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OP board could discuss capital reserve fund

By Morgan Pilz, Staff Writer

Photo by Morgan Pilz
Ocean Pines Board Director Frank Daly, right, and temporary board member Tom Piatti discuss the possibility of creating a new capital reserve at the monthly board of directors meeting, Saturday, July 6.

(July 18, 2019) Responding to property owners’ concerns about the possibility of having to increase assessments because of multiple new capital projects, the Ocean Pines Board of Directors has begun to wonder if a capital reserve fund is worth considering.

During the July 6 board meeting two weeks ago, Director Frank Daly suggested that might be a way to prevent assessments from rising every time a new capital expense arises.

“The purpose of this discussion is to discuss the current issue with funding new capital projects, specifically that any new capital goes directly against the operations budget and the annual assessment, and to discuss potential methods of funding new capital that overcomes this issue,” Daly read to the public.

For Daly, it was not so much about creating a reserve right away but at least discussing the possibility and various options the association could use to create this fund in the future.

“We want to discuss this because there are several concepts that are out there,” Daly said. “For example, the replacement of the craft building … that comes from the replacement reserve. So that money already to a certain extent exists and it’s in the bank. If that was a new facility, that would go against the operating budget, which would go against the assessment immediately.”

Any project deemed new capital goes against the operations budget and directly affects the annual assessment, meaning every $8,452 dollars of new capital increases the annual assessment by $1.

One of the possible methods of obtaining money for a new capital fund could echo a process used the Parke. Daly wanted temporary Director Tom Piatti to comment on that as a member of The Parke, especially since this month’s meeting will be his last one as a stand-in board member.

“The Parke has a mechanism where when somebody purchases a home, they pay into a new capital fund,” Daly said. “So the Parke has a new capital fund where they can put new things in without affecting the assessment. And that’s something that at least we should talk about.”

“You can’t take people’s money without a purpose,” Piatti said. “We already have our reserve accounts to replace things. When you buy a home, $1,000 is set aside and goes right into the budget. This is something we’ve been doing and it works.”

The board decided it was too early to vote on this matter and deferred the discussion to the Finance and Budget Committee, which will then present the information to the new board after the election.

Current Chairman of the Finance and Budget Committee Larry Perrone, who is running for the board, believes the concept is good, but that other options should be considered.

“What my plan is to do this is to take 10 percent of the reserve money coming in every year — and this coming year it should be about $1.8 million that we would put toward our reserve account,” Perrone said. “So my proposal, if I’m elected to the board, I will make a motion that we establish a capital reserve account, take 10 percent of the reserve dollars that come in and set that aside for capital spending.”

Perrone acknowledges that there could be concerns with having too much saved and not being used properly, not unlike a ‘slush fund,’ which no one in the association would want, he said.

“We don’t want it to become so large that we’re just building and building,” Perrone said. “So my proposal would be to put a limit on it. This part will all be up in negotiations on the board, but my suggestion is going to be $1 million with a limit of spending out of that account of $500,000 any given year. There has to be some limits and controls on it.”

Perrone acknowledged that The Parke has a good idea by collecting funds from new home buyers, but with a significantly larger number of houses, he believes this approach would not fit Ocean Pines.

“I looked at how many homes are sold here in Ocean Pines on a yearly basis and it looks like we average about 450 sales a year,” Perrone said. “So that the first year we would have $450,000 and then the second year, it would be up to $900,000. The problem with doing it that way is that once we start it, we have to continue it and that account will balloon to a gigantic number.”

Even if Perrone does not become a board member this year, he still intends to submit the idea to the board after discussing it with the rest of the Budget and Finance Committee.

Daly agrees that there are pros and cons to creating the new capital fund, especially when it raises the assessment for the homeowners, but still believes this is a project the new board should consider.

“I think we have to figure out, number one do we want to address it,” Daly said. “If so, how do we want to address it to fund the new programs that might come to come to fruition? These are all very complicated and potentially very contentious issues.”