After a summer immersed in everything “Renew Big Canoe”, the suspense is now over. With initiatives to construct a new post office and to renovate the existing clubhouse overwhelmingly approved by the property owners (67% and 61% respectively), (1) leadership has now been given the green light to borrow the funds needed against the $15 million Wells Fargo line. The remaining millions available on the line will be used for those projects set to proceed without a vote.
It should come as no surprise that this writer voted no. However, regardless of one’s position on the initiative, accolades appear to be in order for leadership’s ability to motivate and energize the voter base.
That said, once the $15 million line is converted to the permanent loan in May 2025, approximately $33 per month of each homeowner’s assessment will be immediately consumed for the repayment of this debt until the year 2040. (2) And long after the shine from the new facilities has dulled, that debt will remain as our true legacy for future generations.
One can also rest assured that when leadership announces an assessment increase later this Fall, management will fail to attribute any part of the increase to the interest expense (currently computed at 7.00%) that will accrue on every draw on the line prior to it’s conversion in May 2025. Instead, the General Manager (GM) will likely do his standard song and dance to a tune called “inflation”.
Note: At 7.00%, annual interest expense on the credit line will now equate to approximately $70k per each one million dollars outstanding or $1.05M per year for a fully drawn line.
Should this writer’s prediction of an assessment increase be proven wrong, apologies will promptly and gladly be issued for that “misinformation”.
Still . . .
Meanwhile, other than this vote, nothing else has really changed.
We still have negative cash flow, inadequate revenue to service our debt, cash ratios hovering significantly below one and historically low operating fund balances as documented in the recently posted July financial package. (3)
However, it does deserve mention that the GM actually acknowledged the year to date negative cash flow during his August 31st board presentation of the July financials while pointing out the debt service along with the enormity of the dollars ($3.7 million) that had already been expended on capital projects this year. (4a) (5) Appearing to be pleased that the deficiency was only [$345k], he remarked with pride, “we generate a lot of cash”.
As a reminder to the GM, the cash that is generated is not “earned” by management or the Association. It is instead “provided” to the Association by the property owners via our mandated monthly assessments which the Association in turn promptly spends.
And still the Association continues to spend more money than it is taking in.
The treasurer’s perspective – ending with applause . . .
Apparently caught up in the euphoria of the day, the POA treasurer jumped in to bolster the financial discussion by pointing to the equity to debt ratio (6) on the GM’s slide and proclaiming that the Association had an “amazing” twelve dollars of equity for each dollar of outstanding debt. (4b) Unfortunately, the treasurer failed to mention that the equity will nose dive to only 3.44 once the $15 million credit line is fully drawn. (7 Renew Big Canoe-More FAQs )
He further extolled the virtues of Big Canoe for being able to “approve” Renew Big Canoe without a special assessment while failing to acknowledge that the resulting debt that will be incurred was an alternative to a special assessment which would require a property owner vote. In fact, the $15 million line of credit could be viewed by some as nothing more than an interest bearing extension of a special assessment payable over time. At no point, did the Association reserve, prepare, plan, save or budget for these projects (both renovation and maintenance) otherwise.
And about those ratios . . .
Given the importance of accurate financial reporting, it is of significant concern to now find the calculation of key financial ratios manipulated, redefined, discarded and/or altered from prior years.
The debt to equity ratio: This key ratio (total liabilities/equity) has been included in the Association’s financial reporting since at least 2016. As debt increases so would the ratio.
This ratio has now been discarded (as of the 2022 year end reporting) and replaced with an obscure, management defined ratio titled equity to debt ratio. It appears that this ratio is calculated as equity divided by the Wells Fargo debt along with any equipment leasing or financing. Any other liabilities have been excluded from the calculation. This ratio will decline as the Association’s debt increases.
It is unknown why the commonly understood debt to equity ratio was deleted from the Association’s financial reporting especially in a year when rapidly increasing debt is anticipated.
The cash ratio: After previously noting that it could not be determined how the cash ratios were now being calculated, (8) https://bcmatters.org/connect-the-dots-part-two/ it was later learned that the 2023 calculations (as of the 2022 year end reporting) had been adjusted to also include the balance in the capital fund account which results in an inflated cash position. One must certainly question what prompted this change in the calculation.
Without getting into the discussion of the appropriateness of that change, it is noteworthy that the calculation also differs from the formula used in the Association’s prior years of financial reporting rendering any comparisons useless.
Further, it is important to note that even after inflating the result, the cash ratio as shown on the GM’s slide (6) now stands at a dismal .75 which is significantly below the acceptable threshold of one. As acknowledged by the GM in a previous board meeting, “you always want that to be over one”, (9) which would indicate that the Association has enough cash on hand to cover all of it’s current liabilities (due in one year).
Now running consistently below one even after including the capital fund balances, this is a ratio or trend that should be closely monitored.
Note: Keep in mind that future ratios will include the receipt of the $611k in insurance proceeds as well as any draws against the $15M credit line.
An unbalanced situation . . .
And finally, adjusted year end financial statements reflecting the transactions surrounding the Chimneys damage have now been posted to the POA website. Unfortunately, the year end comprehensive net income shown on the summary of operations (P&L) does not agree with the year end income reflected on the balance sheet making the entire financial statement out of balance.
How does this even happen? Especially when Mauldin & Jenkins has stated that the Association’s books are very clean?
Note: One may be confident that the error in this financial statement will be quickly and surreptitiously corrected on the POA website prior to any further detection.
It might also be noted that if accounting software was used by management, it would be impossible for this unbalanced scenario to occur. In fact, this is one of the questions noted in the conclusion to this writer’s eleven page letter to the board that invoked such wrath from the Association’s legal counsel. (10) The directors were specifically asked “. . . why accounting software purchased by the Association is not put to use in some of the financial reporting. (As an example, the trial balance reports appear to have been internally prepared rather than generated by the accounting system.)”
Needless to say, that question was never answered, and it is apparent that the suggestion has been ignored.
And so it goes . . .
On and on in POA land.
. . . . .
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. 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) A Message from POA Board President Tim Moran
2) https://bcmatters.org/renew-big-canoe-the-financials/
3) July 2023 Financial Package, Summary of Operations, pg. 1; Comparative Balance Sheet, pg. 2; and Statement of Cash Flows, pg. 3.
(POAwebsite>login>POA>financials>2023>July)
4) Big Canoe POA Board meeting, August 31st, 2023, video on Youtube at a) 25:25; b) 27:55
5) July Statement of Cash Flows Slide
6) July Comparative Balance Sheet Slide
8) https://bcmatters.org/connect-the-dots-part-two/
9) Big Canoe POA Board meeting, March 30th, 2023, video on Youtube at 32:40
10) https://bcmatters.org/unfinished-business/
With so many pertinent questions and concerns being raised, it would seem prudent to call for a forensic audit of the books by an independent source.
It’s doubtful the POA board or GM would instigate this, however. Perhaps property owners might investigate the possibility of doing such an audit independently.
So many here just go with the financial flow until they are personally impacted. It’s at that point they sit up and take notice. Often it’s then too late.
It would be interesting to determine how many property owners actually use the Clubhouse on a regular basis. After all, isn’t the Clubhouse meant to be for property owners’ use primarily?
Since property owner ID cards are now required to be shown when using the Clubhouse, this should be easy to monitor. However, the last few times I enjoyed Clubhouse meals, I wasn’t asked for my ID nor given a comment card. Has this policy been abandoned?
Property owners have spoken, Renew Big Canoe passed and the process has started. It would be prudent to monitor exactly what is being done without a smoke filled dog and pony show clouding the genuine facts.
I voted NO on that outrageous spending that the Board was pushing on the property owners. All that we need is a new postal building. The new club house is for use by the golfers in Big Canoe. They are not concerned about needing a new dam.
Still ringing it my ears is the statement,” We have to approve the plan TO FIND OUT”…. Find out the rest of the plan and extra costs involved. Scott literally stated the EXTRA UNKNOWN costs could be in the millions . This was during the Q&A .
Will the board consider ANY financial strain too much ??? Will the board spend us into a higher debt ratio rather than take a step back or pause the plan ? Will the board continue to do presentations if and when the costs exceed their initial budget proposal ?
Is our community making the SAME mistakes over and over?
This community has the potential to thrive by living within our means. SAVE $ FIRST THEN BUILD should be this community’s motto.
(The POA board should keep in mind the rising costs of living for its residents , from property tax and utilities to POA fees and community memberships . )
Renew Big Canoe Projects are coming during a Great Depression that NO-ONE is acknowledging.
Thank you for all your work. It is so important to live within one’s means.
Thank you for putting this together. As I voted no it makes no sense to me to spend money on projects such as the clubhouse when it is so miss managed and is leaking money like a sieve. If they can’t get control and get a positive, cash flow out of the amenities currently, why would you keep adding debt. A new shiny toy is not what’s needed. That seems to be the thing of the day as our US government has no compulsion to stop spending as well. We are seeing this in all facets of our economies. These debts eventually come due and when they do watch out.
Instead of writing an 11 page response, why don’t you ask these simple questions in the live POA meeting? Seems it would be hard to hide any questionable actions in a live meeting.
Rob, the POA does not answer any questions at the meetings! We want to see inputs, questions asked and answers given. We are very thankful the Crosses give up their resources and time to insure the readers of this blog get ALL of the facts of questions asked and said answer’s given.
You must not go to any meetings. There is a question and answer section at the end of every meeting.
Yes, there is a Q&A and Comments session offered at the conclusion of each meeting, but each property owner is only allotted one minute to present their views or ask a question. That’s bc a very limited time. Perhaps a posse of property owners could line up and one by one present the case in continuing comments.
It’s been my personal experience that questions/comments directed to Ask the POA often come back as canned responses to the person asking the question. Only the person asking the POA receives the response. The rest of us stay in the dark.
My wife and I didn’t vote on Renew Big Canoe as we have just sold our home and are building in Ellijay . Completion by Christmas.
Unfortunately I did not follow this initiative closely as we are leaving, but my sense from a distance is that the clubhouse renovations will not make the amenity profitable and Big Canoe will still have negative cash flow. In the
Hospitality Industry, clubhouse food operations are seldom profitable and are subsidized in some fashion.
Without have looked at the financial statements recently, my sense is that the payoff of the 2016 loan has already utilized at least $4 to $5 million of the new line. Property owners should be concerned with cost overruns and draining the new credit line more rapidly than anticipated. At 7% , debt service costs could quickly exceed the amounts projected by the board until conversion in 2025. I’m unsure that the $15 million line will be sufficient.
Good luck!