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Pines directors reach accord on $10.9M budget

(March 19, 2015) Compromise was the magic word as the Ocean Pines Board of Directors voted on Thursday, March 12 to approve a $10.9 million operating budget for fiscal year 2016.
The budget included a little more than $2.1 million in new capital expenditures and a basic annual assessment of $921.
General Manager Bob Thompson delivered the first draft of the budget to the board on Jan. 8, followed by budget and finance committee meetings Jan. 12-14.
The board held a number of meetings in February to go over lingering issues such as ballooning payroll, uncertainties at the community golf course and philosophical differences on reserves.
By the time the seven directors walked into the boardroom of the administration building on March 12, however, board President Dave Stevens said a general agreement had been reached on the budget.
Stevens circulated a document titled “Plan B” outlining several changes over the original Thompson budget.
The board added $175,000 in capital spending, including $50,000 for a reserve study and additional money for pool covers, electronic signs, racquet sports improvements and yacht club sundries.
Money for the additions came from the “legacy fund,” formerly called the “five-year” plan. Under Plan B, the remaining $923,760 of the $1,098,760 reserve fund would be used to pay down the balance of the yacht club debt. Legacy funding would continue to accumulate by earmarking $130 in the annual assessments for that specific fund until the yacht club balance reaches zero.
The board would then group the future projects fund, roads fund and golf/drainage fund debt under the historical reserve, and move $675,000 from the five-year capital reserve to the historical column.
Marina income increased by $10,000, golf losses rose to $50,000 and the trolley was eliminated, cutting $5,000 from the budget. The plan also called for an impact review on cutting $150,000 from payroll.
The board also quickly agreed during the meeting to alter the projected loss on golf to $100,000.
“I think there are some board members who are not comfortable with [the projection] after the losses that we’ve had over the last five years,” Stevens said. “They would prefer to err, have a mistake on that side, rather than have yet another fall that didn’t meet the budget.”
Stevens said he came to $100,000 because it was “a round number.” The original projection on golf was a $14,000 loss.
“I just want to get in agreement to give … a realistic number,” Stevens said. “I think the best we can do with it, in round numbers, is $100,000.”
Stevens also said the board had an agreement on the operational budget under Plan B, but still had work to do on reserves.
“Plan B doesn’t cover everything,” he said. “I think the operations were covered. I think the reserves, and how we treat the reserves, are a different story.”
Treasurer Jack Collins fought to flatten out the assessment, which projected a $6 increase under Plan B.
“I don’t think it is necessary to increase the dues, the assessment, to the members. Not one penny,” he said. “We’re going to have to learn to live within budget.”
The board mulled cutting or altering the $130 legacy fund, but found strong opposition from Parliamentarian Tom Terry, who argued to continue the collection, saying the board had a “personal commitment” to the membership to pay off the yacht club debt.
“The yacht club is paid for,” Vice President Marty Clarke said. “We had a $4.3 million referendum. We collected $4.3 million. All you have to do is open [the budget book] go back to reserves and add across the line and guess what it comes up to? It comes up to $4,391,314.
“We’re not paying off the yacht club,” Clarke continued. “We’re paying off greens, unbudgeted. We’re paying off other things, but we’re not paying off the yacht club.”
Terry argued that the money used to pay off the yacht club came from the historical reserve, which now needed to be replaced.
“This is like the person who has money in a savings account and they go out to buy a new car and they say to themselves, ‘I’m going to promise myself that I will put the money back when I’ve used the money out of the savings account.’ That’s exactly what we’ve done here,” Terry said.
“The checks had to be written against something and it was written against the historical reserve to pay for the yacht club,” Terry continued. “We said to the membership that their dues were not going to go up to pay for the yacht club because $130 [from the five-year plan] was already baked into their dues, and then that money would be used to pay out the amount of the yacht club. That has not happened yet.”
Once the yacht club debt is eliminated, Terry suggested the still under-construction capital improvement plan would dictate how much of the $130 earmarked for the legacy fund would need to be collected.
“We shouldn’t be arbitrarily deciding how much money we need,” Terry said. “The reality is we have a process, a commitment to our membership where this $130 is going to go, what it was going to be used for and if you want to change what we’re doing and get rid of the column, quite frankly I don’t care as long as we’re collecting $130 to do what we said to the membership we would do.”
Collins accused Terry of trying “have it both ways.”
“You created a negative number in one of these categories in order to utilize funds in the historic reserves to pay for a building,” he said. “What this action is doing is it’s eliminating those negative balances.”
Thompson said former five-year plan was designed to provide transparency for major capital projects.
“The only reason it’s there is for transparency,” he said. “By merging them we’re just eliminating that level of transparency … that was the purpose.”
“The most transparent thing you can do is come down and express that we have $3,310,000 in our reserves,” Collins said. “That’s extremely transparent to me. That indicates that we have spent this money.”
“The exact opposite is the case,” Terry said. “If you start washing the debt of the yacht club through the depreciation of other assets because you put it all together and get rid of the $130, which is key, you have in fact killed the transparency of how the yacht club was going to be paid for. You have now used the depreciation of other assets to pay it off.
“Like my analogy earlier, I had money in the bank, I bought a car and I said I was going to pay myself back,” Terry continued. “That’s exactly what is going on here.”
The issue, Stevens said, is that reserves continue to increase.
“The question is … have we over-collected? Do we know what we’re going to do with it? And the answer is, I think, no,” he said.
Clarke, meanwhile, preferred to eliminate the legacy fund altogether.
“The last time we went down this road … was finding out at the bar that [the board] made a $1.4 million cash offer to buy another golf course,” Clarke said. “You put the money in the bank and somebody at this table will figure out a way to spend it.”
Stevens said he was looking for an “in between” measure, a balancing act between trimming part of the legacy fund and keeping enough money on hand for contingency purposes.
“I’m willing to concede part of the $130,” Stevens said. “I think all we’re doing on this is just pushing the can. We have an opportunity right now to do something and I think we’re not doing it.
“Is it going to kill us? No, it’s not going to kill us. And we’re going to have to revisit it next year … but I can’t vote for it right now,” Stevens continued.
“This budget shows a balance at the end [of reserves] of $4,477,231,” Clarke said. “That number is 50 percent higher than the last 10-year average. It is the second-highest reserve amount ever. I think we can afford to cut it a couple hundred thousand and nothing is going to happen.”
The board voted 4-3 to approve the altered Plan B, with a $100,000 golf loss and the replacement reserves intact. Terry, Secretary Pat Renaud, Sharyn O’Hare and Bill Cordwell voted with the majority.
Following the meeting, Clarke expressed his frustration.
“I’m done,” he said. “I’m not running for reelection due to the fact that this board keeps spending money. We keep giving them money and they keep spending money.”
Terry and Renaud, on the other hand, took a victory lap.
“I think we, in this budget, raised the dues $1 a month and maintained the commitment to the community that the yacht club would be paid for the way we said it would be,” Terry said. “We are paying for a reserve study, which will allow us to establish, hopefully once and for all, what the reserve amounts ought to be. I think it’s very important that we’re doing that.”
“My take away was that Tom and I prevailed,” Renaud said. “We worked this out. When everything was at a stalemate he and I got together and sat down. I said I had this idea – why do we have to keep the five-year plan the way it is? Why don’t we split it out and use it for other things? That’s when he said, ‘Well, let me work on it.’”
After crunching the numbers, Renaud said he and Terry came up with Plan B.
“We thought this was the best of both worlds,” he said. “I thought this was the best way to go and a compromise. We got rid of some things and knocked down some personal objections. We did a lot of good things. I thought it worked out well.”
Stevens agreed with much of what was passed, but worried openly that the board left several issues to address during next year’s budget talks.
“I think we made some progress, but that we’re still pushing the issues down the road,” he said. “However, next year is next year and they’re not going to go away.”