Renew Big Canoe: The financials . . .

Special thanks are again extended to fellow property owner Wayne Huey for his excellent presentation regarding the architectural issues and shortcomings found in the clubhouse and postal facility plans.  (1) Appreciation is also extended to the many property owners that have stepped forward and either contacted the board or included their comments at the bottom of these recent articles. Meanwhile, with the ballots set to be placed in the mail any day now and a leadership attempting to debunk any concerns from naysayers, it might be useful to break down some of the myths and lay out a few facts surrounding this ambitious and bold initiative.

Profits, losses and the amenities  . . .

Making the rounds, the chairman of the Finance Committee has read from the same playbook for what is now at least three separate financial presentations in support of Renew Big Canoe.  (2a) (3) In that script, he begins with a brief synopsis of the Association’s 501(c)4 status while emphasizing that if our amenities were profitable, (specifically food and beverage/clubhouse) they would be subject to taxation. Extrapolating that information a bit further, the chairman then oddly concludes that “because we generate a loss, we don’t owe tax” which he thinks “is a good thing”. (3) Apparently no consideration has ever been given to a break even scenario.

Note:   As a bit of historical reference, losses in the clubhouse for the previous four years and through May 2023 total $1.9 million. (4)

Unfortunately, what this mindset means is that those property owners who choose not to dine at the clubhouse on a regular basis are subsidizing the steak dinners and bar tabs of those who do. And as the cost of capital expenditures are not included in these clubhouse losses, the Renew Big Canoe initiative which includes a $6.35 million clubhouse renovation will likewise be subsidized by both those who do and do not choose to frequent the clubhouse on a regular basis.

One must seriously ask why would any fiscally responsible board recommend throwing this amount of cash into renovations for an amenity currently unable to stem or explain the unacceptable losses and/or retain it’s current employees .  (5) Where is the logic?

That $2 price tag . . .

Another curiosity that we keep hearing tossed around in almost every discussion is the narrow and naive proclamation that the payment on the new loan “will be less than $2 per month per property owner compared to the debt we are already servicing”  (2b) (6) (7) Frankly, that sounds like an argument a used car salesman might make to a prospective buyer.

While true, what this simplified assertion fails to acknowledge is that the previous loan (which was rolled into the “new” loan with the principal being reduced according to it’s original schedule) was/is scheduled to be paid in full in less than three years (April 2026) which would free up $1.2M in cash each year that could be used for a multitude of purposes such as capital improvements, funding the reserve or even reducing property owner assessments.  Imagine that.

In contrast, the Renew Big Canoe initiative which will draw out the balance of the “new” $15 million credit line between now and May 2025, will then convert to a term loan (i.e. $106,938/monthly) that will not be repaid until May 2040 thereby consuming approximately $33 per month ($396 per year) of each property owner’s assessments for the next fifteen years. (Note: Lot only assessments would be somewhat less.)

Further, as an added perspective as can be shown on an  Amortization Schedule ,  (8) even at a favorable 3.46% rate, interest over the life of the loan calculates at over $4 million with the interest expense totaling $507k in the first year alone.

And about that interest . . .

And further, let’s be clear, even though the $15 million credit line will eventually convert to a fifteen year term loan at 3.46% in May 2025, it currently carries a whopping interest rate of 6.75%  (9)  https://bcmatters.org/the-basics/ which is payable monthly.

What this means is that the balance on that old “land purchase” loan (at 3.29%) that was rolled into the credit line is now accruing interest expense at 6.75%.  What this also means is that every draw against the credit line between now and May 2025 for the Renew Big Canoe initiative will also accrue interest at 6.75%  unless adjusted further upward or down by the Fed.

That said, annual interest expense on the credit line will equate to approximately $68k per each one million dollars outstanding or $1.02M per year for a fully drawn line.

And where exactly does that $1.02M in added interest expense factor into the GM and Finance Committee Chair’s analysis that relies on a static $4.2M income before depreciation? (2c)  It doesn’t.  Certainly not without a significant increase in assessments or unlikely deduction of other expenses.

So, where exactly will that additional interest expense come from in 2024? 2025?

Again . . . additional assessments?

As for that loan . . .

Disclaimer:  It must be noted that all of the above calculations are derived from the limited information that leadership has provided to the community as our board of directors has refused to provide copies of the actual loan documents.  This is frankly unacceptable.

Specifically,  “upon learning that the loan had finally closed, this writer contacted the full board in late May [2022] requesting a copy of the “loan agreement” and was once again denied. The POA President responded with, “We don’t provide copies of contracts or loan documents. The essential terms are outlined in the presentation during the January Board meeting”. When asked why, this writer was told “The POA is not required to provide copies of contracts under Georgia Law or our own Policies and Procedures . . .”  (10)

Without access to the loan documents, it is impossible for property owners to fully understand the transaction and make an informed decision on the viability of the Renew Big Canoe initiative.

And then there’s that Dam . . .

The wisdom of embarking on any $15 million capital initiative (especially one that will require placing the community an additional $15 million in debt) without first addressing the unknown costs of repairs to Lake Petit Dam continues to be a major concern of many property owners.  As it should be. Specifically, repairs to the lower level outlet, interceptor drains and replacement of the spillway will be required. And although management and leadership seek to reassure the community that funds have been earmarked in the cash flow (separate from the $15M credit line) for these repairs,  there is absolutely no evidence to support that assertion.

In fact, the Association’s own accounting firm, Mauldin & Jenkins has cautioned the following in their 2022 audited financial statement regarding Lake Petit Dam. (11)

• • “The Association’s engaged engineering firm has updated the long-term plans as of May 2023 which estimates potential work related to dam improvements in the amount of $6,900,000 over the next five years, including 2023 expenses. These costs are based on 2023 prices and not current or future costs as market demands. Final costs will remain unknown until design, permitting and bids are obtained.  [emphasis added]”

Cash Flow? What cash flow? . . .

Further, revisiting the FC Chair’s January board meeting appearance for a moment, his own slide titled Cash Flow 101   (12) (13) https://bcmatters.org/just-keeping-up-with-the-facts/ clearly demonstrates a projected negative cash flow of [$2,574.2M] for the current year. Notably, given that present day deficiency, it is difficult to understand how leadership could in good conscience stand up and assert to the community that the unknown Lake Petit Dam expenses are covered in our cash flow.

In fact, one must look no further than the May 2023 financials to see that our actual cash flow is at a negative [$460k] after only five months. (14) Obviously, these very  real  numbers are in direct contrast to what was portrayed in the July 10th financial presentation. (2c)

Note:   Perhaps it would be useful to clarify that the Association does generate a significant amount of cash each year thanks primarily to the contributions (assessments) of the property owners. This is a source of cash – not cash flow.

Meanwhile, leadership does a really good job of spending each and every dollar of incoming cash (and then some) even without the Renew Big Canoe initiative. That is negative cash flow, and that is the current state of affairs (2023) in Big Canoe.

Concurrent construction projects . . .

And finally, the entire Renew Big Canoe initiative includes the clubhouse renovation; Post Office facility; Chimneys renovation; Canoe Lodge renovation; and the Choctaw renovation. And yet our GM insists that he and his staff can actually undergo and complete all of these projects (which have not been bid and do not even include completed plans) concurrently and presumably prior to the conversion of the Wells Fargo credit line in May 2025.   One must ask,

• • Is that even feasible? Is that even wise?

  • And how will the funds be drawn on the Wells Fargo credit line? Without copies of the loan documents, it is impossible for a property owner to know.

  • And what happens if these projects are not completed by May 2025? Will WF renegotiate the rate? Will additional draws be allowed?

Again, too many unanswered questions. And included in the unanswered questions is the big unknown.  Lake Petit Dam.

Renew Big Canoe is a big endeavor . . .

And regardless of one’s excitement over the visions of gleaming and updated facilities, those visions come at an unprecedented price to our community that has not been adequately explored. Please explore, please question, please ponder the facts.

And this is our only platform . . .

With all that said, information in support of the Renew Big Canoe initiative can be found spread throughout the pages of Smoke Signals as well as on the POA’s propaganda website known as renewbigcanoe.com.

There is no other platform for those who question or oppose or simply require additional information. There is no platform for those who may present other options, alternatives and ideas. There is no platform to simply be concerned.

Because of that, if you believe the information contained on this site is important, please continue to share and pass it on.

. . . . .

And should you wish to see additional articles posted in the future, please subscribe for an email notification or check back frequently for additional guest spots and posts. As for questions or further discussion, I may be contacted at thepcrosses@gmail.com. Meanwhile, take care, stay safe and thank you for your readership.

Patricia Cross

10438 Big Canoe

References:

1)    https://bcmatters.org/guest-spot-wayne-huey-on-the-renew-big-canoe-community-vote/

2)    Renew Big Canoe Financials Presentation, July 10th, 2023, video on Youtube at a) 2:45; b) 21:55; c) 5:00

https://www.youtube.com/watch?v=feQJr17eNlo

3) Big Canoe POA Town Hall Meeting, July 15th, 2023, video on Youtube beginning at 45:30 .

https://www.youtube.com/watch?v=Gen6ytlQ3bU

4) Clubhouse losses: 2019 loss @ $775k; 2020 loss @ $464k; 2021 loss @ $14,064; 2022 loss @ $417k; and 2023 losses through May @ $220k.

5) “A message from POA Management”, Inside the Gates, July 15, 2023

6) “Renew Big Canoe, What you need to know”, by Scott Auer, Smoke Signals, July 2023 edition, pg. 6A

7) “The dollars and sense of Renew Big Canoe”, by Bill Thurber, Smoke Signals, July 2023 edition, pg. 7A https://smokesignalsnews.com/eedition/news/page-n-006/page_4136bbd5-83da-5c97-a057-72820e3c8320.html

8)  Amortization Schedule

9) https://bcmatters.org/the-basics

10) https://bcmatters.org/lets-revisit-that-20-million-credit-facility/

11) 2022 Audited Financial Statement, dated June 27th, 2023, by Mauldin and Jenkins, Pg. 25, Note No. 11, Big Canoe Dams

12) Slide presentation titled Cash Flow 101 from (January 26th Board Meeting)

13) https://bcmatters.org/just-keeping-up-with-the-facts/

14) May 2023 Financial Package, Statement of Cash Flows, pg. Three (POAwebsite>login>POA>financials>2023May)