LETTER FROM THE TREASURER JULY 2007

BUDGET BACKGROUND

LETTER FROM THE TREASURER

When we first moved into this neighborhood almost five years ago, the dues were approximately $140 a month. That seemed to be a great deal when you considered the guard gate, the general grounds upkeep, and the pool, etc. At that time the finances were fine, but there was little in terms of capital reserves to plan for future investment, and there was little talk of a savings account to cover emergencies. My predecessor set up a plan to dramatically increase the dues for the next five years to set-up the proper reserves for capital expenditures that would be necessary in the community and to also maintain a “savings account.” At that time, I agreed with my predecessor in regards to the need for additional reserves, and hence, the dues have gone up every year since 2003 based upon that initial plan.
The dues increases were not easy to explain to either my neighbors or my wife. However, during the budget process, I felt as though we as a board had (and still have) a fiduciary responsibility to properly maintain and improve the neighborhood. Based upon this responsibility, a dues increase seemed to be necessary during the past several years. I hope this letter will help explain my reasoning for these increases.
The HOA currently has approx. $230,000 in the bank. A majority of this money is earning 3.95% a year in interest income. Of the cash that is sitting in the bank, the board has “reserved” approx. $150,000 for future projects (examples include the roads and fence repair along Bowles). These kinds of projects may not be completed in 2007, but the board feels it is prudent to set aside a certain dollar amount each year for future expenses. As an example, if we are projecting that a certain item needs to be replaced in five years, and it will cost $100,000, then the board will try and reserve approx. $20,000 per year for five years. Then, when the item needs to be replaced, the neighborhood will have the money to replace/repair the specific item. This fund is called our Capital Reserves.
Your annual dues right now are $190 per month. Multiply this out by twelve months, and then by 202 neighbors, and the HOA has an annual budget of approx. $460,000. To add more light to this number, please note that our dues are a component of three items:
1. Operating expense. The operating expenses include such items as the guard gate, general upkeep on the grounds, and the lifeguards and maintenance at the pool. Our operating budget for 2007 is $388,000. This is how much it takes to simply run Coventry.
2. Capital Reserves. As discussed above, each year, the Board determines which material items in the neighborhood need to be replaced or improved upon. As an example, the HOA will spend approx. $15,000 this year in street repair to fill the potholes (this number was generated prior to winter blizzards). During 2007, the neighborhood will spend or set aside money in our capital reserves by approx. $110,000.
3. Unappropriated Capital Reserves. This is like the savings account. Four years ago, the board made a conscious decision to increase our savings account as a safety net for future items that were not readily identifiable in the Capital Reserve study. This savings account was able to grow during 2004 and 2005. However, during 2006, we updated the sprinkler system at a cost of approx $110,000. This was not an item that was on our radar screen (at this cost) during the prior budget meetings. Our unappropriated capital reserves were therefore depleted due to the sprinkler system overhaul. However, this is exactly why we have this savings account.
As you can see, during 2007, Coventry will generate approx. $460,000 in dues, yet the neighborhood will spend approx. $388,000 in operating expenses and $110,000 will either be spent or set aside for Capital expenditures. This means that we will “spend” approx. $500k, yet we will take in only $460,000, for a shortfall of approx. $40,000. This $40,000 shortfall will come out of our Unappropriated Capital Reserves (i.e. our savings account). Unless we are the federal government, Coventry cannot continue to spend more than what the association takes in. My personal thought, and the reason for the dues increases over the past several years, is that we need to maintain and add to our unappropriated capital reserves to cover any unexpected issues that a 30-year old community may face. The board itself maintains a lively discussion over what this number should truly be.
We live in a neighborhood that is 30 years old. Major issues, such as the road, the pond, upkeep at the clubhouse, etc. will need to be addressed as the neighborhood moves into the second phase of its life cycle. As a neighborhood, do we make a decision to keep our dues as low as possible? This would come at the expense of not keeping our neighborhood on par with the newer communities that have been built around Coventry. My personal thought is that our dues should not be so high that they keep a family from moving into our neighborhood but not so low that a buyer would be turned off due to a lack of upkeep, etc. This is a juggling act that the board and this neighborhood will face for the next several years. The upkeep of a 30-year old community and low dues are mathematically irreconcilable.
I have placed a copy of the budget online at the neighborhood website, www.Neighborhoodlink.com. I encourage you to personally review the budget, as this is your money that the board is spending. Please feel free to e-mail any thoughts or comments that you have regarding the budget at kentanddj@comcast.net.

Thanks,

D.J.