Financial plan 2022
Starting in March, the monthly assessment rate will increase 4.83%.
A 4.83% increase for 10 months (March - December) equates to an annual rate increase of 4.03% for the year. A 4.03% increase will raise the community rate from $0.29 sq. ft./month to $0.30 sq. ft./month, which is slightly below the average rate for condominiums in this area (see 2021 benchmark study).
The 2022 operating budget of $601,000 roughly breaks down as:
- a third for operating expenses,
- a third for capital expenses, and
- a third for insurance and professional services (see graphic at top of page).
Operating expenses increase 25.3%
(red color on all graphs)
The largest operating expense increase is $38K for landscape improvements; continuing the work of 2021. Even with this increase, the landscaping expenditures will be below what the association paid in 2020 for lawn mowing services. There is also a $14K increase in utilities, largely irrigation.
Insurance and professional fees increased 9.8%
(silver color on all graphs)
Insurance premiums in North Texas (for all carriers) escalated significantly again for 2022 after the Snowmageddon of 2021. The association has been hit with another large increase increase in premiums ($21K in 2022) on top of the large increases of 2019, 2020, and 2021 which, collectively, represent a 266% increase ($60K to $169K). An extensive search for alternatives did not uncover any lower priced alternatives. The mass disasters in North Texas have driven many carriers out of the market.
Reserves and Construction Loan increase 8.3%
(black color on all graphs)
This increase is related to higher than expected loan costs of ($12K for 2021 and going forward) related to an management company accounting error.
To mitigate the impact on the monthly assessment rate, the board approved a budget during the January 12th board meeting based on using $51K in undistributed insurance proceeds to pay the non-reoccurring charges in the 2022 budget (e.g., landscape project, enginering reserve study, lake aerators) and spreading the assesment increase over 2 years (2022 and 2023) rather than assess it all in 2022.
What are some of the new things planned for 2022?
- Trees. Old stumps will be removed and several new trees will be planted to replace trees lost over the last 15 years. The placement of the new trees will be based on specific visual objectives such as blocking the view of the commercial properties to the west and balancing the canopy coverage along the main drive.
- Park Cleanup The central park, which has been described by some as a uninspired hodgepodge, will be restored to a cleaner and more cohesive look.
- Gate electronics The entry and exit gate computers and the entry control pad will be replaced. The existing system is so old that updating the databases requires a telephone line, a modem, and access to a dial-up service like AOL. A newer unit will be more reliable and easier for guests to announce and for owners to open the gate remotely. This will eliminate the need to give passwords to pizza delivery, Uber drivers, etc.
- Lighting updates and repairs Problematic building and tree lighting repairs will be made.
Reserves In 2021, reserves were used for planned pool repairs, bathroom remodeling (pool),
brick wall and paver repairs, tennis court repairs and repairs to
sub-surface drains.
The capital reserve cash on hand grew a meager 3% in 2021 against a plan of 17.7%; roughly $57K below plan. This was disappointing. Uninsured foundation repairs, uninsured freeze damages on common property, and debt service expenses hit the emergency reserve hard. Fortunately, there were reserves in place. Had this not been the case the association would have been facing a $1.3K - $1.4K special assessment.
The Emergency Reserve Self Insurance fund has been replenished to its $150K target balance. The Association's 10-year $900,000 construction loan with Mutual of Omaha is now a 7-year $237K bridge loan that we are carrying as a safeguard as the association transitions from debt financed capital repairs to a cash reserve. Hopefully the loan can be retired in 2026.
As reported 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. This approach also has the practical advantage of making it easier to perform maintenance on schedule as the money is on hand, rather than needing to be raised. It also avoids interest costs, 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).
See other articles on Association financials here.
Detailed budget spreadsheets will be published on the website by CMA before months end; January 2022.
Below is the capital reserve plan as published in 2021.
Trying to understand the financial chart. Is 27% of our budget being used to pay debt?
ReplyDelete7% of the budget is paying down debt. 23% of the budget is being placed in reserve (savings) for future repairs.
DeleteThe reserve is to avoid 1) future special assessments and 2) future borrowing.
In 2020, LoBT began transitioning from debt and special assessment financing of capital repairs to reserve financing of these repairs.
The current loan is bridge financing to safeguard against unexpected bumps during the transition. So far, there have been none. It is expected that the loan will be retired in 2024.
Here are prior financial reports: https://lakesbenttree.blogspot.com/search/label/Association%20Finances The 2021 economic plan explains the transition from debt to reserve financing of capital repairs in greater detail.