Town Crier Articles

2022 Budget Challenges

Posted on November 1, 2021 6:04 AM by Everett Lunsford, Treasurer

Categories: NTRA Business

2021 has been a year where the NTRA Board and the Finance Committee experienced great learning about our New Town community. It is also a year none of us want to experience again.

Early in the year we realized significant unbudgeted expenses would occur. So in April Town Management was directed to improve our liquidity by shifting home closing replacement reserve contributions to the operations reserve fund (the situation eased by September, so this practice was discontinued in October 2021). As a result, the Association has not been able to substantially contribute to our replacement reserves this year.

The largest unbudgeted operating expense is legal fees. The owner challenges to the NTRA budgeting process that started in 2020 continued into 2021. Reviewing the assessment allocation process defined in the existing Governing Documents (which has not been followed in any of the past budgets and allocations) led the Board to decide to revise the documents. Even though 2/3 homeowner approval is required for the document changes, the Board hoped for community approval in time for the 2022 budget. That proved extremely optimistic.

Another large expense was the audit of the 2020 NTRA financials. This first-time audit was performed by Adams, Jenkins and Cheatham, a Richmond based CPA firm specializing in community association audits and financial consulting. An audit of transition year financials is considered best practice by the Community Association Institute, and the Board, with Finance Committee recommendation, decided this was an important task even though unbudgeted. NTRA and Town Management received a clean audit report.

COVID continued to affect New Town, with additional staffing required for pool operations during the summer. Inspections of the pool led to unplanned repairs to equipment and to the pool pergola. The inspections also determined the pool requires resurfacing, which is being done now. The resurfacing will be paid from replacement reserve funds, but the work is occurring 2 years earlier than the 2019 reserve study anticipated. The replacement reserve fund also covered the pool pergola repair, but the work was required 15 years before expected. In light of the early pool failures, the Board decided to add a winterization service to the pool operating expense to hopefully extend its life.

Other significant unplanned expenses were related to trees (dead tree and limb removal in Roper Park and street tree replacements), playground (refresh of the playground mulch and installation of an underground drain to divert water away from the walkway to Roper Park) and hiring additional expertise (an HOA consultant on the budget process and a company to conduct a new replacement reserve study.)

The biggest financial challenge will be replacing our management company. A new managing agent will bring significant operational changes, along with a higher management fee.

2022 Budget

The Finance Committee started working with the HOA consultant on developing the 2022 NTRA Budget in July. With 2021’s expense overages, the Finance Committee, and the Board, have realized our basic problem is ensuring a complete operating expense budget. The 2022 budget development is focused on identifying and incorporating deferred maintenance needs and better meeting resident expectations for a well maintained and effectively managed community.

New Town’s financial history is not the best guide for predicting operating expenses. There is good data in some categories, but poor or no data for maintenance related categories. The Developer Board constrained annual increases in the budget, and maintenance needs were often not addressed. As the community aged and maintenance started becoming necessary, significant maintenance expenses were paid out of the replacement reserve fund beginning in 2018 (Reserves should be used for replacement items only). So in the 2022 Budget, the Board is trying to create a Maintenance Plan as part of operating expenses.

While no final budget decisions have been made yet, here are some expected highlights of what 2022 will bring. The Board has committed to follow the Association’s existing Governing Documents, as much as possible, in presenting the budget and calculating assessments. The 2022 assessments will likely consist of:

A General Assessment, which will be the same for all New Town Residential homes. All the general expenses for operating and maintaining the Association, including landscape expenses for common areas, will be in this component.
A Neighborhood Assessment (largely for landscape expenses) that is allocated based on services to lots within each neighborhood. The irrigation startup/shutdown service provided to detached homes would be included as a Limited Common expense. Whereas Village Walk has always received a separate neighborhood breakout, each New Town neighborhood will have its own fees shown in 2022.

Impacts

The Finance Committee and the Board think we have identified the additional expenses required for a realistic 2022 Operating Budget. Assessments to cover these expenses will require a noticeably larger increase than past budgets. The Board must then determine how much additional money to contribute to the replacement reserve funds.

The largest drivers of the operating expense increase are the management company fees and the legal fees.

The new management contract with Chesapeake Bay Management includes a full-time manager and other services. Our new manager is expected to bring focused professional staff to monitor the community and its contractors, and help resolve many complaints across New Town. Chesapeake has an integrated system better able to collect and track issues and homeowner accounts. While all of us look forward to this opportunity, understand it will take time to implement improvements and see the effects.

Anticipated legal costs are largely related to the continuing document changes. For 2022, the NTRA needs to relook at its Rules and Regulations, and the Shared Amenities Agreement with the New Town Commercial Association. Continued questions raised by the community about the proposed Governing Document revisions are a large and unpredictable component of the legal fee budget. Can we come together for a vote? As questions and challenges continue, so do the legal fees.

Added maintenance categories also bring the potential for cost increases, especially given the higher prices since the pandemic for commodities and services.

Village Walk: The inspection for the new replacement reserve study revealed issues with the older Village Walk townhome exteriors. The 2021 budget assumed that Village Walk exterior painting would start in 2023. That painting needs to start in 2022, and will include some repairs not in the painting budget. There has also been an increase in roof and trim repairs this year which could require Association claims against the builder. As a result, the Village Walk assessment for these exterior maintenance services will also have a noticeable increase.

Replacement Reserve: The replacement reserve fund will have decreased at year end. Until the new replacement reserve study is available sometime in November, it will be hard to assess the status of the reserve fund. With the effort required for the transition to a new management company, expect the replacement reserve situation to be more fully addressed by a new Board when we develop another budget for 2023.

Capital Contributions and Administrative Fees: These fees, paid at closing for new home sales and resales, were increased for the 2021 budget. The fees will continue unchanged for the 2022 budget.

Summary

As you can see, developing the 2022 budget and related assessment process is, and will continue to be, a challenging endeavor. The transition to a homeowner-controlled board, the issues related to Governing Documents raised at the 2020 annual meeting, and the search for a new managing agent fueled a most difficult year for your Board and the Finance Committee. Join us for the 2022 budget briefing on November 19th at 6PM via Zoom. (More information will be posted on the NTRA website.)

Comments

Comment By: Susan Byrne

Posted on November 1, 2021 11:41 AM

Your suggestion that homeowners should stop raising questions about the new documents in order to limit legal fees is inappropriate. That we should "just vote" for a document dictated by three unelected board members without an opportunity to have our questions answered in public forum is ludicrous. Add the budget meeting being online with no chance for discussion and we have a problem.

REPLY from NTRA: The budget meeting will be a public forum with time reserved for Member questions and comments. A virtual meeting provides the most equitable medium for all New Town owners, including those that are not local, to participate. Comments and questions in a virtual modality allow for owners to participate without speaking publicly, which is a deterrent to some. Please remember our Board of Directors and all committee members are volunteers who also want the best for our community. We have several current vacancies and welcome applications from everyone!

Last Edited: 11/03/2021 at 01:42 PM

Comment By: Tom Dawkins

Posted on November 2, 2021 3:20 PM

Thanks, Everett, for all your hard work! One way to move us closer to a vote would be to delete the ALL or NONE opt-out policy, not in the prior document. The legal expense of adding it was counter-productive as it could only benefit the landscape contractor. Instead, add the ALL or ANY proposal I have submitted to the Board, which would benefit homeowners, to the Landscape Rules and Regs.

Comment By: Susan Byrne

Posted on November 4, 2021 3:40 PM

NTRA: I understand that board members are volunteers, however, that is irrelevant to my concern regarding the suggestion homeowners should stop raising questions about the documents and just vote. I also believe that for the good of the association, action on the budget and dues increases should be tabled until we have a full electd board. Keep dues the same 1st quarter and adjust in the 2nd.

Last Edited: 11/04/2021 at 06:18 PM