Financial plan 2021

In 2021 there will be 9.38% assessment reduction and a $470K pay-down on the Association debt. To improve the timeliness of major community projects and to hedge against special assessments in the future, an emergency reserve and a long term capital saving plan have been established.

Capital Budget  A capital budget and reserve plan have been set up for Lakes of Bent Tree starting in 2021.

$2.6 million in known future projects have been identified and a plan established to systematically set aside funds to pay for them. For example, exterior painting which should occur every 5-7 years is projected to cost $345,000 - $350,000 in 2026/2027. The current plan sets aside $52,000 each year to cover this expense rather than: 

• assess owners with a $3,000-$5,000 special assessment at the time of painting,
• borrow the money and pay the associated costs.
  

This approach also has the practical advantage of making it easier to perform maintenance on schedule as the money is available, rather than being a project to raise it. It also avoids the costs of performing hold-over repairs and the costs of property deterioration associated with deferred maintenance. This is net saving over time.

The largest future expenditures are for roofing ($1.6 million) and for painting / siding repair ($350K); the former being a very significant long term expense and the latter being an equally significant, repetitive medium term expense (6 years).

Funded near term work includes tree / ground lighting repairs, paver repairs (walkways), door finish repairs, pool resurfacing, fence masonry, tennis court resurfacing, replacing the common area tree killed in 2019, and drainage repairs. See table at bottom of page for other known repairs obligations.

The Association's 10-year $900,000 construction loan with Mutual of Omaha is being paid down and restructured into an 8-year $266,000 bridge loan. The bridge loan is being used to facilitate the Association's transition from debt-financed capital repairs to accrual financed capital repairs. Additional pay down should be revisited in 2026 when future costs are updated by a building engineer (i.e., reserve study) and as the Association's equity in the capital reserve is higher.

To hedge against inflation, the Association's reserve cash will be transferred out of the current money market accounts (e.g., 0.2% - 0.5% interest rates) and into a brokerage account to provide access to a financial planner and a broader menu of low-risk investments.

The amount of money accrued each year for future repairs should be relatively stable year-to-year. There will likely be adjustments in future years that will affect the annual assessment rates, but if properly managed the accrual rates should not be volatile.

Emergency Reserve/Self Insurance: An emergency reserve is an important safeguard against special assessments and special emergency assessments.

A $150,000 emergency reserve has been established to cover unforeseeable emergencies, non-insurable events, and insurance deductibles. For example, slab leaks and foundation failures are not insurable and the wind and hail insurance deducible is $50,000. The emergency reserve can also provide immediate funds in the event of a community disaster where money is needed before a claim is settled and paid out.

The emergency reserve will need to be replenished in the year(s) following withdrawals.

See other articles on Association financials here.

Operating Budget The $528,998 operating budget roughly breaks down as:

• a third for current repairs, 
• a third for future repairs, and 
• a third for insurance and professional services (see graphic at top of page).

See details here. The two most significant shifts in the 2021 operating budget (over 2020) are the increased condominium insurance premiums (i.e., insurance and professional services category) and the reduction in loan service (i.e., future repairs category).

The condominium insurance market in North Texas has seen huge rate increases and many insurers are exiting the market after the high storm-related claims of the last five years. The Association's insurance cost in 2021 is 300% higher than in 2018. The Association's prior two insurers have exited the North Dallas market.

The Association's future repair accruals and loan expenses have been reduced from $236,191 in 2020 to $169,803 in 2021 as per the Capital Budget plan.

With respect to current repairs (i.e., current repairs), the cost of services has been significantly reduced, and the scope of services increased in a roughly an equal amount. In short, more is being done in 2021 than in 2020 with the same expenditure. The contractors and contracts that will affect these efficiencies were put in place in 2020 and are online now.

The 2021 budget also includes, for  the first time, funds for a joint lake management project with the Bent Tree Country Club. The lake contributes significantly to both the property values and the enjoyment of the community by the owners. Poor management of the lake has significant downsides. This project elevates LBT to be active participant in the management of the eutrophication of the lake and the maintenance of pond weed and algae.

Bottom line, the 2021 assessment rate will be reduced by 9.38% to approximately 0.288 per sq.ft./month. This is a one-time reduction related to the restructuring and inflation/cost of living increases are to be expected in future years.

The Association will start the year with a cash reserve of $395K and have a $288K 10-year bridge loan outstanding. By the end of the year the cash reserve will increase to $465K, the note will reduce to $265k, and $70,000 will have been spent on capital repairs. The Association's reserve equity (i.e., the cash reserve less loan payoff) will be $108K at beginning of the 2021 and $200K by years end. There is a potential foundation repair that could reduce the year end reserve and the reserve equity by $20K - $30K.

Detailed budget spreadsheets will be published on the website by CMA before months end; January 2021.