Close Menu
Berlin, Ocean Pines News Worcester County Bayside Gazette Logo Berlin, Ocean Pines News Worcester County Bayside Gazette


Ocean Pines sees red, looks on bright side after ‘15 audit

(Aug. 13, 2015) The good news coming out of the Ocean Pines Association annual audit is that the bad news is not that bad. Even though the association finished its fiscal year a little less than $153,000 in the red, that’s not far from breakeven and even then, the community’s amenities came out on the plus side of the ledger, according to a July 24 audit conducted by the Salisbury firm Trice Geary & Myers LLC.
 General Manager Bob Thompson and board of directors member Tom Terry touted a number of positives in the report and pointed to some uncontrollable circumstances that affected the community’s finances.
 “The biggest number that stands out to me is the fact that we finished in the red this year, but the primary reason for that had nothing to do with our amenities,” Thompson said. “We had to take more write-offs this year than in previous years because of the foreclosures that occur. If a house gets foreclosed on, we lose that opportunity for collection on that bad debt account, and there were more of those that occurred this year.
“It’s not unlike what’s happening nationally,” Thompson continued. “Banks started leveling off and they started accelerating on the foreclosures because properties are starting to move again. We took more of a hit on those losses.”
Thompson said the association would still attempt to recoup some of the return on investment using a collection agency.
Terry also sought to dispel the notion that amenities, such as the yacht club and golf course, were the major drains on the community.  
“I think the majority of the folks out there would probably believe that we came in in the red because of those darned amenities, and the reality is it wasn’t those darned amenities at all,” he said.
According to the audit numbers, Terry said, golf, aquatics, tennis, platform tennis, pickleball, marinas, beach club, beach club parking and the yacht club came out roughly $177,000 in the positive column.
“The cost per month for everyone to have a yacht club it $1.79. That’s it,” Terry said. “At the end of the year, you’ve spent less than $2 a month out of the dues you’ve already paid to augment a yacht club. But the amenities ended up in the black, which means that was already covered.”
Critics, meanwhile, have argued that those numbers were before depreciation costs were added, a notion that Terry balked at.
“The reality is we’re not a for-profit company, and our depreciation is done for a whole different reason than some people might think,” he said. “Our depreciation doesn’t get treated the way a for-profit company treats depreciation.”
Thompson said Ocean Pines uses depreciation for replacement of major capital items, comparing it to “old passbook savings accounts.”
“What you would do is just start saving money for the future replacement of an item,” he said. “That what our grandparents used to do, because that’s all banks offered, passbook savings accounts.
“Using the way we deal with depreciation, it’s just like putting a little bit of money, each month, into the savings accounts so that when it’s time to buy that new item, there’s money there to do it. That’s where people get confused here versus other financing strategies such as borrowing from a bank.”
Thompson said if Ocean Pines had financed the yacht club rather than using set aside depreciation dollars and the five-year funding tool, the community would have spent $600,000 more in interest over a four-year period, or more than $5 million over a 30-year period.
“The way we did it, where we’re putting money away, we pretty much paid for it what it cost to build it, without interest” he said.
While Terry said depreciation is clearly something that affects the annual assessment, over time the funds set aside in that column could save the community potentially millions of dollars.
“It’s a pay as you go approach,” he said. “While you live here you are paying your portion of the depreciation of an asset. You’re not paying for it twice – you’re paying your usage of it. And that money, because it was available, we saved at least $600,000 in interest.”
Terry used another analogy.
“It’s like we’re bought a car and now we’re paying ourselves back,” he said. “That money came out of the depreciation. But when you’re evaluating the performance of the amenity, you take dollars in, expense out, where did we end up?
“Those who to treat that depreciation as a negative, as in that’s lost money, well if the money ends up over here in a savings account, how it that an expense?” Terry added.
That approach, along with the legacy, or five-year funding tool that adds roughly $130 annual to assessments, also has a steadying effect on assessments over time, according to Terry and Thompson.
“If you keep that model going, so that when the big ticket items arrive, you can self-fund these things,” Terry said. “Long term, that absolutely stabilizes the assessment.”