Some Budget Suggestions to the OPA Board of Directors
commentary by Tom Stauss
Publisher, Ocean Pines Progress
This doesn't necessarily mean abandonment of the five-year funding plan, of which FY '12 would be the third year. Nor does it necessarily imply the abandonment of the plan for years four and five. I believe the $45 "cut" in the proposed increase could be obtained from a number of sources, including those suggested by some of the four directors who voted against the budget Wednesday night. I am also supporting a suggestion by former OPA Director and President Dan Stachurski with respect to depreciation expense related to previous "big-ticket" expenditures.
Here are my suggestions for reducing the budget to allow for a no-increase-in-assessments plan for FY '12:
1. Instead of three electronic signs, reduce the expenditure to one sign, to be posted at the intersection of Route 589 and Cathell Road Extended, not far from the Sports Core pool. The sign could be read for longer than the usual four or five seconds whenever a motorist would be stopped for a red light. [This would at least partly address one of Ray Unger's concerns.] It would still be contingent on Bob Thompson coming in with a design that would address the objections of those who believe such signs are inherently unattractive. Additional signs at the North and South gates could always be added in future years if conditions warrant.
2. Forgo the expense of hiring a new Yacht Club chef. By most accounts, the folks who are doing the cooking now are doing a great job; bringing in someone new, or even promoting from within the ranks, could easily cause a morale problem that we don't need going into the summer season. Bob Thompson has seemed somewhat ambivalent on the chef during budget discussions, so losing a chef he doesn't have probably would not cause him much heartburn. [Sorry!] In addition, the crab feast initiative won't require advanced culinary skills, as we probably will be buying steamed crabs at wholesale prices from a local supplier.
3. Eliminate the modest video equipment expenditure for now. I think Joe Reynolds has raised legitimate concerns about unintended "payroll creep" consequences of expanding the scope of video services beyond that which is being provided now by the OPA. Or purchase one piece of new equipment and see how the staff reacts.
4. Keep the HR director and the full-time IT person if at all possible, but don't fund the new recreation supervisor. Recall that when the Aquatics Department was split off from Recreation last year, the Rec director had his duties curtailed. The duties of a second Rec supervisor could be handled by the Recreation Dept. director, perhaps with a recovery of lost pay from the previous change in job description; if this "additional" workload can't be absorbed, then there is an acute personnel issue that needs to be confronted head on.
5. Merit pay increases should be budgeted, if they aren't already, as a bonus pool in the Administration Department, and should be limited to one percent. Year-end bonuses should be distributed and funded primarily by departments on the basis of operations that exceed budget expectations and service-oriented criteria that are more subjective. Many OP residents have experienced real reductions in income in recent years, so a policy of no salary increases but bonus incentives paid out to all or almost everyone in the departments that exceed expectations should be well received by the OPA membership and OPA staff.
6. Adopt the policy implied by Dan Stachurski's comments Wednesday night and which Tom Terry and I have discussed recently, I believe from the same perspective that there is something inherently unsettling about forcing current property owners, through depreciation expense, to pay for replacement of facilities many years if not decades in the future. The policy should be that future generations should be paying for future facilities, either by borrowing (preferred by Dan Stachurski and others) or collecting for it several years in advance of when the expenditure is anticipated. It's not necessary to decide between advance collections or borrowing this far in advance of when certain buildings would require replacement.
This new policy would eliminate all the depreciation expense from big-ticket capital projects in every affected department, including that which is related to the golf course drainage project and the new Community Center. I understand that this will be considered anathema by some with passionate "pro-depreciation" views, but simply put I reject the notion that we MUST in effect pay for big-ticket items twice, first in upfront expenditures and then through depreciation designed to collect revenues for future replacement. So long as this remains OPA policy and practice, it can and would be used as a reason to reject big-ticket replacement projects by those who oppose them. This is one of the factors that drives my skepticism of a demolition/rebuild of the Yacht Club in the foreseeable future.
Smaller-ticket items such as police cars can continue to be depreciated in the traditional manner, as it is an efficient means for collecting the revenue needed for items that need to be replaced in a much tighter timeframe as compared to buildings and such. [The golf drainage project is essentially a rebuilding of the course contours and grading that may NEVER require replacement. And yet we are currently depreciating the six rebuilt holes completed so far as if we're going to have to do it all again sometime in the future. ]
7. Ask Bob Thompson to review payroll expenses ONE LAST TIME to see if there are additional reductions possible, consistent with Dave Stevens' suggestion. Keep in mind that additional salary expense is actually only a relatively small percentage of the $800,000-plus payroll-related increases contained in the original budget draft. Some of the items identified in the above list will reduce that expense; payroll increases related to the pool maintenance initiative have already been eliminated from the budget. Board-imposed arbitrary percentage decreases don't make as much sense as careful reductions based on specific judgments about departmental expenses.
8. Fund the reserve accounts less than that anticipated in the most recent budget draft. The reserve balance stands at $4.2 million at the end of FY '12 in the latest budget draft, as compared to $2.8 million projected for April 30 of this year. Even at, let's say, $3.9 million, the reserve balance would be in substantially better condition than it has been in recent years, if ever.
The $30 (of the proposed $45 assessment increase) is only bringing in $253,200 in new revenue in FY '12 ($30x8440=$253,200], a relatively small percentage of that projected $1.4 million increase in total reserves. At year two levels ($30 + $30), the plan is bringing in $506,400 ($60x8440), and will continue to produce that every year going forward, even if a decision is made NOT to increase assessments by $30 for reserves next year.
Recall that in FY '08, the board of directors raised the assessment by $150, of which $103 was intended for future project (or replacement) reserves. I asked OPA Controller Art Carmine recently whether that money was used that way that year and every year since, and I believe his short answer was "yes, with perhaps a few exceptions."
Contrary to the opinion of some that this $103 has been somehow misappropriated, I disagree, although perhaps it's best to remain officially agnostic on that point pending further clarification. I believe the evidence shows that this $103 assessment increase has been treated as intended; and if indeed it has been used as the board intended in FY '08, it would be contributing roughly $869,320 every year since FY '08 to the reserves ($103x8440=$869,320).
The board's action in FY '08, and not the current five-year funding plan, is, therefore, the apparent primary driver behind the projected increase in total projected reserves in FY '12. It's the most logical explanation for how the reserves could be increasing by $1.4 million while the five-year funding plan begun in FY '10 is generating much less than that.
Because funds from both the FY '08 assessment increase and the FY '10 five-year funding plan are "fungible," a $30 reserves-related decrease in the planned $45 increase in assessments for FY '12 doesn't necessarily mean that the current five-year funding plan has been abandoned should the board decide not to increase the assessment this year. The board could just as easily say the reduction in transfers to reserves are coming out of the FY '08 allocation, and not the FY '10 five-year plan, although in reality it's impossible to say for sure. Because funds are fungible, it's really a combination of both.
9. Take a hard look, a scalpel or even a meat-axe to the 10-Year-Plan-Task Force's list of original and updated estimates for big-ticket expenditures. By reducing the amount anticipated for future expenditures, it's possible to justify collecting less in lot assessments beginning in FY '12.
The rationale for continuing with the five-year funding plan is straightforward and is logical given its spending assumptions: Proponents honestly believe the money is needed to raise the funds necessary to pay for $6.7 million in big-ticket capital projects identified by the 10-Year Plan Task Force in May and June of 2010. There has been some suggestion that another $2 million could be added to the list without too much difficulty.
But it should be noted that this list of possible projects has never been voted on by the board, is already out-of-date, and is therefore in need of revision. Tom Terry has promised this will happen, and that available revenue streams, both the from the FY '08 decision and the FY '10 five-year plan, will be part of the calculation on the revenue side. Still, there is something inherently disquieting about raising funds in advance for projects not yet approved by the board even in conceptual form and which arguably will not survive a referendum process in a tough economy.
For instance, $2.5 million is included in the May-June 2010 list for Yacht Club demolition and reconstruction. The $100,000 already approved by the board in FY '11 for first-floor renovation proves that expensive demolition and reconstruction may not be the best way to make use of this iconic amenity or to turn it into a revived community gathering-place. When the general manager moves on to the second floor, it may very well be that remodeling the bathrooms, repainting, replacing the flooring, and other economical improvements are all that will be needed to bring the Yacht Club into the 21st century. Perhaps in two or three years the exterior decking posts will need to be replaced. Perhaps at some point a decision will be made to replace the HVAC system with geothermal heating and cooling. Short of the building becoming structurally unsound, chances of a reconstruction proposal even making it to referendum is fading with the lost opportunity of last year.
Similarly, the May-June 2010 list includes $2 million for the Country Club, which apparently was a rough estimate for the cost of razing it and replacing it with a modest one-story pro shop and snack bar. Already the general manager has proven that the existing building can be improved with well thought-out improvements; he's redone one of the rooms upstairs -- it's a real improvement -- some leak-inducing outside stairs will be removed, and Casper Golf staff has modified the Terns Grill to good effect. Would a $2 million demolition and new building pass muster in a referendum? Anything's possible, of course, but should the OPA be collecting assessments from property owners for a purpose not yet conclusively identified as something the community at large wants or needs? I believe there should be a lot more fleshing out of a future project before it is placed on a to-do list for which assessment dollars are collected, and at minimum there should be an official board vote to include it on a future projects list before we start collecting revenues for it.
Another item in the 2010 wish list is $250,000 for paving the Beach Club parking lot, a project that the OPA's environmental advisory committee opposes. It will probably be eliminated when the Ten Year Task Force is repopulated in the coming months.
There's $600,000 on the list for Beach Club upgrades, which could be justified as part of a new plan to tap the potential of what many of us regard as a beachfront gold mine. Let the proceeds from a Class A liquor license and perhaps a partnership or rental to Seacrets produce the revenue to finance Beach Club upgrades, as opposed to relying on assessment dollars flowing into the reserves.
9. By recent board action that I supported, $600,000 is included in this year's budget for Yacht Club pump house relocation and decking replacement. Removing this item from the to-do capital projects list in FY '12 would take the April 2012 reserve balance back up to $4.8 million, a very healthy amount relative to historic standards. Of course, reducing the contribution to reserves by $30 per property ($30x8440=$253,200) would reduce it down to $4.5 million, still a respectable sum by historic standards.
While technically speaking spending from the reserves does not affect the current year's assessment -- those who understand the way in which the reserve funds operate know this to be true -- a budget that includes this item in the amount of $600,000 probably cannot be construed as conservative. The pump house has been below grade for years and is a safety hazard; but I'm not absolutely clear on why the wood decking needs replacement. If it needs to torn up for access to the pumphouse, I can understand that. Even if the $600,000 is not included in the capital project as Bob Thompson originally proposed, let's at least complete previously budgeted engineering studies to determine the scope of what's needed and why and come up with better cost estimates, perhaps including a range of options for improvements.
10. FY '10 produced an operating surplus, and it's looking like another surplus will be produced in the current fiscal year. Allocate these two years of surpluses to the reserves, thereby reducing the amount -- $4 per year in the five-year funding plan -- that is being collected for operating fund recovery purposes. The principle here is that if we can collect a few dollars in the lot assessment for previous operating losses, we can at least offset some of those losses by surpluses in subsequent years.
11. Based on early estimates from the Ocean Downs casino, it's perfectly reasonable to include $192,000 [$16,000 x 12 months= $192,000] in slots revenue in the budget for FY '12 -- and that's a conservative estimate, based on the January estimate of $16,000 that would be coming into the OPA according to state law. Budgeting for revenues -- even if we can't know the exact amount -- does not require certainty with respect to how those funds can be expended in the future for "public infrastructure" projects or whether a county advisory committee has some sort of "approval" authority over spending. Including that $192,000 as revenue means it doesn't haven't to be collected in lot assessments. While leaving out a dollar amount in the budget made sense even a couple of weeks ago, more recent information released through the media and a state Web site has rendered that judgment obsolete.
Finally, OPA members should directly and measurably see some benefit from the savings in OPVFD subsidies and the projected decrease in the golf subsidy for FY '12. While a decrease in the lot assessment could be justified, it's not realistic given viewpoints of elected OPA representatives expressed thus far in this very protracted budget process.
But keeping the lot assessment right where it is, at $804? That's doable, and that is precisely what Director Rick Handelman told me after Wednesday's meeting that he supports.
Rick needs some allies, and it's not clear who they might be. Until Wednesday night, who would have thought that the budget would fail in a 3-4 vote? That's never happened before in Ocean Pines, but there's a first time for everything.
How the board comes to a consensus remains to be seen. The suggestions above provide a pathway and would be consistent with the views expressed by OPA members Wednesday night. Just reducing the contribution to reserves modestly accomplishes the goal by $30, and other trims and tweaks finds the other $15.
Especially with the huge increase in utility bills, a lot of residents are hurting financially and are cutting back elsewhere. Not raising the assessment in FY '12 would be the OPA's way of demonstrating that it cares about its members today more than it cares about raising money for projects that may never happen. Yes, it would be somewhat symbolic, but it's a symbolism that still allows for substantial contributions to reserves and a healthy reserve fund balance in April of 2112.