Lake Carroll News September 2018

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Lake Carroll News A publication of the Lake Carroll Association and its Members The Lake Carroll News is online! www.golakecarroll.com News & Events>Newspaper September 2018

WHAT’S INSIDE

See “The Tackle Box” for what the Fishing Club is up to. Pg 7B

The annual Taste of the Lake took place on August 4th. Pg 22B

BOARD MEETING

SCHEDULE

Sep 28, Oct 19, Nov 16, Annual Mtg Dec 2, Dec 21 (if needed)

A MESSAGE FROM THE SAFETY & SECURITY COMMITTEE

We would like to remind everyone that driving under the influence is illegal. IDNR has visited our lake and will ticket and arrest for DUI.

www.golakecarroll.com

Vol. 46 No. 9

Prez Sez – How It All Works

As some of you may be aware of, we are in budget season. That means many meetings to figure out our financial situation for the upcoming year. When Lake Carroll was developed over 40 years ago, the idea Dave Pacione was a 4-season, resortBoard President type community. One big problem back then was they were afraid to implement any type of dues for fear of not being able to sell lots. Then you compound that by creating many different amenities and did not take into consideration the replacement or upkeep of those amenities. That today is one of our biggest challenges. About 13 years ago the pool was replaced and a large loan had to be secured. Why? Because not enough money in reserves to pay for it. A few years ago we voted on the lodge, which would have required another large loan. It did not pass because the members didn’t want to take on that debt. Last year the Lake Improvement Plan (LIP) was approved by the Membership and as you already know a Special Assessment covers that project. Now I know you see the pattern here. There is another article I encourage you to read in the paper about fixed asset reserves. Now let me explain that Lake Carroll runs like its own municipality. We maintain everything within our borders and the funds come solely from our association dues. We as a whole pay a lot of taxes but guess what, we do not get help from those funds except for fire protection and the sheriff when needed. The majority of time our Security Staff, which I mentioned last month, is our first line of defense and I feel we need more of them. There are two sides of the budget that are utilized. The Operating Budget and the Fixed Asset Budget. Operating goes to pay for all the labor to run the community. All of our employees, insurance, supplies, and so on. Fixed Assets are the actual equipment and buildings that we have to maintain. Now this is a brief description, but let

me say that every year costs go up. Whether it’s insurance, wages, or costs of goods. That means more money in association dues needed to pay for it. On the fixed asset side, there is a list of items that need to be replaced each year. Whenever a piece of equipment is purchased or a structure is built, it is given a life expectancy. When that time comes up that we have to replace, the money comes from the Fixed Asset Budget that you, the membership, approves at the annual meeting. Now every year we allocate around 1.1 million dollars for this purpose. Our roads, right off the bat, get around $350,000-$400,000. Now I will leave it up to you to decide if you think our roads are in good shape. By the way, this doesn’t include the parking lots. Now that leaves about $700,000 to replace everything else throughout the year. There have been many years where the requests have been more than the 1.1 million, so our Steering Committee goes through and prioritizes the items according to how much money we have and the importance to them. What doesn’t get replaced gets kicked to the next year and guess what, increases the budget needed for that year. This is not good practice, but unfortunately is what we have to do because we cannot get the dues to a level necessary to take care of everything. Over the course of 40 plus years, there were 14 years where there was no dues increase. If we had even a small increase, our situation could be different. Now there is also the issue of members not paying dues, which I will address later. For 2019, the Fixed Asset Replacement Budget needs 1.8 million dollars. Now you remember me saying we are a 40 plus year community. Things need to be replaced. I told you our budget usually is around 1.1 million so an extra $700,000, where does that money come from? The Steering Committee met and reduced that number to around 1.425 million and the Board can get it down even further, but what is that doing? Kicking the can. At some point we need to fix what we have. Now I keep hearing the comment, “I will not vote for a large dues increase, not after the LIP payment.” I’m sorry but we have come to a point where I feel that is not an option. If we do not have the funds to support our

current amenities, then the Board will have to take a hard look at which one(s) get the least amount of usage and consider closing them. The Board has a fiduciary responsibility to enhance and maintain all that Lake Carroll has to offer and we cannot do that if there is no money. I want you to think about your own personal budget at home. You are planning a family vacation and all of a sudden your furnace and A/C go out. I would guess that the vacation does not happen because the furnace is a necessity and it really wouldn’t make sense to take a loan out to do both. I will be honest with you; it would take a $400 dues increase to cover what needs to be fixed. If you break that down, that puts us at $2000 a year, $167.00 a month. I don’t know where you can go and get the amenities we have to offer for that. We can get that number down and try for a $300 increase, but all that happens is our amenities suffer. Things still get kicked down the street. Now I by no means am trying to use this as a scare tactic, I am telling what maybe others did not want to tell you before and it is Fact. I have no hidden agenda other than I want to see Lake Carroll flourish. When I mentioned members not paying dues, that has been a problem for a while and I will tell you that we are taking it seriously. It is not fair that a member has to subsidize another member because they feel they don’t have to pay. Whether you own a home or a dirt lot, you enter into this Association knowing what is expected. Some use more than others and I know it seems like a lot to those that don’t come here often but again, you understand that when you buy here. Going forward my plan is to replace what needs to be replaced and then start saving money for our future projects so that we will never have to borrow or have another special assessment again. That is what makes a strong community and will eventually raise our property value here. We will still have more discussions on the budget and come up with a final decision to present to you, the membership. At that time I will encourage you to vote yes so that we can resolve our issues. I do not want to keep kicking the can; it’s not a game we should play. Thank you for your time.

Reserve Funding: What You Need to Know By Steering Committee & Finance Committee

The library has moved...check out our new location at the Lodge. Please use the west entrance by the Fitness Center.

BUDGET HEARINGS FOR 2019

Thursday, Oct 4, 7pm Clubhouse LL Saturday, Oct 6, 9am Conference Cntr

WEST MARINA CONCESSION 2018 SEASON WEEKEND HOURS AFTER LABOR DAY THROUGH SEPTEMBER 30TH. SATURDAYS 7AM-7PM SUNDAYS 7AM-5PM CLOSED MONDAY – FRIDAY We’ve had a great summer! Thank you for your patronage. See you next year!

According to Investopedia, “A reserve fund is a savings account or other highly liquid asset set aside by an individual or business to meet any future costs or financial obligations, especially those arising unexpectedly.” In more plain terms, it is a fund set-up for (a) maintaining and replacing capital items and/or (b) making capital improvements. Why is a Reserve Fund important? • To ensure the financial viability of an association. • To ensure the proper maintenance of association assets. What are the symptoms of an underfunded Reserve? • Special assessments. • Deferring needed maintenance and replacement of association assets. • Banks refusing loans to homebuyers. (Yes, banks are interested in the financial health of the association.) • Decreased property values. In addition to being stressful for the association’s members, it also raises red flags to potential buyers. For association members selling their property, these red flags typically lead to fewer buyers and decreased property values. To put Reserve Funding in the context of your family’s budget: How do you plan to replace your roof? If you own a home, your roof typically has an expected life of 20 years. Replacing it can be funded in one of two ways: 1. Take the expected replacement cost, divide it by the expected life, and place that amount into untouched savings each year until it needs to be replaced. If you expect a roof replacement to cost $10,000, then you would save (reserve) $500 a year. 2. The big bang approach. When the roof needs to be replaced, figure out how you are going to pay for it. Perhaps you have enough in savings? Or perhaps you will need to borrow money. Borrowing money and special assessments share the same characteristics – a financial burden. How do you determine a Reserve Funding plan? 1. Identify all common association assets that are above a certain dollar threshold for replacement. For Lake Carroll, that threshold is $5,000.

2. For those items, identify the: a. Year placed in service b. Expected useful life c. Estimate replacement cost (factoring in inflation) 3. Place into a spreadsheet and run the calculations. If you look forward 25-40 years, the results will typically have some years where there is a great deal of replacement needs (in terms of dollars) and some years that are less demanding. Won’t this volatility in replacement needs cause a fluctuation in annual dues? Yes. Unless you smooth it out with an adequately-funded Reserve Fund. How do you adequately fund a Reserve Fund? By building up a cash reserve so that in years that are heavy in replacement needs, the association can pull from this fund without needing a special assessment. In years that are less demanding, you replenish the Reserve Fund. This fund should be healthy enough to deal with unexpected emergencies. What’s a healthy funding level for a Reserve Fund? There are a few schools of thought. Various articles recommend a range from 40% to 100% of the value of your replacement items/assets. If an association has experienced a special assessment, then that (inflation-adjusted) amount would be the bare minimum. If not, then 40% would be a good starting point. But what about Lake Carroll? Next month we will look the Reserves picture at Lake Carroll. Further reading: • Reserve Fund https://www.investopedia.com/terms/r/reservefund.asp • The Perils of Underfunding Your HOA Reserves https://www.allpropertymanagement.com/blog/2017/04/21/underfundingyour-hoa-reserves/ • How Much Should the HOA Have in its Reserve Fund? https://kuester.com/much-hoa-reserve-fund/


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