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TREASURER’S REPORT – END OF TERM
RECAP OF ANNUAL MEETING
Owners are sometimes reluctant to contribute to reserve funds because they feel that these “surplus” funds are an added cost of living.
These same owners often forget that the overall appearance of their community translates directly into its property value, which has been documented as the leading factor in members' satisfaction with their community.
Additionally, one must remember that lenders look for signs of financial health when reviewing mortgage applications. Communities with inadequate reserve funds may find themselves at risk for mortgage denials. Equipment and major components must be replaced, whether the expense is planned or not. Today's boards of directors must educate their membership in understanding why property owners should invest in reserves now, even though the money seemingly might only benefit future owners. Reasons to be shared with the members for creating and adequately maintaining a reserve fund should be:
(1) Fulfillment of legal, fiduciary and professional requirements.
(2) Requirements of the secondary mortgage market as dictated by Fannie Mae,
FHA, VA and Freddie Mac
(3) Deterioration/Depreciation of common assets from which current owners have
benefited
(4) It minimizes the need for unforeseen special assessments, especially for
those on fixed incomes,
(5) A replacement fund or reserve enhances resale values, and
(6) Accounting standards require proper attention be paid to the
reserve/replacement fund, given the depreciable nature of certain assets
over time.
Financial position recap:
The 1˝ years 7/1/06 to 12/31/07–ON BUDGET (-$1200 close enough) – STABILIZED
Period 1/1/08 to 5/18/08–ON BUDGET (-$500 extremely close enough) – STABILIZED
Cash-early 2006–around $180,000 – Cash 05/18/08 $248,000 – GROWTH AND STABILITY
I have consulted my peers both at the local Rotary and Chamber of Commerce as to what went wrong with our latest financial presentation. The answer from financial professionals and business executives was that the plan was solid. The answer from bank executives and commercial loan officers was first….you have applied to the local banks two years in a row with no acceptance from the community. The chances of the banks entertaining a third loan offer are slim. Secondly…..they advised me that the loan offers from the banks were predicated on the liquid assets of the community namely cash. Since our fixed assets such as Roads and Buildings are at or nearly fully depreciated the value for collateral is minimal. They concluded that the less cash we have the less likely we would be able to obtain financing. Combined with the past two years of failed financing acceptance we can basically rule out the banks in our future planning.
In conclusion, we have only four options left to finance our communities needs for capital improvements as follows:
SPECIAL ASSESSMENTS: Good for both short term capital expenditures and long term planning.
SPENDING CUTS: Minimal short term impact. This could be part of a long term plan.
PROPERTY SALES: For immediate cash to replace or repair existing assets.
RESERVE SPENDING: For short term repairs. Not enough for complete replacements.
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