(Nov. 18, 2021) Ocean Pines Budget and Finance Committee members signed off on a recently completed reserve study last week, with the financial report headed for a board presentation before work begins the next fiscal year’s budget in January.

Doug Greene, reserve specialist and partner with Design Management Associates, presented the results during a meeting last Wednesday.

Overseeing the work session was Public Works Office Manager Linda Martin, along with General Manager John Viola and Finance Director Steve Phillips.

Linda Martin was assigned lead on the project that was undertaken partially at the behest of the Budget Committee.

Martin said DMA, which completed a reserve study for the association in 2015, last updated the data in 2018.

After a visit in April, DMA sent association officials a draft of the report on July 2. It was reviewed through August by department heads, with proposed changes being returned to DMA.

Martin said a second draft was completed with further revisions completed in late August and a working draft sent out on Sept. 23.

Viola said the reserve study was updated to track account balance percentages and revise the fixed assets list to reflect recent capital building projects.

“Since the last study, several building projects, renovations and different equipment was purchased,” he said. “We just felt it was a good time … to update and fine-tune it.”

Greene said reserve studies begin by ascertaining account balances to open the fiscal year.

“We have a starting balance at the beginning of the fiscal year,” he said. “Anything that occurs during the year will be deducted from that balance.”

Greene said inflation is incorporated within reserve calculations.

“If the funding was considered adequate for everything that is projected to happen, you can make the broad assumption that the annual increase should equal inflation,” he said.

Green said both current reserve account balance and reserve components are considered.

“We do make an adjustment for the future value of that component, not just the current value,” he said.

Greene said to fully fund all reserve components, the account balance would approach $20 million.

“You have a just under $4 million reserve account,” he said.

Despite the apparently large gap, Greene said the whole sum would not be required.

“When we do the actual cash flow study, it doesn’t mean that you have to come up with all kinds of money,” he said.

Greene said to compensate, the funding transfer rate for reserves should be adjusted to the inflation rate.

“We don’t ever recommend that you be 100 percent funded,” he said. “You would actually be putting too much money in that account.”

Viola said the Budget and Finance Committee had agreed to a transfer rate of 3.8 percent based on an estimated inflation rate of just over 3 percent.

Committee Chairman Dick Keiling agreed the inflation rate seems appropriate.

“My sense is that’s the best number he’s going to give us right now,” he said.

Viola said the intent is examining annual replacement needs for association assets.

“We talked about transfer rates, inflation rates and investment percentages,” he said.

Viola said Phillips prepares a financial schedule each year that helps to coordinate the budget process.

“This is one of the most important tools we use for finance and for budgeting,” he said.

Phillips said the reserve study maps out annual contributions from assessment fees for the next six years.

“If you take that as a percentage of the fully funded reserve amount … you can see the percentage come out to 21 percent and … we’ve got a couple of years that are around 19 percent,” he said.

DMA previously recommended association reserve accounts maintain a range of 22-28 percent of assets.

Viola said the DMA figures serve as a planning guide.

“We’re kind of in the ballpark,” he said. “Nothing here alarmed me when we first did it.”

Viola said following the Budget and Finance Committee review the reserve study would be presented to the Board of Directors.