By Lloyd Sherman, October 26, 2021
A Tale of Two Increases
CPI vs Assessment Increase
While we wait for the results of a NO or YES vote and then the official release of Version 1 or Version 2 of the 2022 budget, I thought it would be interesting to see how each of the two approaches would impact 2022 in financial terms.
Version 1 of the 2022 Budget currently projects we will end 2021 around $42,918,696 in gross revenues. (This number was projected utilizing 7/31/2021 data). We must adjust the gross number by $3,089,000 for the one-off PPP that has been reflected in 2021 numbers as revenue. Utilizing the published results effective 9/30/2021 and also removing the PPP number, gross revenues are projected at $40,359,484.
Utilizing the major categories from the approved 2022 Fee Schedule results in approximately the following scenario’s:
A-Tale-of-Two-Increases-Comparison-HSVAs can be seen, increases enacted via the fee schedule combined with the CPI increase would result in approximately $2,847,787 in 2022. This number added to the projected $40,358,484 results in projected gross revenues of $43,207,271. My projected number somewhat syncs with the current 2022 budget of $42,918,696.
If the assessment increase is approved, the above chart reflects that an additional $1,522,412 will be added to the coffers. This increase will not make a dent in infrastructure we have all been aware of for years.
With only using fee and assessment increases and no other projected revenue increases, we have to turn to the expense side of the equation to determine our cash flow picture.
Currently, the budget is projecting the operational expense line will end the year at approximately $28,371,897. My personal projection indicates this number will be closer to $29,112,520. That is a substantial variance of nearly $750,000.
The 2022 budget projects expenses are scheduled to rise $4,954,880 over our projected 2021 ending number, so what, if any precautions need to be taken as we enter 2022.
- First and foremost is the projected compensation projections being made for 2022 will increase by $2,957,957. If the adjustments are made at the beginning of the year, there is no going back. That $3 mil number will be with us all year. Caution is advised on the rollout of this projected line-item increase.
- With a nearly $5 million projected increase in expenses, what happens if we see another shutdown much like we had last year? Again, caution is warranted and advised. Once the money is spent; it’s gone.
Keep in mind none of the above includes factoring for Bad Debt Expense, debt service, capital expenditures, or depreciation.
The good news is that we will end the year with more money in the bank than we have had for a while, thanks in part to the PPP loan that was forgiven. However, with the state of the nation and prices rising on just about everything, we may need these rainy-day funds.
Speaking of everything rising, attached is a reduced version of the Fee Schedule reflecting the categories that are scheduled to increase for 2022. I have highlighted in yellow those that had no fee in 2021 but have one in 2022. Another highlighted area is Employee rates for amenities. I have been asked on many occasions why employees get the use of amenities at cheaper rates than resident property owners, but I have never gotten an answer to that question.
Of the new fees, the most significant is likely the buy-in fees. The Realtor community has concerns this may have a negative impact on our excellent experience level over the past few years.
Also of note is the increased fees that builders will be paying for new builds. This amount is going up a minimum of about $500 per permit.
As an aside and should the assessment increase fail, I suggest we collectively as property owners ask the board to reconsider the approach and consider a Special Assessment approach which should pass without any difficulty. No matter how hard you try to protect general funds, and with the propensity of boards to vote in unison, Special Assessments have to be used for specific projects that are planned out, costed, and performed within a scheduled timeframe.
2021/2022 Fee Schedule Comparison
2022-Fee-Schedule-insert-in-a-Tale-of-Two-Increases* * *
Thank you for reading. If you like, please comment below. We love to hear your opinion, but civil discourse is important. Comments must be made using your first and last real name, or they will not be accepted. Be sure to bookmark this website.
Tom Blakeman
10/26/2021 — 6:12 pm
It is not clear to me if fee increases are the same or different in versions 1 or 2 of these budgets. It is also not apparent to me where these various budget versions are published in their entirety by POA. And, I thought the BOD declined to approve any budget at their last meeting. So, I’m confused, not by Lloyd but by our leadership.
That said, if anyone understands this mess it is Lloyd Sherman. I’d vote a big NO on any assessment increase. I’d vote a big yes on electing him as the new GM. But then, nobody is giving me the vote on that. Perhaps that’s the biggest flaw in our broken governance model.
Lloyd Sherman
10/26/2021 — 7:24 pm
Tom – As I understand from Discussion Sessions, the only difference between V.1 and V.2 is V.1 is fully loaded and it won’t change in V.2. If the assessment increase passes then they will have additional funds to spend on infrastructure. The Controller made a statement during budget presentations that the only difference from V.1 to V.2 would be a very slight increase in compensation. Something to the tune of an additional $26K, which never made any sense to me. Only V.1 has been released as part of the last board meeting package.
Gary Godfrey
10/29/2021 — 8:03 am
Tom i know that you are big into what happens with Golf and its fees. I left the Village six years ago because of the fees for golf rising the way they had over the last five years that we were there. To me members got nothing in golf for being members! Other reason was the The Board, the way the operated. Looking at the budget for golf and how much the cost has gone up its just unreal. Annuals for carts and golf, Private cart rates are nuts. I’m surprised that anyone there still has a private cart.
Diana Podawiltz
10/26/2021 — 9:00 pm
It’s my understanding that the employee discounts are a result of:
1) obtaining employees &
2) reward for low hourly wages for part time positions
IMO the difference has become too large. Also, your chart doesn’t reflect that employees receive about a 50% discount for all the non-golf recreation activities.
Lloyd Sherman
10/27/2021 — 7:18 am
Lady Di,
First, my chart was transcribed directly from the POA version and I altered nothing. I only highlighted what was already there. Yes, my understanding is that employees get 50% off of member rates. My curiosity was from questions from others to me as to why? I understand the rationale is the same as you have indicated, but the question still remains as to why employees rates are less than property owners.
I am all for a good benefit plan, but this does seem like a bridge too far. Giving employees the same rates enjoyed by property owners seems in line, but 50% off of member rates isn’t setting well with many who find this to be the case.
Please don’t shoot the messenger.
Diana Podawiltz
10/27/2021 — 9:29 am
Lloyd,
You misinterpreted my reply. I was just trying to add my thoughts. I was aware that the POA doesn’t seem to address this issue. It’s one thing to give such a generous benefit to full time employees; most don’t have time to utilize on a frequent basis.
Hourly wages have been going up. How many hours does one have to work a week for this generous savings on amenities? I think it would be interesting to know what this and the super senior benefit cost each year in terms of lost revenue. Perhaps there needs to be a cap on X # rounds of golf, total recreation usage? Just a thought.
Dan Hitch
10/26/2021 — 9:18 pm
Tom I have a post that Lloyd wrote that he changed his mind and didn’t want GM, now I am confused!!!
Diana Podawiltz
10/27/2021 — 9:30 am
I don’t think Lloyd would turn the job but, knows it would never be offered.
Susan Posner
10/27/2021 — 10:22 am
NO VOTE due to the made up penalty of “Buy In” at closing and it’s incumbrance on a clear title of property. THAT fee has nothing to do with assessment increase and should not be a tack on to this vote. Where is the lawyer info on the impact of this “Buy In” fee. Why is it imposed, who is responsible to pay it? IT IS NOT a assessment nor a common closing fee like transfer fee or prorated tax and assessment typical at closings. Buying property in of itself gives membership, so what kind of fee is this and buying into what? This fee is a legal fee impacting the selling and buying of property and title and not an an annual assessment increase. VERY anti buying creates a dispute in closing costs and long as it’s there it is an incumbrance on property title, so it’s NO on the vote due to that alone!
Gene Garner
10/28/2021 — 9:29 am
Not being a lawyer I can only read and interpret the following Arkansas Code Annotated statute using the common meaning of the words;
A.C.A. § 18-12-107 Transfer fee covenants prohibited — Definitions.
(a) As used in this section:
(1) “Association” means a nonprofit, mandatory-membership organization:
(A) Comprised of owners of homes, condominiums, units in a horizontal property regime, cooperatives, manufactured homes, or any other interest in real property; and
(B) Created pursuant to declaration, covenant, bill of assurance, master deed, or other applicable law;
(4)
(A) “Transfer fee” means a fee or charge that obligates a transferee or transferor of real property to pay a fee or charge to a third person:
(i) Upon a transfer of an interest in the real property; or
(ii) For permitting the transfer.
As I read it, transfer fees are not allowed in Arkansas no matter what you call them.–Gene
Lloyd Sherman
10/28/2021 — 10:25 am
Gene,
Interesting! We have been told that the law firm was approached and hopefully has given the POA a written confirmation that both the three-year assessment increase (based on one vote) along with this revelation of “buy-in” fees not being legal, could bring about yet another lawsuit against the POA and none of us need that. Your information needs to be reported to the board before the “buy-in” (their words not mine) is implemented effective January 1.
As I have been told they don’t want to hear from me, someone else is going to need to inform them. Or, hopefully one or more of them is still checking this website in an effort to determine what the property owners are saying.
One would assume (we all know about that word) that they have done their homework on both of these issues.
Marcy G. Mermel, CCIM, CAC
10/28/2021 — 2:18 pm
Lloyd –
Just mentioning again, after much research, I had to agree with the Board and Task Force that in the POA/HOA world there is a negative connotation or stigma attached to “Special Assessments” for some potential new residents.
Using Dedicated Interest-Bearing Escrow Accounts with a Bank Trustee (2 specific signatures plus that of the Trustee) gives us the closest thing to the same legal recourse and protection of a special assessment but without the stigma of the words “Special Assessment”. There is a very particular way it is set up but very easily done and looks “iron clad” from all sides.
I would like to add that the BOD has no “Plan B”. Who goes into something like this without a back up plan. I was apprised of this yesterday from a reliable F & P source.
The word the BOD is resorting to (besides gloom and doom) is DEBT.
There is no way we can allow the POA to take on DEBT for infrastructure and capital spending purposes……NO WAY!!!!!
Also, Gene, thank you for the information, I was debating the transfer fees with a POA employee on a lot purchase just yesterday. I’m using your info! Much appreciated!
Tom Blakeman
10/28/2021 — 6:42 pm
Lloyd, Marcy, Gene: All good points. A few thoughts of mine. First, my guess is that their “Plan B” will just be another vote with a few changes, like maybe no increase ( maybe even a decrease) for lot owners. I wasn’t here back when, but I think this is sort of what happened with Two Tier. As to the legality of the “Buy In Fee” I have to agree with Gene that legality in Arkansas is perhaps questionable, given his excellent legal research However, this mechanism is used in multiple communities in multiple states. The difference perhaps, is that I believe, in those cases, the monies go strictly into a capital account, most likely voted in by the property owners, and not in any way accessible by the BOD for their whims and fancies or operation expenses. The one proposed here has no such safeguards or PO blessings. And IF the BOD had a legal blessing I’m guessing they may have just gotten what they paid for and we’ll never see the official written opinion – probably isn’t one at all. Finally, having spend about 25 years in the residential real estate business, I do not believe special assessments have the stigma the naysayers here all are applying. Sure, if a place had had them repeatedly year after year, maybe. On the other hand each SA is a one time, one purpose, almost always capital charge, which is not reoccurring. By contrast, any regular assessment increase is forever and will be calculated into mortgage applications for anyone needing financing, Conventional Conforming, FHA, and VA in particular. Not everyone buying in here is a cash buyer for a million dollar home or getting a ‘special’ loan based on their extensive wealth. Anyway, I say Vote No!
Gene Garner
10/29/2021 — 8:21 am
Tom is right “However, this mechanism is used in multiple communities in multiple states.” This fee was common practice throughout the U.S. at one time, including Arkansas, but ACA 18-12-107 was changed in 2011 to read the following as stated in the last paragraph;
(b)
(1) A transfer fee covenant recorded with respect to real property in this state after July 27, 2011:
(A) Does not run with the title to the real property; and
(B) Is not binding upon or enforceable at law or in equity against:
(i) The real property; or
(ii) A subsequent owner, purchaser, or mortgagee of an interest in the real property.
(2) This section does not validate a transfer fee covenant recorded in this state before July 27, 2011.
As I read this a “transfer fee” made before July 11, 2011 may be valid, (Section b(2) leaves that question open) but is ineffective if made after July 27, 2011.
I know there are many gated communities that still charge a fee any time property is transferred but those in Arkansas could be challenged with ACA 18-12-107.—Gene
david cohen
10/29/2021 — 9:18 am
Did not see fees for individual amenities in your post. Have they not been made available?
Thank you for your explanations.
Lloyd Sherman
10/30/2021 — 9:05 pm
They are outlined in the PDF that is attached above. This chart only addressed new or increased fees and not the entire fee schedule. You can find the entire fee schedule that was presented and approved on 10/20/21 at this link:
https://www.explorethevillage.com/images/10-20-2021_Board_Packet/9_2022_Fee_Schedule.pdf
Wes Smith
11/11/2021 — 11:49 am
On a side note words mean things … the connation of ‘buy in’ is an inaccurate term to describe what most country clubs use … the proper more commonly used term is “initiation fee”
Buy in is used by Casinos to buy into a card game to allow you to participate in the activity.
Initiation fee is to allow you to become a member of an established organization along with all the privileges and amenities of the organization.
Are we in the gaming industry or the recreation industry ? I have fashioned part of my Market Research professional career around questionnaire design to enhance improve and pinpoint clarity in my clienteles questions.
To my point … FRATF is a poor choice of words as well too many syllables, not memorable, no tag line , inaccurate description … sorry BOD really lacks creativity and impact falls way short of meeting Market Research standards .. Recommend a survey with several close ended answers to see what the marketplaces opinions reflect not what the BOD settles on … same survey would work with buy in vs. initiation fee …
See tomorrow, today !