reserves to grow substantially

By TOM STAUSS Publisher

If interested Ocean Pines Association members want to assess the OPA’s financial health, they need go no further than various schedules that depict the status of various reserve funds, particularly the venerable Replacement Reserve, the pot of cash used to pay for capital assets that wear out over time.

The OPA manages four other reserve funds, including bulkheads and waterways, roads, drainage and new capital.

But it’s the replacement reserve that garners the most attention, perhaps because it carries balances that exceed all the others combined,

While the bulkhead and waterways reserve has been around for as many decades as the replacement reserve, roads, drainage and new capital are relative newcomers.

In the just approved budget for 2023-24, the Board of Directors ratified a plan to increase the replace- ment reserve at a robust pace, with revenues far exceeding expenditures in the coming year.

The growth in the replacement reserve is projected to continue in the five or six years that follow.

The replacement reserve is funded through a mechanism that’s been in place in Ocean Pines for decades. The Board doesn’t explicitly approve the mechanism in any given year; the mechanism is more or less on auto-pilot and produces a dollar contribution that is never controversial and rarely discussed.

It just gets approved as part of the budget every year. And it’s a cash cow that keeps on giving.

The mechanism is funded depreciation of OPA assets that are listed in the DMA reserve study, a detailed inventory of capital items owned by the OPA.

The funded depreciation calculation is a percentage of these assets, and in recent years has come out to a little less than $1.8 million.

In 2023-24, the contribution from the annual lot assessment to the replacement reserve will be $1.775 million.

With interest rates on the rise, the budget anticipates that this reserve will generate another $160,000 in interest rate next year, with the total contribution rising to $1.935 million.

There are always expenditures from this reserve in any given year, and it will be no different in 202324.

But contributions will far exceed anticipated capital expenditures from this reserve next year. This is relatively uncommon. Most years, spending from the replacement reserve is $1 million or more.

The Board of Directors as part of the budget approved capital expenditures from the replacement reserve of only $399,163 next year. That works out to a differential of more than $1.5 million more in collections than anticipated disbursements in the new fiscal year.

As a result, the replacement reserve is projected to grow from about $5.3 million at the end of this fiscal year to about $6.9 million in April of 2024.

The percent of full funding of the replacement reserve -- full funding would mean the OPA would have in reserve what’s needed to replace all of the OPA’s capital assets -- is pro-