2022 Budget Overview

Budget Overview

By Keiron McCammon, Treasurer

I can’t believe how quickly this last year has flown by; it seems like just yesterday that we were approving the 2021 budget.

When I ran for the Board last year, it was based on an extensive review of the Association’s past finances and reserve accounts. I came in with reservations about rising operational costs and what appeared to be underfunded reserve accounts. While I wish I could report that our assessment fees will only be increasing modestly for 2022, the reality is that we face significant headwinds. The 2022 budget will likely necessitate another double-digit percentage increase.

What does this mean for you?

I’ll focus on the portion of the assessment fee that is common to all homeowners.

For 2022, we may be looking at close to a twenty percent increase (the maximum our CC&Rs allow before a vote by homeowners is required). That’d be a $146 per quarter increase for each of us ($588 for the year), with the 2022 assessment fee as high as $881 per quarter versus $735 for 2021.

This number may vary slightly depending on the final Board approval of the budget, but our goal is to not go above this. Those who are eligible for the 50% reduction in their Water Quality fees reintroduced in 2021 will see a slightly different increase, likewise for our multifamily homeowners. Our Cove homeowners will see this incorporated into their overall assessments.

So how did we get here?

Many homeowners expressed that fees are already too high or just right based on the responses to the survey we did at the start of the year. Unfortunately, despite many of your wishes to keep increases to fees low each year (or even reduce them), we face many hurdles pushing us in the opposite direction.

First, with vacation home rentals (VHRs) winding down this year, there will be a revenue shortfall of around $80,000 going into 2022 without an equal saving on expenses (since we already took action in the 2021 budget to trim back services in light of the reduction in VHRs). Unfortunately, we have been unable to find enough VHR-related expense reductions to offset the lost fee revenue.

Then the minimum wage increase from $14 to $15 (a 7% increase) will impact a lot of our seasonal labor

costs across departments. More on this later, but the Board feels there will be further upward pressure on wages given we are experiencing significant difficulty in finding qualified staff.

Finally, I would point to three more areas of our focus on spending. Escalating legal costs, rising trash disposal costs, and incremental staffing. We continue to see rising costs related to the trash dumpsters at the Pavillion. These costs mean for 2022, we are projecting our trash costs to be $134,000 (a 50% increase yearover-year budget-wise). In addition, earlier this year, the Board approved re-hiring the Administrative Clerk position to support our staff, which altogether means our Common operating expenses will increase over $160,000 in 2022.

With the reduction in revenue ($80,000) and the increase in expenses ($160,000), we are in a $240,000 hole right out of the gate concerning our Common operating budget.

Perhaps more importantly, we face the fact that our Common Reserve would hit a low cash position of $200,000 over the next decade if we don’t increase our contribution for 2022. Given the size of the projects this reserve covers, only having a $200,000 buffer feels unwise. So while we can’t fix our reserve levels in one year, we need to increase our contributions in 2022 at the very least. To this end, there will likely be a 50% increase in the Common Reserve contribution going into next year, or $31 per quarter.

Together, with the operational budget increase, this means the Common part of the assessment fee is likely to increase by $100 per quarter, nearly a 20% jump.

We face a similar story regarding our Channels & Lagoons Reserve (our war chest to fund bulkhead repairs/replacement and channel dredging). Even with a 15% increase (additional $11 per quarter) in contribution to this reserve, the low cash position in 2025 would be $145,000. A paltry number considering the magnitude of the projects we undertake out of this reserve.

As I’m sure you are aware, our Water Company is in dire straits right now with the uranium contamination we have been combating this year. For next year, we can only factor in the increased costs resulting from the temporary treatment systems that have been installed. These systems will be needed to bridge us for the next two to three years at least. To this end, the Water Company part of the assessment fee will likely need to increase by at least $20 per quarter, over a 10% increase.

All other costs related to the Water Company short and intermediate-term projects undertaken this year will require an emergency assessment in the coming months in the range of $1,400 per homeowner. Should the Board choose to follow the recommendations presented in the recently published Water Company Long Term Facility Plan, it would require homeowners to approve an additional special assessment for next year that could exceed $10,000 per homeowner.

I don’t say this to scare anyone, but to draw everyone’s attention to the fact that regardless of the increase in annual assessment fees we face in 2022, it is only part of the story. We all face the prospect of multiple additional special assessments over the coming few years.

Finally, we come to the water quality part of the assessment. Over the last couple of years, particularly worsened this year, our Water Quality Department has struggled to sufficiently staff our harvesting operations through the summer. We have neglected to increase our hourly rates year-over-year, which used to be above minimum wage at one time (five-plus years ago). For 2021, many seasonal positions were at minimum wage, and we have struggled to attract workers, to the point that we had a single Harvester and a single skimmer boat operating.

Early this summer, the Board approved a 15% increase in wages for Water Quality Department staff, and we held a job fair to try and attract workers (to little effect). Yet, as many local businesses have experienced, we have struggled to hire anyone; one can only hope this

is a temporary situation related to stimulus funding. Regardless, given the issues we have faced for several years now, the 15% increase will stand for 2022.

In addition, two of our full-time AIS (aquatic invasive species) Technicians have been partially funded by the Water Quality Special Assessment 2nd Payment for 2020 and 2021. However, for 2022 these positions need to be fully covered by the Water Quality operational budget.

Altogether, this means the Water Quality part of the assessment is likely to increase by at least $26 per quarter, a 22% increase.

Hopefully, this helps shed some light on why our assessment fees will likely be close to $881 per quarter for 2022. It’s not like there has been a hiring spree; most of our departments’ headcounts aren’t changing yearover-year (some are even decreasing), and I don’t want to forget we instituted a wage freeze for 2021. Nearly half of the increase is due to much-needed increases in contributions to our reserves. The other half is due to revenue shortfalls that need to be made up, coupled with the need to pay market-rate wages to attract and retain the staff we need through the year.

The budget has yet to be finalized; the Finance Committee, Budget Subcommittee, and Staff are working on a fourth draft to present to the Board for potential approval later this month (September 22nd Board Meeting) or next month at the latest. I encourage you to check out the Accounting folder on the website (https://tkpoa.com/documents/accounting/). Look under ‘Budgets/2022’ and you’ll see a folder for each of the drafts we have been working on, along with the presentations given at the last couple of Board meetings that go into exhaustive detail.

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