Issue 4

Pool Upgrades

The Board of Directors elected to upgrade the Prosa and Clubhouse pools. The upgrades are in excess of $200,000 over that budgeted for in the 2019 Reserve Data Analysis of anticipated budgeted expenditures. The amount of excess triggers a requirement to hold a member vote, see Bylaw VII(2)(2). Such a vote was not held. The Board President said at the 10 Sep 2020 Board meeting that Bylaw VII(2)(2) did not apply to maintenance efforts and that he had a legal opinion (ed. from the Association attorney) to that effect.

There are then two main issues: what is the actual overrun, and does Bylaw VII(2)(2) apply. Let’s try to address each issue.

1. Overrun: This is best seen with a table:

Prosa and Clubhouse Pool 2020 Costs

		Costs
2020 RDA Description	Reserves	Min	Max
Main Pool – Deck	$340,000	$473,820	$521,202
Main Pool – Caulking	$7,035	$0.00	$0.00
Prosa Pool – Deck	$70,000	$139,398	$139,398
Prosa Pool – Caulking	$3,198	$0.00	$0.00
Totals	$420,233	$613,228	$660,600

The inclusion of the caulking costs is to allow redirection of the monies accumulated to be spent on the upgrade. This increases the Reserves allocated to the pool upgrade but does not impact either the minimum or the maximum cost. Future member dues are expected to recoup these amounts to allow recaulking of the new pool decking as required.

2. Cost Overrun

There is a minimum estimated $193,000 (21%) budget overrun over the amount allocated in the Reserve Budget. The actual cost of the Prosa Pool was 10% over the contract costs when other items were included. It is reasonable to assume that there will be a similar cost overrun for the Main Pool, bringing the final estimated cost of the Clubhouse Pool upgrade to $521,202 for an estimated $240,000 (28%) budget overrun over the Reserve Budget.

If we reduce the budget to cover the cost of the pool upgrades, then the funds available are not large enough to cover known costs. That leaves the Association to deplete the reserves and/or assign member assessments and/or reduce costs by removing or reducing care. The reduction of costs by truncating services has been done in the past when summer lifeguard services were reduced to summer pool monitor services and then removed altogether. As of this writing, the Board has elected to deplete the reserves. If there is a sudden need for costly repairs then there may not be sufficient funds in the reserves which may require a member assessment.

3. Association Issue

The overrun is not the issue nor is the means to overcome the budget deficit. What is important is that the overrun exceeds the expected 2020 budget by more than 5%. The expected 2020 budget is $888,000, and by Bylaw VII(2)(2) this can increase by $44,400 to $932,000 before it triggers a vote. This vote was not taken.

4. Does Bylaw VII(2)(2) apply.

The Board president’s statement is that Bylaw VII(2)(2) applies to new items and not to upgrades. Let’s treat this issue by analogy. If a new car is bought for more than $44,400 then a member vote is required. On the other hand if an existing vehicle is upgraded and the cost is $200,000 then no vote is required. Extending this logic to our own circumstances, if the Board elects to upgrade the Clubhouse by building a new one, with a potential total cost of $600,000 (tear down and build up), then no vote is required. It is an upgrade. To the membership this means that the Board has an unlimited ability to spend our money if they can justify each expenditure by calling it an upgrade. That’s powerful medicine, and leaves the membership helpless to defend itself against willful mismanagement.

There is a consequence to the current actions. Depleting our reserves means that some expected expenses will have to be deferred, and the depleted amount must be made up by the members. The latter will require that our dues will increase until we accumulate an adequate reserve. The former means that deferring needed maintenance will degrade the value of our common areas, and hence, our properties.

Since the upgraded pool costs are higher than the budgeted cost, the reserve budgeted amount in our Reserve Data Analysis must increase by a corresponding amount. And this means that the amortized expense per member must increase to account for the new amounts, and this leads to raising the lower level of our association dues, which will always require that our association dues be high. The Board has dug a pit and now we must all lie in it.

By CC&R Article V(3)(b) the maximum yearly increase in our association dues without a vote is 5%. Assuming that the Board elects to replenish our reserves by increasing the annual dues by 5%/year for 5 years, then in 2025 the expected annual dues will be $150/month, $1,800/year. This cost will be a requirement placed on us without our consent and in violation of our governing documents.

Our Bylaws do not state that this upgrade can not be done. Our Bylaws state that in order to do this upgrade the Association members have to vote to authorize the expense. Such a vote was not taken. That is the issue.

Legend:
Adocument or email From Me
Memail From Managing Agent or Board member
Timeblank time indicates a mailed letter