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Oakmont News, Opinion & More

$1.6 Million Loan Approved for ERC Remodel

A loan in the amount of $1.6 million for the ERC remodel was approved unanimously by the Board of Directors at Tuesday’s business meeting.   Just two years ago the estimate for this remodel was in the range of $700,000 and was carried as such in the contemporaneous Reserve Study.  Now that costs have ballooned to more than $2.3 million a loan was proposed to cover these additional costs and to lessen the impact on member dues.  “We have $2.3 million in construction costs,” said Treasurer Elke Strunka, “and perhaps it could end up being more if something comes up that hasn’t been discovered yet, as they often do when you do construction.”  At a Finance Committee meeting last week 2019 dues of $78 per member were proposed, an increase of $11.

The loan approved on Tuesday has a term of five years and an interest rate of 5.25%.   Total interest over the course of the loan will be to $222,620.  A loan origination fee of $8000 and closing costs of $3500 bring the total loan service payment to $234,120.  OVA’s monthly payments are projected at $30,377 and, based on 4,785 OVA members, comes to $6.35 per member per month.  However, the final dues increase for 2019 will be based on next year’s budget, which is currently under consideration and will be shared with the membership before the end of the year.

Strunka used the 5.25% interest rate in her calculations, though she mentioned that the rate could be slightly lower. Another feature of the loan is a grace period of one year to draw funds. As such, her proposal recommends that funds not be drawn from the loan until the end of the construction period (scheduled to begin Monday, August 27) and to use existing funds in the Asset Replacement Fund to pay construction costs as they come in. The loan will then be funded in January 2019 and used to reimburse the Asset Replacement Fund at that time.  This lowers the impact on the existing 2018 budget and dues structure and moves the impacts into the 2019 budget year, when higher member dues are proposed.   

In addressing the effect of the loan on member monthly dues Strunka said, “The dues have been adjusted based on what we need to collect in order to have some reasonable balance in the fund.”   She added that dues would rise less over the five year period with a loan than without a loan, even though the costs of construction will be higher with the added interest.

An additional loan to finance the Berger remodel was also briefly mentioned.  “We had contemplated that we would get possibly also a loan for the Berger,” said Strunka, “and we had assumed around a $4 million project cost.  We know that in 2020 or 2021 we would have to do another analysis that has to do with the Berger.”

Other matters of interest from today’s board meeting:

  • A resolution proposed by Board President Spanier, which was included in the New Business section of the agenda, entitled “Committee Member Appointment/Board Criteria,” (see page 9 here) was stricken from the agenda by Spanier at the beginning of the meeting. No further explanation was given. This resolution had received a lot of criticism when it was proposed and sent to the membership last week.  When asked by Task Master Cathy Dougherty at the end of the meeting whether he wished to put the resolution on the next meeting’s agenda, Spanier said it should be stricken permanently.
  • Building and Construction Committee Chair Iris Harrell gave an update on the ERC remodel, set to begin next Monday.  She explained that a permit for a commercial construction project such as the ERC remodel involves many variables and hurdles in acquiring a construction permit.
  • Plans for a temporary dog park on the CAC greensward have been put on hold with permit delays that could last several months.
  • Manager Hubred introduced discussion of a list of flammable plants and trees that the Fire Safety Committee recommended OVA should consider not approving for any future landscaping in common areas, HOAs or individual properties.  The list was compiled by fire safety officials in Sonoma County.  A 30-day notice will be sent to the membership for review prior to approval.
  • BCC Chair Harrell raised the issue of the flammability of bark mulch in landscapes and suggested that the board needed to address the 15% rock issue as it relates to fire safety.

 

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3 Comments

  1. Gerry Gwynn on August 22, 2018 at 12:36 pm

    Michael,

    Thanks so much for the informative focus on the recent BD meeting.

    I am, like many of us I’d guess, pleased to see that the BD is starting to assess the costs of needed/desired changes in our own OVA facilities.

    Hopefully, this process may shed needed ‘light’ on just how inappropriate it would be for the BD to direct any of our finite OVA funds to the OGC for any reason.

    OV would be ‘on the hook’ not only for the nominal face-value of any OVA funds directed to the OGC but also for the interest on the additional debt that OVA would have to procure in order to finance any such OGC bailout.

  2. Jeannette Luini on August 27, 2018 at 2:37 pm

    In my opinion, it is fiscally irresponsible to take out a million plus loan without a defined purpose and need. Apparently sufficient funds already exist in the Reserves and Capital Improvement Funds to pay for the ERC remodel, even though projected costs are now more than two million dollars. Dues were raised $9 for 2018, and, according to Michael’s article, the Finance Committee is recommending an additional $11 raise bringing dues to $78 per resident. Why not put the whole $78 dollars into our own funds?

    Isn’t it better to collect interest on money that we pay in dues rather than paying interest to a bank? Remember that OVA is a tax free 501 (c) (7) Social Organization, and therefore pays no tax on interest earned by our funds. OVA is not a for profit corporation and will not receive a deduction for the $234,120 that the loan will cost. Michael’s article states that there is a loan origination fee of $8000 and closing costs of $3500. That brings the total loan service payment to $234,120. It seems to me that OVA might do a good deal of maintenance and remodeling with that sum of money. How about saving for a few months and then getting on with work to the CAC pool and deck area which is planned in the reserve study for 2019?

    It is very difficult for me to see that OVA cannot maintain and remodel our own facilities for $78 a month per resident without borrowing money. With approximately 4,600 residents paying dues of $78 per month, OVA will have annual income of approximately $4,305,600. Projected operating expenses shown in the 2017 budget were $2,507,194. That leaves more than 2 million dollars to be deposited in our reserves and capital improvement funds each year starting in 2019. Shouldn’t that be enough without taking out an additional loan? If the purpose of the loan is to fund a Berger remodel in 2021, won’t six million dollars in our reserves and capital improvement funds be sufficient?

    Information is sadly lacking on the OVA website. Where is the annual budget for 2018 and for prior years? Wouldn’t one think that in the interest of transparency, residents would be able to find the annual budgets on our website? I’m not an accountant or a tax expert. I’ll be happy to hear from a financial experts why the loan is necessary and how taking out a million dollar loan will make residents’ dues lower.

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