Four issues were addressed at the Town Hall. The primary issue dealt with the Association’s financial picture currently and into the next few years. Other issues were reopening the Club, reopening the Tennis Courts, and a brief introduction to a ballot measure for the Annual meeting: subjecting unimproved lots to annual assessments (dues).
When the Bay Club opens and there is a return to “normal” operations there are concerns about the long-term health of the Association.
Covid-19’s impact has been dramatic: reduced Facility Rental Income, from $30,000 in our last full pre- COVID year of operation to zero this fiscal year, none expected for the balance of the year, and an unknown recovery time frame. Unless/until alternative revenue streams are identified, the only replacement for lost Facility Rental Income is member dues.
The South Bay development plan after 20 plus years is incomplete. The planned buildout for South Bay is 800 homes, each paying dues to SBCA. There are currently 568 dues paying lots in South Bay, 232 below the expected number, resulting in $222,720 in unrealized dues revenue each and every year. Over the years, SBCA’s expectation of predictable growth from 2000 onward influenced the long-term strategy of no dues increases year over year because projected growth would resolve Association cash needs.
The Club closure this last year has yielded a surplus of some significance. Coupled with accumulated smaller operational surplus from past years, a net surplus of approximately $240K is forecasted at 6/30/21. The primary focus of the meeting was how to use the surplus to satisfy all areas of challenge in the best way possible.
SBCA Reserves are currently significantly underfunded as defined by Association Reserves (the outside independent professional SBCA uses to update its reserve plan every 3 years). Current operational budget for next fiscal year and every year after forecasts a revenue deficit (due to declining income from facility rentals and negative growth in member population (lost 25% of associate members since closure) and PLA not increasing pace of home sales.
Address current and future budget deficits, current reserve funding deficits, and protect against future significant member dues increases for the next 3-5 years by using the surplus to address all these matters and provide the time necessary for traditional income sources to be restored (facility rental), identify other supplemental income sources, hope for change in development pace by PLA, and (hopefully reopened fully) build back up our Associate Membership base, OR
Declare a dues rebate/refund/discount.
The purpose of Reserves is to create a “savings” account with an amount deposited annually, year over year, equal to the amount of “deterioration” of the components (assets) of the Association, that will ensure funds are available at the end of the component useful life for its replacement.
SBCA Reserves are significantly underfunded. They are currently funded at about 20%, considered “poor” by industry standard and in danger of requiring a special assessment in the event there are insufficient funds for an unexpected Reserve need, as we saw in 2016. A more satisfactory “fair” level of funding is between 30% and 70% of total needs. Using $150,000 of the surplus to shore up the Reserve fund would, barring unexpected Reserve needs, move the Association to the mid 30% level of funding and lower risk of any future special assessments.
There have been suggestions that it isn’t the responsibility of current members to pay for the replacement of components (assets) years from now. As noted above current owners are actually “paying” for the cost of deterioration of components now, while they are an owner.
The balance of surplus, $90,000 (and that assumes no unexpected, costly, unplanned expenditures during the rest of this fiscal year) would be used to offset (fund) projected operating deficits through 2025 and protect against dues increases through the next few years, in excess of 5% (annually).
Funding these projected operational deficits through 2025 would allow time for the Association to identify, develop and implement one or more supplemental revenue streams (other than, or in addition to, regrown Facility Rental Income post COVID). The most beneficial supplemental revenue streams are those that are sustainable, growable and with a reliable outcome.
Approving a dues refund/rebate at this time would have potentially negative effects on Reserves and/or future operational budgets and would likely require increased dues to cover those deficits.
The Board believes it is better to hold the funds for future use, rather than refunding all or part of them and then asking for them back in a later year in order to fund the budget.
Some members have suggested that to have a balanced budget it is better to reduce expenditures. This sounds great but if you look at the budget and what the big-ticket drivers are there isn’t much wiggle room. Payroll (determined by the number of hours we are open), Reserves, Utilities, and to a lesser extent, Repairs & Maintenance are the budget drivers. The HVAC (currently underway) project should result in significant savings in electricity costs/consumption and that will help and has been factored into the draft budget and the projected budgets for the years subsequent to that.
The challenging questions is what expense to reduce or eliminate. The Pool?, Fitness? Woodshop?, Member socials? There are no easy answers.
In order to protect the long-term health and financial stability of the Association the best use of the current surplus is to fund Reserves in a manner recommended by the professional SBCA hired (Association Reserves) and to have funds available to cover projected deficits pending identification of a supplemental revenue stream (and offset demand from member in the form of dues increases), at which time the Board can re-evaluate the possibility of a dues refund.
A proposal to amend the Master Declaration was discussed. This amendment would require any platted but unimproved lot be subject to annual dues, effective July 1, 2021. The benefit to SBCA would be an immediate increase in dues rather than having to wait until 60 days after a house was built and a certificate of occupancy issued by the County. Unimproved lot owners currently do not pay annual dues but do hav