MF FINANCE TEAM - ASSESSMENT PLANNING board approved this 7/14/18

Transcription

1 MF FINANCE TEAM - ASSESSMENT PLANNING board approved this 7/14/18 The purpose of this planning (and resulting planning document) is to provide an updated plan for assessment changes (operations, the three reserve components, and total) for the period that would allow the board to; a) continue to improve our situation with respect to two of our three reserve components being underfunded relative to our long term viability b) provide for the needed funds to support the Budget Worksheets for the six years , with 2017 already completed and 2018 already budgeted under the original plan. The original work was done by the Long Range ning [LRP] team in 2016 and approved by the board for use effective with the annual budget exercise to produce a 2017 Budget Worksheet (and its related material which is explicitly or implicitly approved when the Budget Worksheet is approved). The Finance Committee now owns the plan on behalf of the board and is producing this updated plan. The first set of information below (two pages) is the original information that was approved. In Attachment One that follows is the revised plan. It includes our actual experience for 2017 and 2018 as well as the revised plan for 2019 and 2020 as well as the initial plan for the newly added years 2021 and The reason the original information is shown first is that much of the information is still applicable for the updated plan. *********************** ORIGINAL INFORMATION *********************************** OBJECTIVES 1) The objective of this proposal is to provide a plan for assessment changes (operations, the three reserve components, and total) for the period that would allow the board to; a) improve our situation with respect to two of our three reserve components being underfunded relative to our longer term viability (see Premise #1 below) b) provide for the needed funds to support the Budget Worksheets for the four years ) See Content Note 1 for the overall objective for managing the HOA assessments. While this proposal violates that overall objective for this four year time frame, doing this gradual increase over a four year period to get to a level that should be sustainable for the longer term is considered to be the right approach. 3) As is the case with any financial planning approach, the resulting plan is a premise-based plan. The premises of this plan follow. PREMISES 1) That it is an issue to our HOA that two of our three reserve components (paint reserve, project reserve) of the Reserve Fund only provide enough funding to meet the current year needs (with a small contingency) and do not provide growth in those components needed for the long term health in those areas [only the roof reserve component of the Reserve and Reserve Fund is currently designed to meet that need]. 2) That the Long Range ning team will utilize their best estimate of the potential and /or actual resolution of the issues on our team s issue list (longer term focus rather than near term focus) as input into this assessment plan, the Budget Worksheets that will follow, and revisions to this plan (if any are needed in the time frame). 3) That the increases in assessments for 2017 are only designed to provide the level of funds necessary to support the 2017 Budget Worksheet given that we have not had an assessment increase in several years [that work will be 1 8/23/18

2 done in June in preparation for the premised July annual meeting]. 4) That there will not be a major change in our landscaping paradigm. 5) That there will not be an overall major change that results from the five year review of the Reserve taking place in Were there to be such a change, it would need to be reflected in a revision to the 2017 numbers. 6) We will continue operationally to transfer funds among the three reserve components as needed to manage unplanned demands each year. 7) The plan will be reviewed annually, with a major review done in 2020 as the 2021 Budget Worksheet is created. ORIGINAL ASSESSMENT INCREASE WORKSHEET [approved version dated 6/4/16] The table below describes the planned approach for the next four years. It uses the 2016 assessments (which are exactly the same as in 2015) as the starting point for the levels. Assessment Type Current 2016 Level Comments Operating Fund 163/1, /2, /2, /2, /2,052 includes all operational costs & 2% discount expense Sub-total 163/1, /2, /2, /2, /2,052 Reserve Fund Paint reserve 58/696 62/744 67/804 73/876 80/960 includes paint & siding Roof reserve 26/312 27/324 27/324 27/324 27/324 includes roof & skylights Project reserve 43/516 45/540 50/600 54/648 57/684 includes sprinkler system, driveways, and infrastructure (landscaping, fences, signage, & crawl spaces) Sub-total 127/1, /1, /1, /1, /1,968 TOTAL 290/3, /3, /3, /3, /4,020 Annual assessment revenue $ increase this year % increase this year $ increase cumulative % increase cumulative Funds that will be used to build up the two reserves 104, , , , ,600 15/ % 15/ % 3.3% 25/ % 3.2% 35/ % 3.1% 45/ % 0 0 3,600 3,600 3,600 See Content Note 2 The FORMAT & CONTENT notes that follow are important to an understanding of this table. 2 8/23/18

3 SUMMARY 1) Owner view average owner total assessment goes up from $290/month for 2016 to $335/month for This is a cumulative increase of $45/month ($540/year). 2) HOA view: a) improves our underfunding situation for the paint and projects reserve components (see Content Note 2) b) provides a more reasonable starting point for a stable assessment level beginning in 2020 c) should this plan lead to what looks like overfunding for 2021, assessment levels could be reduced (not a likely scenario). FORMAT NOTES 1) The operating assessment varies by size of condo (insurance is the one item that is not the same for all owners). We have three levels of monthly assessment for 2016: $158, $163, and $168. It is the average of these three that is used in the table above. 2) It is critical that the reader understand the following fact - since we do not have an identical number of small, medium, and large units the annual assessment revenue in the table will only approximate the true annual assessment revenue which will be in each year s Budget Worksheet. 3) There are two numbers in each table entry, with the first being the monthly assessment level and the second being the annual assessment level. 4) The table does not take into account the 2% discount which is normally offered to owners if they pay their full annual assessment at the beginning of the year. 5) There are four years shown in the table, with the base year being the current year CONTENT NOTES 1) The overall objective of the board s management of HOA assessment levels is to keep the overall assessment as low as it can be for as long as it can be and when making a change to set the new level of the overall assessment so that it will have that same attribute. This philosophy recognizes that a) the assessment supports the needed funds for both the Operating Fund and the Reserve Fund and b) the four individual components that make up the overall level can vary as needed each year. 2) There is currently no specific approved target yearend level for either the paint or projects reserves which defines the desired healthy level for that reserve area. It is clear that the target level needs to be sufficient to a) provide a contingency set of on hand monies that can be used to fund significant unplanned projects in the current budget year and b) to provide an ongoing balance of monies to allow the board to manage the peaks and valleys of year-by-year revenue versus expense gain/loss projections. The current 12/31/15 = 1/1/16 balances (rounded) in the two underfunded reserves are: paint $22,600 and projects $16,900 for a total of $39,500. We expect to have 2016 revenue of $45,000 and 2016 expenses of $50,000 for the combination, which will decrease the combined reserve levels by $5, /23/18

4 ATTACHMENT ONE REVISED ASSESSMENT PLAN The table below provides a view of the planned and actual assessments by component and total for the first two years in scope. For the third and fourth years the original [O] plan and the revised [R] plan are shown. For the last two new years the plan is shown. The plan numbers for the years are the currently approved plan. See Attachment Two that follows for information on terminology. Item 2016 Base Actual Actual 2019 [O] 2019 [R] 2020 [O] 2020 [R] Operations Sub-total Roof Reserve Paint Reserve Projects Reserve Sub-total Monthly Overall Annual Overall 3,480 3,660 3,660 3,780 4,200 3,900 4,320 4,020 4,440 4,596 4, FORMAT NOTES 1) The numbers are the monthly assessment levels (from which the annual assessment levels can be easily derived). 2) The Operations number is the average (rounded) for the 30 owners (since the actual assessments vary for small, medium, and large units). CONTENT NOTES 1) The change in the operations assessment for 2018 was due to the new line item Property Asset Manager Contract. We are paying for that position where in the past it was done by a volunteer. The change was $35/month/owner which is an annual increase of $420/owner. This brought the total assessment increase for 2018 to be $45/month/owner which is an annual increase of $540/owner. 2) The challenges for resolution in 2019 include: a) the normal change in expense levels from year-to-year (normal a net increase) b) having to define a totally new Roof Reserve assessment level since the 2018 Roof Replacement Project basically reset our planning to start from scratch (we applied all the previous monies to the project and now in 2018 have 30 fully new roofs (including new gutter systems and skylights) c) having to deal with the scenario in the bridges/decks/porches arena of having to possibly totally replace a deck (will be a very unusual case, but the Dodson deck is an example). 3) The current thinking is that we will treat the scenario in c above through the Projects Reserve - this will leave the paradigms applicable to the Roof Reserve and the Paint Reserve basically intact. 4) The premises that are the basis for the reserve assessment changes are found in the Reserve Three Year project & Expenditures Worksheet separate document. The premise driving the operating assessment staying flat from the 2018 level is the expectation that increases in some line items will be offset by decreases in other line items. The risk with this level of assessments is that the association will have a relatively small final yearend balance both at the end of 2018 and The Board will need to decide if the level of risk is acceptable for enabling the association to keep the assessments as planned through The 2021 and 2022 values will need review each year. 4 8/23/18

5 ATTACHMENT TWO - LAY (NOT LEGAL) TERMINOLOGY The very simple paradigm involved in the material that follows is that each condo unit exterior has three basic elements: the roof, the siding, and the foundation. This is somewhat an oversimplification, since none of our units is a stand-alone unit each unit is part of either a duplex or triplex. Also, almost all our units have both a a) porch or bridge and b) a deck. 1) Reserve The planning information related to projects and expenditures that are done across time (as responsibilities of the HOA as opposed to individual owners) to maintain and/or improve our buildings & grounds. The first version was developed in 2011 and approved by the board in The expectation is that the Reserve will be reviewed and updated as needed every five years. The 2016 review was done and the 2016 version of the Reserve was approved that same year. 2) Reserve Fund One of the two sets of monies managed by the Association through its Board and supporting committees and teams. This set of monies is aligned with the Reserve, and once a year at year end its balance of funds is maintained in a separate financial set of instruments separate from the operating funds [a legal requirement]. 3) Operating Fund One of the two sets of monies managed by the Association through its Board and supporting committees and teams. This set of monies is aligned with the annual operating budget. Its scope consists of operating funds carried forward from one year into the next as well as the operating funds that result from the operating assessment for the given budget year. 4) Projects Reserve One of the three components of the Reserve (plans) and Reserve Fund (funds to support the plans). The current name is not descriptive of the scope of the projects & assets involved. In simple terms, the scope is (for each of our thirty units) the condo foundation, the limited common elements foundations, and the HOA common areas/grounds (landscaping, fencing, signage, etc.). In addition, the scope includes the sprinkler system and driveways and the cement walkways that connect the driveway to the front entrance and/or front porch of the unit. 5) Paint Reserve One of the three components of the Reserve (plans) and Reserve Fund (funds to support the plans). The current name is not descriptive of the scope of the projects & assets involved. In simple terms, the scope is (for each of our thirty units) the maintenance of, and exterior painting of, the condo siding and limited common element non-foundation assets. 6) Roof Reserve One of the three components of the Reserve (plans) and Reserve Fund (funds to support the plans). The current name is descriptive of the scope of the projects & assets involved. In simple terms, the scope is (for each of our thirty units) the roof itself, the gutter system, and the skylights. Also, chimneys are in this reserve component scope [even though the chimney exterior structure normally extends from the ground level to above the roof line and could be in the scope of the Paint Reserve as an alternative]. 7) Limited Common Elements While it is an oversimplified view, think of the limited common elements as the porches and decks and bridges (specific to our Brodie units) of our 30 owners. The size and style of these limited common elements varies with each owner. 8) Porch One of the three types of limited common elements. Normally means the ground level or raised level structure that surrounds (is in proximity to) the front entrance to the condo. Some of our porches have a roof and some do not. 9) Deck One of the three types of limited common elements. Normally means the structure of some shape and size (usually elevated) that is attached to the back (opposite side from the front entrance) of the condo. We have a variety of styles among our 30 units. 10) Bridge One of the three types of limited common elements unique to our Brodie units. Normally means the structure that provides street side access to the front door entrance to the unit. Important Note: The HOA maintains a separate document that describes in lay language the HOA versus owner cost responsibilities related to the assets involved in the above material. The document is entitled Owner Versus Association Cost Responsibilities. 5 8/23/18