REPORT OF THE 2021 – 2022 POALH BUDGET COMMITTEE (July 30, 2020)
Click here for the proposed budget.
Click here for the reserve summary.
The Budget Committee submitted the attached fiscal 2021 – 2022 (July 1, 2021 – June 30, 2022) Budget to the Board of Governors (BOG) at its July 22 meeting, where it was approved.
The Budget Committee convened four times in July. During these meetings it met with committee chairs and individuals responsible for specific line items in the budget to evaluate the requested budget amounts. An Association Town Hall was held July 18 to discuss the proposed budget with the membership prior to its submission to the Board. There was thoughtful and extensive dialogue throughout this process. The result is a balanced budget that is reasonable, meets the needs of the Association, and addresses the operating budget and capital challenges of the Association.
2021-2022 BUDGET CHALLENGES
Replacing Revenue – the Revenue challenge was to replace two nonrecurring revenue sources that are in the 2020 -2021 budget … East Shore Donations and Transfers From Reserves totaling $28,030 (12% of the operating budget).
East Shore residents voluntarily donate funds to POALH each year for weed treatment. With the upcoming large dam repair costs, East Shore residents are highly motivated to help fund the dam restoration and have requested that all funds they raise be applied to the capital expense for the dam repair projects. As a result, an East Side Dam Repair Reserve will be established and funded by their voluntary donations and the East Shore Donations line item will no longer appear in the operating budget. $3,000 was budgeted for 2020 – 2021 operating funds. This line item is now removed from the proposed operating budget.
The Transfer to Reserves in the 2020 – 2021 operating budget ($25,030) resulted from revenues exceeding expenses in fiscal 2018 – 2019. Consistent with POALH policy, any amount not spent from the most recent prior year (2018 – 2019 in this case) are held in reserve and utilized as a revenue source in the second succeeding year (2020 – 2021 in this case). For the year just ended June 30, 2020, there were no unexpended funds to help with the new budget, so this line item is $0 for 2021 – 2022. In the Recommendation section later in the report, we offer a remedy for the budget roller coaster effect caused by this policy.
Develop a capital reserve plan to generate sufficient funds to handle approximately $200,000 of dam repairs in the next five years.
HIGHLIGHTS OF THE 2021-2022 OPERATING BUDGET
The overall 2021 – 2022 Operating Budget decreased by 2.81% from the 2020 – 2021 budget and is up 1% from the 2019 – 2020 actual expenses. The Budget Committee was faced with controlling expenses to help modify the mill rate increase resulting from the loss of the two revenue sources (East Shore Donations and Transfers From Reserves) described above. The Committee’s budget recommendation with the 2.81% decrease still provides adequate funding for the core responsibilities of POALH as defined by our Charter, which stipulates in Section 3:
“The objects of said association shall be to provide for the improvement of the land in said territory, its maintenance as a residential area, the health, comfort, safety, protection and convenience of the inhabitants thereof and the maintenance and protection of the lake.”
REVENUES
⦁ Tax Revenues, Interest on Delinquent Taxes, Mill Rate – Tax revenues are budgeted at $208,931, which is a 12.5% increase over the current budget but a more modest 6.5% increase over taxes budgeted in 2018 – 2020. The reason for this increase is to make up for the revenue loss of $28,030 as noted above in 2021 -2022 Budget Challenges. Even with budgeted expenses reduced by $6,300, a tax increase is unavoidable to maintain a balanced budget.
Interest on Delinquent Taxes is budgeted $254 less than the current budget as it is estimated delinquent taxpayers will pay approximately $800 in interest charges for their failure to pay their taxes on time.
The mill rate will increase from 4.115 mills in 2020 – 2021 to approximately 4.6 mills in 2021 – 2022.
⦁ East Haddam Expense Reimbursement – POALH continues to receive reimbursement from the Town’s budget through the efforts of the East Haddam Lakes Association. Reimbursement amounts to 50% of qualified expenses related to limnologist water analysis and advice, weed treatment, water testing, education of lake residents and other direct efforts to preserve the health of Lake Hayward up to a maximum annual reimbursement of $7,500. It is projected this amount will remain in the Town’s operating budget for 2021 – 2022.
⦁ Bank Interest – Interest rates are anticipated to remain low and our deposit balances will decrease due to dam repairs.
EXPENSES
⦁ Properties – The Properties operating budget decreased $3,000 (7.5%) from the 2020 – 2021 budget but still remains $2,000 higher than the 2019 – 2020 budget. Properties operating expenses include a wide array of ongoing maintenance including mowing, trimming, spring and fall cleanups, beach sand reclamation, port-a-potty cleaning, basketball and tennis court maintenance, tree removal and trimming. Also included are expansion of boat racks due to increased demand and continuing to survey rights-of-way to determine boundaries.
⦁ Communications – The Communications budget includes the weekly newsletter, postage and supplies. The 2021 – 2022 budget decreased by $1,300 from the (25%) 2020 – 2021 budget and by 14% from the 2019 – 2020 actual budget. The decrease is driven by printing and postage savings emanating from the decision to provide the Spring Packet in electronic form only (through email and on the website).
⦁ Social/Events (Net of Revenues) – This budget is the net cost (event costs offset by revenues associated with specific events/activities for which there is a fee) of all events/activities POALH holds for its members and families such as bands, adult and kids crafts, dinners, golf tournament, triathlon and Lake Hayward Days events. Actual expenses for social/events are more than double the amount funded through the budget since some activities have fees. Even with the budget decrease of $1,000 (14%), the same number and diversity of events are attainable by increasing the focus on generating additional event revenues so that more events, especially the adult only ones, are held on a breakeven basis. See Recommendations section below.
⦁ Insurance – Insurance costs remain stable with a small increase over 2019 – 2020 actual expenses and an almost 4% decrease relative to the current year budget. The Association has approximately $500,000 of tangible property covered under its Property insurance policy. POALH also carries General Liability, Workers Compensation, Directors & Officers’/Crime policies and an Umbrella Excess Liability Policy as recommended by our insurance agency and agreed to by the Board.
⦁ Professional Fees – This budget decreased 19% from 2020 – 2021 anticipating a drop in legal fees. Fees to our independent accountants, who conduct an annual financial review of the Association’s financial statements, are unchanged.
⦁ Public Safety – The Pubic Safety Committee contracts with the East Haddam Police Department and CT State Police to provide security at Association events as needed. Other costs include signage for specific events.
⦁ Real Estate Taxes – The East Haddam mill rate remained unchanged for 2020 – 2021 but budgeted for 2021 – 2022 is a 2% increase over 2019 – 2020 actual taxes on Association property.
⦁ Stipends – There are no changes in stipends relative to the 2020 – 2021 budget.
⦁ Waste Management – An increase of $1,000 is budgeted as there has not been a fee increase in several years. This fee is for weekly collection of property owners’ waste in Fall, Winter and Spring and twice a week collections in the summer months.
⦁ LQIC Operating Expenses – Critical to maintaining the health of the lake and property values are activities managed by LQIC, including the annual spot herbicide treatment of invasive weeds by our contractor Solitude, limnologist fees to analyze and report on lake water samples taken during the summer by volunteers and educational events for members that provide information we all can use to maintain and hopefully improve the quality of lake water and the watershed.
⦁ Capital Reserve Charge – The $25,000 charge is to build the reserve to fund capital projects. The amount is unchanged from the current budget. More information is provided in the following section entitled Reserve Summary.
⦁ Web Master Expenses – This budget covers all the costs of maintaining the Association’s website except for the webmaster’s stipend.
⦁ Utilities – Included in this line item are electricity, water, cable for the Association’s video security system and the Association’s record retention system.
⦁ Tax Collector Expenses – These expenses include the Association’s online property tax and collection system and printing the tax bills. Other costs include postage, envelopes, paper, toner and membership in the Connecticut Tax Collectors Association.
RESERVE SUMMARY
The two-page capital reserve analysis shows the proposed five-year capital projects (Proposed Capital Expenditures) and Pending Future Capital Projects that can be undertaken if funds are available. The second page (POALH Estimated Reserve Summary) illustrates a 10 year capital buildup to fund projects in the pipeline (Pending Future Capital Projects) and provide a reserve for additional projects. Notables on this page are that a) reserves will be significantly drawn down due to the dam repair projects, and b) receipt of grants in support of capital projects can significantly expedite the completion of projects on the Pending Future Capital Projects list. Implementation of the specific Budget Committee recommendations below (see #2 and #3) can have a major impact on improving Association finances, decreasing pressure to increase taxes in coming years and accomplishing pending projects more expeditiously.
Requiring approval at the August 16, 2020 POALH Annual Meeting is appropriation of $66,000 to rebuild the dam’s east spillway in 2021 – 2022. The total estimated cost of Phase 1 of the dam repair is $76,000, but $10,000 was already approved at the August 18, 2019 POALH Annual Meeting. See Motions section below.
RECOMMENDATIONS OF THE 2021 – 2022 BUDGET COMMITTEE
1. It is current policy to hold in reserve and use as a revenue source in the second succeeding fiscal year any amount not spent from the most recent prior year. Recommended is that:
This practice be discontinued as it can and has resulted in sizable swings in taxes billed to residents and made preparing the operating budget challenging and confusing.
A new policy be adopted to transfer to unallocated reserves any amount not spent from the prior year. This will minimize large swings in taxes billed to residents, enhance operating budget development and hopefully add funds to reserves, which is particularly important given the significant capital needs of the Association in the coming years. See Motions section below.
1. Completion of the Watershed Management Plan is critically important if POALH is to seek grants to offset a portion of the upcoming $201,000 in projected dam repair expenses and other lake protective measures. The Board is strongly encouraged to ensure the Watershed Management Plan is completed no later than Spring 2021, sooner if possible. Completion of the Plan will be beneficial to managing the lake, its watershed and will significantly enhance our ability to qualify for “larger” grants.
1. There is an acute need for POALH to have a grant coordinator to develop and manage a grant process, with responsibilities ranging from locating grants available, preparing grant applications, tracking the use of grant funds received and ensuring proper reporting to the grant provider. This should be done as soon as possible as POALH has left grant opportunities “on the table” in recent years.
1. Develop and implement untapped revenue sources. There is currently substantial pressure to reduce the expense budget, as evidenced by the proposed 2021- 2022 operating budget. Possibilities for additional revenue streams, among others, are a) a subscription fee to receive a hard copy newsletter, b) a fee for private use of the pavilion, c) fees for adult events (i.e. crafts, dinners) so they are self funded by the participants d) fundraising events, and e) obtaining grants. POALH should continue to control expenses, while also focusing on building additional revenue sources.
MOTIONS
Below are motions recommended by the Budget Committee for the Annual Meeting:
Motion: “Move to approve the 2021 – 2022 POALH operating budget presented by the Budget Committee totaling $218, 881.”
Motion: “Move to approve the $66,000 capital expenditure to rebuild the dam’s east spillway.”
Motion: “Move to replace the policy of carrying forward unexpended operating funds to a future operating budget with a policy to transfer any unexpended operating funds to Unallocated Capital Reserves.
SUMMARY
The Budget Committee thanks all the members involved in the 2021 – 2022 budget process for their efforts. The budget development process continues to improve each year in an effort to have a thorough, well thought out and transparent budget that supports objectives in POALH’s Charter.
Your comments are welcomed before and during the Annual Meeting.
Respectfully submitted,
Ed Bader, Chair; Lee Griffin, POALH Treasurer; Dave Edgington; Kim Jonah; Randy Miller