Contents
1. Annual Meeting and Voting
2. Road Project
3. 2013 Budget vs. Actual
4. Reserve Fund – Defined
5. 2014 Projected Budget
6. Special Assessment Approved
7. Newsletter
8. ARB Fees
9. Long Range Plan
10. Miscellaneous Items
11. Editorial Comment – By Law Amendment

1.  Annual Meeting and Voting

The Annual Meeting is on November 18th, and the Candidates Night is October 29th. Both events will be held at the country club.  Ballots are due by 3:00 PM on November 12th. I believe all votes are irrevocable; as in, you will not be able to change your mind after voting. If you vote electronically, you will see that it requires an ID and password (given to you in the e-mail), and that site is managed by an independent third party.

2.  Road Project

Once again, I can’t add anything to the detailed e-mails being sent out by Roy Thornton. It appears that project costs are still within budget. This subject is also covered further in the section below on the 2014 budget.

3.  2013 Budget vs. Actual

The Board discussed its latest projection which shows an estimated year end deficit of $20,000 to $30,000. This will be covered by the $50,000 in the contingency account. The projection was not included in the Board papers, so I am unable to explain exactly why the position has improved from last month; where the deficit was projected to be closer to $50,000.

Previously mentioned overruns were in ARB costs, personnel costs, legal expenses and storm maintenance. The 9/30/13 statement shows the following in the infrastructure maintenance categories:

• Storm Water Management: $80,000 spent out of the total year budget of $135,000.
• Road Maintenance: $105,000 spent out of a total year budget of $160,000.
• Road Sealing Program: $18,000 spent out of the $30,000 budget.

4.  Reserve Fund – Defined

Before dealing with the 2014 budget, it will help to understand how the Board is now viewing the “Reserve Fund”. Please note that this is my interpretation based on what I have heard in Board meetings. Although it has not been fully explained in a formal Board communication, I believe the concept will be covered in the financial presentation at the annual meeting. And it has been alluded to in previous presentations.

This fund has previously been referred to by other names such as Capital Improvement Fund or Replacement Fund. I am going to use the term Reserve Fund, which is, I believe, the term that will now be exclusively used by the Board. It appears this fund will now serve two functions.

First, it will serve as a sinking fund to accumulate funds for major, planned capital expenditures. In this case, “capital expenditures” refers to any large expenditure having to do with our infrastructure or fixed assets; not just road reconstruction. As long as the expenditures are planned, necessary funds can be accumulated in this account over time, thereby avoiding the need for large assessments and/or borrowings. Given the amount of infrastructure that will continually need to be replaced in the future, we should expect to continue allocating a portion of our annual assessment towards this fund to cover the cost of our required capital projects.

Second, it will serve as an emergency fund for unexpected large expenditures; for example unusually heavy storm damage. Any association as large as ours should have a reserve fund of this sort; ideally with the funds set aside in a separate account. It allows for the possibility of avoiding a large assessment in the case of unexpected emergencies. The key question would be how much money to set aside in that separate account.

Rather than have two separate accounts, I believe the Board intends to use this one Reserve Fund for both purposes. We know we will need to accumulate as much as reasonably possible for future, planned capital replacements and that it will most likely take anywhere from three to seven years to accumulate enough funds to complete any given project; as was the case with the current road project. Therefore, the Reserve Fund should almost always have significant funds available; with the possible exception of those times when it is being tapped for a major project (as is currently the case, and as you will see in the comments below on the Special Assessment). I believe the Board’s position will be that these accumulated funds can serve as an emergency reserve if and when necessary; thereby avoiding the need to keep a separate amount in a separate fund. This will not totally eliminate the possibility of an assessment in an emergency situation, but it might eliminate the need or otherwise delay it.

5.  2014 Projected Budget

You should have received a summary 2014 budget within the annual meeting mailing. A detailed draft budget was distributed at the budget review session, but it was changed slightly before the Board approved the final budget. And that approved budget is not yet available to the residents. Therefore, the numbers I use below do not exactly match the numbers in the summary budget, but they are close enough to allow for limited comments. I am hopeful the full detailed budget will be posted to the web site prior to the annual meeting.

Key points on the 2014 budget:

• It shows a break even position after allowing for a contribution to the Reserve Fund of $489,421. Please note that the $489,421 is a plug number which allows the budget to break even at exactly zero. That amount will be allocated to the Reserve Fund in the first quarter of the year.

• The budget contains a contingency of $50,000 to cover possible overruns.

• Storm Water Mgt. is budgeted at $140,000 compared to $135,000 in 2013. Road Maintenance is budget at $160,000; which is the same amount budgeted in 2013. Road Sealing is budgeted at $20,000 compared to $30,000 in 2013.

• Storm Maintenance (snow removal and the like) is budgeted at $58,000 compared to the $50,000 budgeted in 2013. As of 9/30/13, actual expenditures in this category were $60,000.

• Total personnel expenses are budgeted at $325,000 compared to the 2013 budget of $285,000. I believe the actual expenditures for 2013 will exceed the current $285,000 budget, but I don’t have access to the projection that shows the exact amount.

• The Community Activities Committee is still being funded, but the 2014 budget allocation is $2,700 versus the $4,400 that was budgeted last year. As of 9/30/13, the committee had spent only $500 of that $4,400 allocation. (Editorial Comment: I suggested that this committee be funded with voluntary contributions; similar to the Bark Park; the logic being that, if the demand for these activities existed, funding would not be a problem. Apparently, the idea was not well received by the Board.)

6.  Special Assessment Approved

The Board approved another special assessment in early 2014 of up to $300 per lot, but the exact amount will not be determined until the final costs on the road project are known.

Using broad, rounded numbers will make this easier to explain. Although the numbers below will not precisely match the numbers in the financial summary recently mailed to all owners, they will be close. But it will allow you to see why the assessment is necessary.

First, assume the total road project costs are on budget at $2.9 million and are paid out by year end. Those costs will be funded using the balance of our reserves plus borrowings of roughly $400,000. Therefore, our hypothetical situation at December 31st gives us a completed road, $400,000 in debt and effectively nothing in our Reserve Fund.

In the first quarter of 2014, assume the following events occur:

• All property owners pay the 2014 Annual Assessment, and built into that total amount is a $490,000 contribution to the Reserve Fund.

• A Special Assessment of $300 per lot is levied totaling $350,000. That is used to partially pay down the loan, but it still leaves us with $50,000 in debt.

• The $50,000 balance on the loan is paid off using part of the $490,000 now in the Reserve Fund; leaving a balance of $440,000. However, the Board’s summary shows additional, miscellaneous road project expenses paid in the first quarter of 2014 which will lower that Reserve Fund balance to $377,000.

Again, that is very simplified and does not detail all the inflows and outflows. But it shows that the special assessment will be used to pay off the loan; thus allowing the bulk of the 2014 Reserve Fund contribution to remain in that account. And that balance will serve two functions. It gives the association something in the way of emergency reserves, and it also starts to build the Reserve Fund for the next large project. As to what that “next large project” is, I believe that will be outlined in the long range plan. (Editorial Comment: I don’t think it matters much that the “next project” may not be finalized by the time the 2014 annual assessments are paid. It would be nice, but I suspect we will have more than enough required work from which to choose capital improvement projects requiring a three to seven year savings plan.)

But this is a fluid situation. The $400,000 projected loan balance above assumes that we spend the full budget of $2.9 million on the road project. However, we may not spend that much (or we may spend more). Until we know the final cost of the road, we will not know how much we need to borrow and, in turn, how much will need to be repaid in 2014. And until we know how much needs to be repaid, we will not know the exact amount of the assessment.

Put a different way, the Board is saying the assessment will be no more than $300. But if the final project costs turn out to be less than assumed in the summary, the loan may be lower and, in turn, the assessment may be lower. Note that I used the words “may be lower”, not “will be lower”. We will not know until sometime in the first quarter of 2014.

7.  Newsletter

Last month, the Board voted to stop printing the monthly newsletter and to convert to an electronic format. The Splinters e-mail claimed this was due primarily to a significant drop in advertising revenue. I heard numerous people question how the financial status of the newsletter could change so drastically in such a short period of time. That appeared to be a legitimate question in as much as I could not recall any previous Board discussions warning of impending, dire financial problems.

The issue was discussed at this meeting but only in the context of moving forward with an electronic version of the newsletter. The original decision was not revisited or mentioned. The only other information I can offer comes from a Board communication to a resident which said that for “many years”, POA staff costs were not included in total costs; thus contributing to the projected loss.

However, without access to detailed income and expense statements, neither I nor anybody else is able to judge this information. I am not aware of the existence of any written financial analysis showing current and historical numbers. Perhaps such an analysis was circulated privately to Board members, but it has never been discussed at an open meeting or included in any Board papers.

8.  ARB Fees

There was a discussion of current Architectural Review Board fees. It was suggested that some adjustment be made to the fees charged for improvements to existing homes; the idea being that improvements should be encouraged as opposed to being subject to large fees. It appeared that the Board was leaning in favor of such adjustments. At the same time, it was acknowledged that the fees related to new home construction were probably too low when compared to the work required for those projects. Those fees will be examined further.

9.  Long Range Plan

Doug Frey indicated that he was planning to have a draft plan to the community for review at least several weeks prior to the upcoming annual meeting. It seems the only missing item is a community vision and mission statement. Those concepts are to be discussed in the next several weeks and then included in the draft plan.

(Editorial Comment:  It appears that the last item to be added to the draft plan is the vision statement. This seems odd in as much as one might normally expect the vision statement to be finalized before creating the plan.  Hopefully, we will have something to review in the next few weeks.)

10.  Miscellaneous Items

• The Walkways Committee engaged the services of some UNC graduate students to assess our situation and, I believe, to recommend priorities. It seems that their initial emphasis was on safety; in other words, focusing on those areas where it is dangerous for walkers to be on the roads. In that regard and separate from the student’s efforts, there was a discussion about possibly putting up some warning signs in the most dangerous areas. And, if I heard it correctly, it was suggested that the attorney be consulted on this idea to see if it posed any problems.

• There was a discussion regarding the concept of defining the role of our community manager and staff. Our new manager, Mike Zmuda, is in the process of drawing up a job description for the manager and other staff in the POA office.

• The Board decided that the Holiday Fund participants will include the POA office staff, gate attendants and non-managerial landscape personnel with Bland. I believe the Board intends to include this information within the solicitations to community members (which should go out in November).

• The Community Activities Committee was asked last October to research and examine the concept of charging a small fee to outside groups using the POA building for social events. The committee presented its findings at this meeting. In sum, it could not find communities where a charge was levied for the use of a similar building. Therefore, the Board decided not to pursue this idea any further. Groups that use the building for social events will not be charged any fees.

11.  Editorial Comment – on the written record of the Board amending the By Laws

Last month, the Board ratified an amendment to the By Laws which had been approved by e-mail prior to the regular Board meeting; but it has failed to properly inform the community of its action. Here is a brief summary of that change.

In the event of an unexpected vacancy on the Board, our By Laws required a separate election for a replacement; but to serve only for the balance of that term. (We did this separate election in 2009 when a director resigned.) This amendment now gives the Board, at its sole discretion, the arbitrary authority to change a remaining one year or two year term to a full three year term. It made this change either because it felt that having a separate election was too much trouble, because it felt that the requirement was not necessary or because it felt not having a separate election was immaterial and caused no harm to the association. Or it was some combination of those reasons.

I believe what I just wrote above summarizes what happened. But we have not seen any similar explanation from the Board. Instead, in recording this action, the official minutes of the meeting say only that the amendment “clarifies the Board’s authority to determine the term length of a director elected to fill a vacancy”. (my emphasis added)

Here is a good example of how one or two words can change the entire meaning of an action and why one cannot necessarily rely on official minutes as a good source of information.

The word “clarifies” strongly implies (if not outright states) that the Board’s power to arbitrarily determine the length of the replacement’s term was present in the original language and that this amendment merely stated that power more clearly. But nothing could be further from the truth. The original language did not even remotely give this power to the Board. Rather, it is this new amendment which now gives that power to the Board.

Only the most strained interpretation of our original By Laws could be used to rationalize this amendment as being necessary to “clarify” the language; because the language did not need any clarification. In 2009, the Board followed the By Laws and held a separate election; because the language did not allow otherwise. And nothing had changed since then.

Bottom line, this amendment was a change, and it should not be represented as something else.

This past August, the Board decided it did not want to run the required separate election for the vacant director’s position. Its original strategy was to simply ignore the By Laws and not have a separate election. For some reason, it later decided to amend the By Laws to essentially ratify its decision.  And that was a good decision, because it would not have been a good idea to simply ignore the By Laws.

This change to our By Laws may or may not be significant. Only time will tell. However, what is currently far more significant is this: To date, the Board has not explained to the community the nature of this amendment or, more importantly, why it felt the need to make this change. Right now, those explanations can be found only on this web site. And that is a sorry state of affairs.

When it came to informing the community of this amendment to our By Laws, the Splinters e-mail contained just one confusing and totally incomprehensible reference to the action. And now we have official minutes that not only fail to explain the effect of the amendment, but also mislead readers into believing it was nothing more than a clarification.

And, in the future, anybody reading POA announcements and minutes to understand what was changed and why it was changed will most likely come away not with facts or a realistic historical record, but only with what the Board wants people to believe.

This is the kind of behavior one would expect from the “Ministry of Truth” in George Orwell’s novel “1984”; not from a Board which professes to be transparent.