of our “financial management process” it is difficult, to say the least”, to follow the process.
Hopefully your expert analyses and professional blog will assist the POA in their endeavors to provide clear, accurate, and understandable data to owners.