The Metamorphosis continues . . .

In the midst of many important discussions regarding the Creek nine renovation, other issues or changes taking place in this community have been understandably overshadowed. However, recent decisions, particularly as they apply to POA cash balances and governance, warrant our attention. After all, no single segment of Big Canoe can exist in a vacuum.

Another shift in policy . . .

Significant concern was expressed by this writer previously when it was learned that, based on a recommendation of the finance committee chair in June, an amount equal to depreciation would be transferred from operating cash to the Board Designated Cash – Capital Fund (BDC-CF) monthly beginning in July. (1) (2) This procedure was further referenced at the July 21st meeting of the finance committee where it was noted that “depreciation less capital expenditures paid YTD from the operating account” would also be transferred to the BDC-CF. (3)

However, none of these transfers ever took place. Instead, it was noted in the August finance committee meeting that a new, separate account for routine capital would be established for this purpose. (4)

Apparently, somewhere between July 21st and July 31st, the decision was made to forego the original proposal. It is unclear who directed this change, but regardless, management should certainly be commended for rethinking the wisdom of that proposal.

What follows now is a discussion of three cash funds in existence as of July month end. They are “Board Designated”($1.9 million), “Operating Cash” ($3.3 million) and “Restricted Capital Reserve Fund” ($2.8 million). (5a)

The Board Designated Cash – Capital Fund (BDC-CF) has morphed again . . .

Now that it has been established that funds equal to depreciation will not be transferred into the BDC-CF after all, it should also be noted that the account has been renamed on the balance sheet as the Board Designated – Master Plan Fund. (5a) (6)

Leadership projects a year end balance of $2.2 million sufficient to cover the cost of the Creek 9 renovation. This balance is attained from the $25 monthly assessment increase, proceeds from the sale of the Hubbard Road property and $1.25 million surplus funds transferred into the account (5b) which arguably should have been allocated to the underfunded Capital Reserve Fund.

It is important to emphasize that the year end projected balance would not account for other 2020 master plan expenditures as, for whatever reason, those expenditures are instead being funded from the operating account balance discussed below.

That said, perhaps Board Designated Golf Fund would have been a more appropriate name for this account.

Breaking down the $3.3 million operating account . . .

First, leadership’s touting of the $3.3 million operating account balance when promoting the Creek 9 renovation without any reference to the change of procedure or amount of pending expenditures is misleading. (Needless to say, documentation of this information was not available until it was posted to the POA website almost a week after the August 20th board meeting.) For example:

- Utilizing the 2020 capital reforecast, approximately $1.8 million additional dollars will be spent for capital projects this year. (5c) (7)
- Deferred road paving, Main Gate and Lake Disharoon projects total approximately $948k. (8) (Although the logic for deferring these projects into 2021 might be reasonable, failure to set aside those funds is not.)
- Lastly, remaining master plan projects for the year total approximately $399k.
- And of course, debt service on the land loan will run another approximate $420k.

Do the math . . .

While it is acknowledged that income for the remaining five months would offset some of these expenditures, the resulting balance after subtracting these expenditures could be significantly reduced. Referencing year end projections for the Board Designated Master Plan Fund while utilizing current operating account balances is apples and oranges. Perhaps rather than applauding the large current operational account balance, it would have been more transparent to also project a year end operating cash balance when promoting the message “We already have the money“ in support of the golf renovation.

And finally, we have the $2.8 million restricted Capital Reserve Fund . . .

Discussed extensively by this writer, but mistakenly referred to by leadership as merely the “emergency” fund, the Capital Reserve Fund now carries the distinction of being used by leadership as the lifeline for any potential expenditures resulting from the current issues pertaining to the Lake Petit dam.

Unfortunately, when making that particular reference, leadership fails to remind property owners that if any funds are withdrawn from the fund for dam expenditures, or any other expenditure for that matter, the POA MUST “build reserves back up to Reserve Study recommended levels. The POA will use cash flow, budget adjustments or assessments to replenish the funds within three years of usage.” (9) Once again – a demonstrated lack of transparency by leadership.

With hopes for the future . . .

It remains very difficult to track POA cash and expenditures from month to month as the constant redefining of various funds, commingling of purposes, constant changes to procedures and reporting methods continue to resemble “an exercise in musical chairs or playing a shell game called “where’s the money”. (1)

It is hoped that BJL will have a positive effect moving forward, but so far, financial interpretations are in a state of chaos. It has been observed, however, that a significant change has been made regarding the governance and management of Big Canoe along with a delineation of the roles of various committees and BJL. Although this proposal was initially introduced at the August 10th closed work session, (10) it received a 4-2 vote rather than a unanimous vote.

Note: Interestingly, although the 2006 board approved bylaws would have allowed the proposal to pass in a closed work session with only a majority vote, (11) the proposal was deferred until the full open board session apparently in accordance with the 2004 property owner approved bylaws. (12) The proposal subsequently passed with a 5-1 vote.

. . . . .

Please feel free to share your comments on this site regarding these suggestions 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. Meanwhile . . . take care and stay safe.

Patricia Cross (10438 Big Canoe)

References:

1) “The Metamorphosis of our Capital Funding”, July 7th, 2020, bcmatters.org

2) Meeting of the Board of Directors Video, June 18th, 2020, at 29:30

(POAwebsite>login>POA>Meetings>SubscribeToOurYouTube . . . >)

3) Finance Committee Meeting Minutes, July 21^st, 2020

(POAwebsite>login>POA>Committees>Finance>Minutes>July2020)

4) Finance Committee Meeting Minutes, August 18^th , 2020

(POAwebsite>login>POA>Committees>Finance>Minutes>August2020)

5) July 2020 Financial Package (a) Balance Sheet, pg. 10; (b) Reconciled BDCF, pg. 11; (c) Statement of Cash Flows;

6) June 2020 Financial Package, Balance Sheet, pg. 10

7) 2020 Capital & Master Plans (POAwebsite>login>POA>Financials>Budgets>CapitalForecast)

8) Q&A regarding June forecast Info, pg. 3 (POAwebsite>login>POA>Meetings>BoardDocuments>Q&AregardingJuneForecast)

9) Second Amendment to the Covenants, dated August 21, 2010 –

(POAWebsite>login>POA>Governing Documents>Covenants>Capital Reserve2010)

10) Work Session Notes August 10th (POAwebsite>login>POA>Meetings>BoardDocuments)