Among this year’s Property Owners Association Board of Directors goals is to “develop and implement a process for tracking and analyzing historical, current and future maintenance costs.”
Claire Frazer is chairing this effort with support from board members Alan Hart and Sue Tinder. Significant support has been provided by Kendra Forsythe and I, along with input and context from Jeff Gagley and Jim West. This is a strategically important study since about half of all of the dollars spent by the POA are for maintenance-type projects or operations.
The team met June 13 in a joint workshop with the board and Finance Advisory Committee to review the broad definition of maintenance, the database assembled, analyses of maintenance costs and trends and implications for the 2018 budget and five-year plan. An abbreviated version of this presentation was reviewed by the Finance Advisory Committee.
Maintenance is broadly defined to include purchased or contracted maintenance services, capital for building and equipment replacements and internal operating costs for departments that have primarily a maintenance focus, such as golf maintenance, public works, building maintenance and water and sewer. It does not include most administration costs, fitness, food services, pro shops, tank installation or safety. And it does not include cost of goods sold, such as purchased water and sewer services, food and beverage, new amenities, expansions or infrastructure.
The analysis indicated half of every dollar spent by TVPOA can be categorized as maintenance. And of that half, 91 percent is accounted for within golf and public works. There is a major step increase in maintenance of land and streets from our most recent five years of history to our next five years in the planning periods. Golf maintenance costs increased in 2011 following the devastating turf and greens loss on many of our courses, and these costs continue through the planning period. Significant spikes in golf costs are attributable to the Toqua course rebuild of 2007 and the Toqua and Kahite clubhouse projects scheduled for 2019.
Cost per home
One of the most interesting analyses of this study was the maintenance cost per home.
If you take the total maintenance cash cost and divide by the growing number of homes in Tellico Village, then divide again by the Consumer Price Index where 2005 equals an index of 100, you can calculate constant dollar maintenance cash cost per home. In 2005 dollars, that averaged about $1,631 per home, or about $2,042 in today’s dollars. Even more interesting is that this constant dollar maintenance cash cost per home is remarkably stable — almost flat — and trending upward at about 0.5 percent per year, which we attribute to our aging facilities and perhaps higher quality expectations. There is a strong case to be made that growth in homes and residents, inflation, aging and quality expectations are causal factors — an increase in one causes an increase in our maintenance costs.
Growth in the number of homes and residents places more demand and wear and tear on our roads, facilities, water and sewer systems. While residential growth is generally desirable, due to lower delinquency rates, more revenue from user fees, reduced supply of vacant lots and generally high property values, it comes at a cost in the form of more wear and tear on facilities and infrastructure and higher maintenance costs.
Inflation is a mathematical certainty. If the purchasing power of the dollar declines, it takes more dollars to purchase the same goods and services. It takes roughly $125 today to buy what $100 would have bought in 2005.
What was good enough in 1987 is not good enough today, as technology, higher quality construction standards, increased quality from competing communities and higher expectations of today’s new retirees have raised the bar for all.
Aging impact
Finally, it is more difficult to quantify the impact of aging on our need for maintenance, yet it is intuitively obvious.
As Tellico Village celebrates 30 years of growth and progress this year, many of our facilities have already required renovation or replacement, and all are requiring more cost to maintain. The good news is that this is manageable! In fact, we have been managing toward this reality for many years through our reserves funding and formulas, low debt levels and increases in the assessment rate and user fees. For most of our history, the assessment rate has averaged 4 percent increase per year, though 5 percent in the last four years. These increases have helped us keep up with the curve so that we do not find ourselves in a downward maintenance spiral from which we can never recover. It is too early to tell where the rate will need to be set for 2018 and beyond, but that will be determined during the fall budget process.
For the last several years we have recognized that the vast majority of our capital spending has been directed at “repairs, replacements and renovations.” But this is just the tip of the iceberg. Most of our maintenance dollars are expensed, not capitalized, under the accounting rules applied to Common Interest Realty Associations. Road rejuvenation and paving (major items in our current and future budgets) are expensed even though the benefits of this work may last several years. In addition, many of our operating departments, such as golf maintenance, public works, building maintenance and water and sewer, are almost totally focused on maintaining our facilities in good operating condition.
What started as a limited analysis of accounting line items containing the word “maintenance” quickly grew into a much broader, more all-encompassing look at maintenance, repairs, replacements and renovations in all of its forms.
While we will celebrate 30 years later this year, we are coming to realize that much needs to be done to maintain, renovate or replace aging facilities that have outlived their physical or economic lives. The 2018 budget and 2019-23 five-year plan will address these issues in a breadth and depth not seen before. The board goal previously mentioned is the first step in this process. The joint workshop with the Finance Advisory Committee and the full board June 13 marked the unofficial kickoff to the budget process. The teams already formed are working to define the long-term plan for optimizing road work and determining cost expectations. Clubhouse plans for Toqua and Kahite are being studied to determine needs, scope, design, capital estimates and timing. Long-term plans for maintenance of our water and sewer systems are being reviewed. Long-term maintenance, operations and quality of our golf courses, along with revenue projections, are being studied.
All of these factors will serve as inputs to the 2018 budget process.
