At the July meeting of the Tellico Village Property Owners Association Board of Directors, President Bruce Johnson presented board guidance for the 2018 budget process. The guidelines were:
• Use the final 2017 budget as a starting point with no increase for inflation.
• Maximum 3 percent salary increases would be tied to performance.
• No change in rates and fees.
• No increase in assessments.
• Aside from Toqua and Kahite projects, no new amenities unless cost neutral.
In the first round of budget reviews, each department is to state the impact of implementing these initial guidelines. During budget reviews, the Finance Advisory Committee and the board will consider these impacts and approve exceptions to this initial budget run.
Throughout a series of budget iterations, the impact on net income, cash and reserves will be monitored, and the CFO will make recommendations to the board regarding the assessment rate and user fees. Using standard inflation factors, departments are to submit 2019-23 five-year plans. Each year’s plan can only exceed the previous year’s budget by standard inflation amounts. Additional amenities can be added beginning in 2021.
These board guidelines are a starting point in the budget process. I do not know where we will ultimately end up regarding rates, costs and user fees. The recently completed long-term maintenance study suggested that maintenance costs, which account for half of all POA dollars spent, are largely influenced by growth in population of the Village and long-term inflation rates. Aging of our facilities and increasing quality expectations account for the rest.
When I first learned of these guidelines, they were much more severe. What is summarized above represents a compromise. I was concerned this austerity approach to the 2018 budget would be interpreted as a sign of some underlying financial distress that warranted a significant change in our approach to budgeting. Nothing could be further from the truth. TVPOA is in an enviable financial position that most similiar associations would love to have.
The financial position of Tellico Village shines through in its performance. We have produced balanced budgets with positive net income for each of the last five years, and have either beat or come very close to budget in each of those years. Most years have been cash self-sufficient, meaning that the cash generated within the year has been sufficient to pay all of our expense of operations and all of our capital costs for the year without borrowing or drawing down our reserves. Reserves and operating cash balances have been maintained at or near target levels. We have about $1 million each in the Amenity Reserve, the Repair and Maintenance Reserve and the Water and Sewer Reserve funds.
Our traditional bank debt levels are at 10-year lows, and the Wellness Center facility note will be paid off in about three years. Our $1 million expandable line of credit has a zero balance, and our main addition to debt is the loan to build the medical office building to house the Summit Medical Group at Tellico Village. That loan will be fully funded and amortized over 10 years by the lease payments received from the Summit Medical Group. Add to these points a series of clean, unqualified audit opinions by the CPA firm of Coulter and Justus, PC, and we can rightly point to our financial strength as one of the main reasons that prospective new property owners should choose Tellico Village as their long-term retirement destination.
Considering the severity of the Great Recession of 2008, Tellico Village managed its spending conservatively and its revenue generation aggressively. As our costs of operations have increased, especially for ongoing maintenance, our assessment rate and user fees have increased as well. There is a trade-off between paying a little more, or maintaining a little less, for the quality facilities and services that we have come to expect, and therein lies the essence of this year’s budget debate.
The board, the Finance Advisory Committee, management and the property owners will have to wrestle with these issues and arrive at a budget that represents the best value for all for the long term. Regardless of the trade-offs considered, the projects accepted, the user fees recommended or the assessment rate approved, I promise that the 2018 budget will be the sixth in a series of balanced budgets. We should expect or accept nothing less.
Monthly financials
At the July meeting of the board, four project funding requests were approved. The purchase of five used greens mower replacements (two riding and three walking) for Toqua Golf Maintenance Department was approved for $44,457. These are replacements for greens mowers that have reached the end of their useful lives. They are late model, used John Deere cutting units in excellent condition, turned in off-lease by high-end private clubs, at a savings of about $60,000 versus new equipment.
Replacement of sand and bunker liners for greenside bunkers on the front nine at Tanasi Golf Course were approved for $34,630 as the first phase of a two-year project. Sand and bunker liners have become a maintenance, playability and safety issue at Tanasi. The replacements will be accomplished using specialized SP55 replacement sand and Capillary Concrete liner material. Installation will be done by Tanasi Golf Maintenance staff with completion over the next five months.
Application of Reclamite pavement preservation material in the Chatuga, Toqua Coves and Chota Woods neighborhoods was approved for $143,458. Reclamite has been proven to extend the life of our asphalt by up to five years and is considerably less costly than paving.
Finally, approval of $26,225 was granted for engineering consulting services to evaluate existing pavement, provide technical plans and specifications, develop front end documents and assist with bidding paving projects at Chota Road, Sequoyah Road, the Yacht Club parking lot and Tanasi Clubhouse parking lot.
At this point in the year we have approved approximately 63 percent of the 2017 capital plan and are about 2 percent, or $16,000, over budget for projects that have been approved. Year-to-date net income reflects a favorable variance to budget of about $872,000, though deferred maintenance projects will offset most of that in the coming months. Our current management expectations are that we will perform somewhat better than budget on net income, capital spending and cash flow after including projects that are currently deferred.
