General Manager Casey recently reported that the cost of culvert repairs is expected to be $500,000 annually for the next 12 years — $6 million. That staggering sum, coupled with Clubhouse replacement costs and millions of dollars of planned golf course renovations, convinced the Board to hire a credential reserve specialist. Sacramento-based Browning Reserve Group (BRG) was hired in December.
BRG presented its draft reserve study at a joint meeting of the Board and the Finance/Audit Committee on February 6th. BRG estimates that the current replacement cost of major common elements will be $22,000,000 as of 5/31/15, nearly $15 million more than reported by the Board in FY 2013-2014. Unfortunately, members were not provided with copies of the draft report, so details were not available.
General Manager Casey also reported that the Association expects to spend a total of $11 million dollars on repairs and replacements during the next five years. That’s an obligation of $3,872 per membership interest, which BRG suggested will require a 24% per year increase in the reserve assessment each of the next four years.
If implemented, that rate of increase would result in the following annual assessments for the renovation or replacement of capital assets, not including the Clubhouse assessment:
2013-2014 $323 (base before we got serious) Reserve Assessment
2014-2015 $465 (44% increase this year) x 2,841 lots = $1.3 M
2015-2016 $576 (+ 24% proposed) x 2,841 lots = $1.6 M
2016-2017 $714 (+ 24% proposed) x 2,841 lots = $2.0 M
2017-2018 $886 (+ 24% proposed) x 2,841 lots = $2.5 M
2018-2019 $1100 (+ 24% proposed) x 2,841 lots = $3.1 M
Total 2015-2019 $ 9.2 M
Accumulated reserves amounted to approximately $3.9 million on 5/31/14, including $1.5 million in reserves for non-capital assets. BRG estimates that required reserves will be 13.7% funded at the start of next year and that funding will fall to around 5% ($1.1 million) by 2018-2020 despite increased assessments. That compares to the 64% funding level reported by the Association in FY 2013-2014.
Members Should Push For Two Corrective Actions by Our Board
With the community now facing as much as $15,000,000 in previously unreported and unfunded long-term replacement reserve obligations, we must recognize that this problem was caused by a Board reserve policy that excluded the dam, the entire golf course, structural components of all buildings, the swimming pool shell, the sub-base of our roads, walkways, improved ditches, swales, and similar drainage features. Those exclusions were intended to keep assessments flat. That goal was accomplished. But increased repair costs have also been passed to a future generation of owners and property values have been adversely affected.
The last Board amended that unreasonable rule on January 28, 2014.
To ensure proper management of our common elements, we must realize that members who volunteer to serve on our Board of Directors have the power of Kings and Queens, but do not necessarily understand all that’s required of them. As a first step to improve their capabilities, we must provide all new board members with appropriate preparatory training.
The Community Associations Institute offers its M-100 training course for new association managers and board members in two and a half day classroom sessions and through distance learning. Properly trained board members will understand the complex statutory requirements of the Davis Stirling Act and administrative processes required of community associations.
Finally, we must recognize that elections change the composition of our Board every year. The Finance/Audit committee recently testified that a result of Board restructuring is, “There is a lack of consistency in maintaining the Replacement Reserve schedule from one Board to the next, such as when the Clubhouse was placed on it but removed three years later.” The same is true of the dam, which carried a $2.2 million replacement cost until 2010 when that estimate was reduced to $292,000.
That same lack of consistency extends to the Master Plan, which the Board has not updated since 2010. A Master Plan that’s broadly supported by the community offers the most effective way to ensure continuity of thought and provide guidance to successive Lake Wildwood Boards. Absent such guidance, Board decision making can devolve into advocacy for pet projects favored by a few individuals, which seldom generates the highest and best use of scarce Association resources.
Members should insist that our Boards work concertedly with the Planning Committee to generate a true “Master Plan” that’s based on a consensus of membership preferences and priorities. The Board should then implement the plan it has approved.
Hopefully, the Board’s ongoing deliberations regarding the functions and composition of Association committees will address those needs. However, members should take advantage of the scheduled Community Cafe workshops in March to voice support for implementation of adequate board member preparatory training and the need for a true Master Plan that’s based on a consensus of member preferences and priorities.
If you’re already convinced of the need for these changes and would like to join others in providing the Board with a petition to support the need for action, please click on the following link or insert it into your browser:
Without these changes, there is no assurance that the progressive accomplishments of the present Board won’t disappear after the next Board is seated!
We must also realize that in order to bring about the changes needed to correct the system deficiencies that enabled such grievous financial mismanagement, a majority of us will have to become engaged in the change conversation and make our preferences known. Considering that forty-four percent of all members did not vote in the $5.5 million Clubhouse Improvement election and that more than half sometimes often don’t vote in Board elections, we have some work to do.
As Pogo once said, “We have met the enemy and he is us.”