Self-inflicted Chaos . . .

There’s been a lot going on in Big Canoe recently to include the unveiling of the 2023 budget revealing leadership’s plans for the coming year coupled with the $20 per month assessment increase (with $5 of the increase allocated to the Master Plan Fund). Unfortunately, rather than presenting the community with a concisely constructed financial plan, the GM’s budget presentation has become a media blitz of power point slides and pie charts containing often misleading, manipulated and incomplete information.

Meanwhile, leadership continues to find new and creative ways to spend and sometimes squander our assessment dollars while also sidetracking the requirements of our governing documents.

Warning Label: Keep in mind that leadership AND management will most assuredly label the following statements of fact as “misinformation” given their generous use of the word throughout recent board meetings.

Fact:  Fed raises rates again . . .

For example, it can now be confirmed that the Finance Committee has gambled with our money and lost. With $15 million of the ill-advised Wells Fargo credit facility tied to the SOFR (secured overnight financing rate) plus 1.70%, (1a) each increase in interest rates by the Federal Reserve Bank is rapidly becoming very bad news for Big Canoe.

As a reminder, the outstanding balance of the 2016 “Land Loan” with only four years remaining and a fixed rate of 3.29% (1b) was rolled over into the new credit line.

Given leadership’s refusal to provide copies of the loan documents, it is unknown how often the rate adjusts to changes in the SOFR.

• • However, with the SOFR now at 3.80%, (2) the rate at adjustment will be approximately 5.50%. That differential alone would equate to approximately $91k in additional annual interest costs based on the current balance absent any future principal reductions or increases.

Notably omitted from the budget pie chart titled Where does my assessment increase go  (3), this increased interest cost represents approximately 17% of the assessment increase. ($91k/$544k)

Note: If there is any ray of sunshine in this scenario, one can only hope that the rising interest rates will help curb leadership’s appetite for drawing any further against the line.

Fact:  And then there’s that fire truck loan/lease . . .

Remember that July 2022 loan secured by the new fire truck for the purpose of generating additional cash? (4) With sixty monthly payments set at $9,461 (5), that loan accounts for over $18k in additional interest costs or 3% of the assessment increase.

Note: (The principal portion of the payments will be addressed in the analysis of the budgets at the conclusion of this post.)

Fact:  More legal fees on the horizon . . .

In an October 10^th closed meeting, the board voted 6-0-1 to retain yet another law firm “for the purpose of better understanding the Developer Rights”. (6) The Association now has at least three different law firms under retainer on various matters.

• • However, with this vote, the Board violated it’s own Board Policy No. 104 which states, “All meetings where the Board is scheduled to vote on Association business are open to the property owners and residents, except for Executive Session.”

• • Further, there is no record of any ratification of this vote in any subsequent open meeting.

Perhaps, while leadership is paying out these additional big bucks, the newly retained counsel could help the elected board to better understand “their” responsibilities to comply with the Association’s governing documents.

Note: It is truly unfortunate that previous leadership was negligent by failing to take the time to “understand” the retained developer rights before recommending the 2016 approval of the $9.4 million land purchase from the developer.

Fact:  More debt . . .

Only purchased in 2018 with a useful life estimated by management at fifteen years, (7) the entire pontoon boat fleet is scheduled for an early replacement in 2023. Described by the Finance Committee chair as “worn out”, (8a) one must wonder did we fail to maintain the fleet (typically utilized for much longer time spans) or did management woefully exaggerate the useful life on the reserve studies and possibly the depreciation schedules?

And not only is this replacement premature, the fleet will be purchased with an operating lease rather than capital funds as has been the historical practice in this community for the previous fifty years.

• • Make no mistake, a lease is a debt, and this fact was resoundingly confirmed by one outgoing director at the November 17^th POA board meeting. (8b)

• • KUDOS to that director for actually expressing his concern as well as subsequently voting AGAINST the capital budget.

Note: Property owner pontoon rental fees will be increased $10 per hour to help offset this additional expense.

Yes, those chairs are wobbly.  But are those chairs and tables $420k wobbly? . . .

Before moving on to the 2023 budget, in an epitome of much that is currently wrong with the governance of Big Canoe, the board voted 4-3-0 in the November 17^th board meeting to proceed with the immediate purchase of $420k in clubhouse furniture .(9) In a contentious discussion spanning over twenty minutes, (8c) the cost of the individual items (ex. Dining chairs @ $1,010 each) was questioned with it most notably being pointed out by the developer director that management had failed to obtain three bids as required by our governing documents. (8d) That said, KUDOS are also in order for the developer director.

With the ensuing discussion, it was argued by some in leadership and the GM that the three bid requirement did not apply in this situation. Specifically, to paraphrase, it was noted that three bids were obtained when the architect for the “proposed” clubhouse rendering was selected and that the agreement with the architect stipulated the exclusive use of the interior decorator providing the furniture quote. In other words, it was a package deal. This is so wrong and so unwise on so many levels.

It is also frankly amazing that some in leadership would stand by this argument, when the property owners are not yet privy to those clubhouse renderings nor given their approval of any clubhouse renovation project.

Needless to say the entire discussion was quite the spectacle closing with the 4-3-0 vote. Again KUDOS to the developer director and both first year directors for voting against this blatant example of fiduciary irresponsibility. (10)

And now, about that 2023 Financial Plan . . .

With the presentation and approval of the 2023 operating and capital budgets, both the General Manager and some members of the POA Board have violated Section 5.2 of the 2006 bylaws which clearly state:

• • “The Operating Budget must be balanced: expenses must not exceed revenues.” (11)

With principal reductions scheduled by leadership at $1.1 million (12) on the 2016 land loan rolled into the WF credit line plus principal reductions at approximately $95k on the fire truck loan, (7) net income from operations budgeted at $956k is insufficient to service the debt. Therefore, the operating budget does not balance. One must ask, where will that additional money come from? It is not there.

Note: This same violation of the bylaws occurred with the Association’s 2022 budget. (13)

In addition, the 2023 Capital Budget totaling $6.3 million fails to designate any source of funding . . .

Ordinarily funded from any residual balance found in the Capital Replacement Fund (only $839k on October 31^st) plus the budgeted depreciation expense ($3.3 million), the CRF clearly lacks sufficient funds for the capital expenditures included on management’s proposed $6.3 million Capital Budget. And where will this additional money come from? It is not there. Yet remarkably, without any explanation provided, the proposal was approved by the board in a 5-1-1 vote.

Note: It must not be forgotten that the 2023 Capital Budget (14) does not include the Master Plan Budget that will presumably be presented to the community during the December Town Hall.

For that matter, is there even sufficient cash in the Capital Replacement Fund to complete the 2022 Capital Budget? . . .

Rest assured with over $2.5 million yet to be funded from the 2022 Capital Budget, the positive cash flow scenario touted by the Finance Committee chair is nothing more than the calm before the storm.

However, contrary to this writer’s musings, the GM continues to insist that the Association has “the cash” and adequate cash flow to fund all the myriad and often extravagant capital expenditures described. (15) And yet . . . he consistently fails to show us where.

Looking ahead . . .

As a closing observation, while perhaps meant as nothing more than a last hurrah or a change of heart, it is noteworthy that the previously referenced “outgoing director” has now acknowledged that our community will indeed be facing a “cash flow challenge”. (8e)

You think?

Remember . . . neighbors and friends, you do have the power to make this stop.

. . . . .

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

Patricia Cross (10438 Big Canoe)

References:

1) 2021 Audited Financial Statement, dated June 23rd, 2022, by Mauldin and Jenkins, a) Pg. 26, Note No. 16 – Subsequent Events; b) Pg. 21, Note No. 6 – Note Payable. (POAwebsite>login>POA>financials>AuditedFinancials>2021)

2) https://www.newyorkfed.org/markets/reference-rates/sofr

3) Budget Pie Chart titled “Where does my assessment increase go?”

4) “The domino effect”, bcmatters.org, August 11, 2022, bcmatters.org, https://bcmatters.org/the-domino-effect/

5) AskThePOA#8365 dated November 21^st, 2022

6) Special Board Meeting Minutes, October 10^th, 2022 (POAwebsite>login>meetings>Minutes>2022>October10th)

7) Big Canoe POA – Reserve Management Plan, beginning January 1 2021, pg. 24 (POAWebsite>login>POA>Reports and Studies>Reserve Study 2021)

8) Big Canoe POA Board Meeting, November 17^th, 2022, video on Youtube at a) 1:33:55;

b) 1:39:35; c) 1:43:45 through 1: ; d) beginning at 1:53:00; e) l:42:35

9)  clubhouse furniture slide

10) Big Canoe Board of Directors Meeting Minutes, November 17^th, 2022 ((POAwebsite>login>POA>Meetings>Minutes>November>November17BoardMeeting)

11) Third Amended and Restated Bylaws, Article V, Section 5.2

(POAwebsite>login>POA>GoverningDocuments>Bylaws)

12) 2020 Audited Financial Statement, dated June 25^th, 2021, by Mauldin and Jenkins, Pg. 21, Note No. 6 (POAwebsite>login>POA>financials>AuditedFinancials>2020)

13) “All for Naught”, December 27^th, 2022, bcmatters.org, https://bcmatters.org/all-for-naught/

14) 2023 Capital Plan (POAwebsite>login>POA>Financials>Budgets>2023CapitalBudget)

15) Big Canoe POA Open Budget Meeting, November 10^th, 2022, video on YouTube at 54:15