Town Crier Articles

2021 Budget Challenges

Posted on November 1, 2020 7:03 AM by Rick Fisher, Treasurer & Board Representative to Finance Committee

Categories: NTRA Business

The Finance Committee (FC) has been meeting since early August to address the 2021 New Town Residential Association (NTRA) Budget. Committees have provided input which has been evaluated and incorporated in budget reviews with the Board of Directors (BOD) during October. Forecasted 2020 year-end actuals have guided the recommendations by expense line item for 2021.

The purpose of this article is to share with Owners the focus areas and the discussion that has occurred as background and preparation for the 2021 Budget Town Hall Meeting (via Zoom this year) scheduled for November 19th at 6:00PM. In light of the exterior maintenance challenges in Village Walk (see discussion below), a special Zoom presentation for Village Walk owners is scheduled for November 18th at 6PM. The BOD wishes to be completely transparent with the community.

Covid-19: While we don’t know when a vaccine will be widely available, we have assumed that Covid-19 will have an impact on Pool Operations in 2021, and that the NTRA will need to institute similar processes to 2020 for much, if not all, of the pool season. This comes with an incremental cost. In 2020, this cost was approximately $10K which funded a full time Pool Attendant and paid for signage and cleaning. In 2020, landscape projects and Activities Committee events, although funded, were not undertaken largely because of incremental, unanticipated Covid-19 expenses and, in the case of activities, the need for social distancing. We are investigating whether the pool contractor can provide Covid-19 services as part of their 2021 contract. Activities will, undoubtedly, continue to be impacted in 2021. However, the NTRA should be able to proceed with landscaping projects. We are assuming Covid-19 related expenses will be around $9K and will be funded from Operating Reserves.

Managing Agent Audit: Industry practice is to conduct a financial audit when a Homeowner’s Association (HOA) is turned over from the Developer to the Owners. The FC believes that an audit is prudent. This would be a one-time cost to the NTRA on the order of $7-9K. We have identified two CPA firms in Virginia Beach that are associated with the Communities Association Institute (CAI). In order to get a firm quote, financial statements and tax returns must be provided. Our numbers are an estimate.

Landscaping: The Landscape Advisory Committee (LAC) has submitted $40K of priority one projects. The projects include: tree removal, planting new trees, tree pruning (the current landscape contract covers pruning up to 12 feet), and plantings around the pool and in the clock tower garden at Village Walk (VW). In addition, as we all know, the turf in New Town is not conducive to warm weather. The LAC has proposed that we develop a Five Year Turf Plan using a phased approach, to evaluate whether it makes sense to install warm weather grass (Bermuda) in New Town’s common areas. A breakout of these costs is as follows:

Tree Removal, Pruning and Root Drenching: $15K (Quote from Arbol Tree Service)

New Trees and Planting: $15K (a new tree and installation is typically in the $1-$2K range)

First Phase of Turf Plan: $5K (Consultant and test section)

Planting of Perennials at Pool and in VW Clock Tower: $5K

The BOD is evaluating these costs in light of their impact on assessments. However, we have fallen behind in this area. Landscaping funds were budgeted for 2020 but no activity took place because of Covid-19 as explained above.

Capital Contributions and Administrative Fees: At closing, when buying a new home, the buyer or seller (if negotiated with the buyer) pays a capital contribution fee and an administrative fee. The capital contribution goes directly into the NTRA’s replacement reserves. The administrative fee goes into the operating checking account. VW has an additional capital contribution for exterior maintenance. These fee amounts have to be set in a prudent way in that they impact buyers, sellers and owners. We have surveyed other local HOAs (Ford’s Colony, Governor’s Land, Kingsmill) and believe that our fees are in line with other Associations in the area. The fees incorporated in the 2021 Budget are:

NTRA Capital Contribution: $700 (+$50 From 2020)

NTRA Administrative Contribution: $250 (+$50 From 2020)

VW Additional Capital Contribution: $450 (+$50 From 2020)
- Covers replacement of roofs, painting, gutters and downspouts, railings, brick veneer, fascia. (Note: VW home buyers pay all three fees: NTRA Capital Contribution, NTRA Administrative Contribution and the VW Capital Contribution.)

In 2021, fees will total $1,400 for new VW buyers and $950 for NTRA buyers.

Village Walk Irrigation: The irrigation system installed by the Developer, Eagle Homes, has been a source of dissatisfaction to owners for several years. VW irrigation and maintenance is an expense that VW owners pay for in their neighborhood assessment. The VW neighborhood assessment is paid by VW owners in addition to the NTRA assessment for townhomes and cottages. The dollar amount budgeted for 2020 maintenance and repair of the irrigation system was woefully inadequate at $1,500. Actuals for 2020 are projected at $12,000. The 2021 Budget will reflect $12,000. Focus on understanding and mapping this irrigation system will be a priority for the first quarter of 2021. Although there are over 130 zones, no map of heads and pipes currently exists. Town Management, at the direction of the BOD, will hire an outside contractor to do this work.

Village Walk Painting: A quote has been received for roughly $240K to repaint all of the VW residences over a five (5) year period beginning in 2023. The painter, after inspecting the buildings, is recommending that this project begin in 2023. This is a Replacement Reserve expense which was not included in the latest 2019 Reserve Study (it should have been) and now must be included as an “add-on.” This expenditure from VW Replacement Reserves needs immediate focus.

Village Walk Miscellaneous Maintenance and Repair: Nothing was budgeted in 2020 for this. We have incurred actual expenses of $4.5K year to date and are forecasting that $6K will be spent in 2020. The 2021 Budget reflects $12K for this expense. A recent needed roof repair was quoted at $3.6K. The cost of miscellaneous maintenance and repair is covered by the VW neighborhood assessment.

Replacement Reserve: In 2021 we will begin to closely manage the Replacement Reserve Fund per a documented Replacement Reserve Policy and Procedure. The BOD will be involved in semi-annual reviews as we define a Five-Year Project List and gradually build up our Replacement Reserves.

Background: Two NTRA Replacement Reserve Studies have been conducted. The 2015 Replacement Reserve Study called for a 2019 end-of-year balance of $440,196 with annual contributions of $68,492. Our actual balance was $483,079, right in line. However, the 2019 Reserve Study added the Shirley Park neighborhood as well as new assets like the bridges along the walking trail. The 2019 Study therefore recommended a Replacement Reserve balance of $563,091 at the end of 2019 or $122,895 higher than what was recommend by the 2015 Study. The 2019 Study also calls for a much higher annual contribution of $94,576. This is not unusual since each time a Reserve Study is done, there is a fresh look at the Association assets.

Current situation: Our projected ending balance for 2020 is $562,000 or $92,497 below the 2019 Study recommendation of $654,497. It’s important, however, to understand that the Replacement Reserve Study is still very much a projection. The 2019 Study’s total funding goal over 40 years is $4,245,382. This number represents the replacement of 176 assets over 40 years to include each item’s replacement cost and useful life.

We believe that our projected 2020 ending balance, only 15 percent below the 2019 Study recommendation, does not represent a problem at this time for the Association. From this point forward we will build the Replacement Reserve Fund over time rather than approaching it as if we need to contribute $94,576 every year for 40 years. Our focus will be to fund to the 40-year goal of $4,245,382 with small annual but increasing replacement reserve contributions that will compound over time. This is a more reasonable approach. Our major focus will be on needs for the next five to ten years. A Replacement Reserve Study is done every five (5) years with our next one planned for 2024. Things will change again and the 2024 Study will provide us with another recalibration point.

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