One of the strengths of Tellico Village is our financial stability. We have operated for over 30 years with an enviable track record of financial strength that many property owners’ associations would love to have. Through good times and bad, TVPOA has built and maintained infrastructure and amenities that are attractive and affordable, while planning for the future and for the unexpected. Each year’s budget is subjected to rigorous reviews by staff, the Finance Advisory Committee and the Board of Directors to ensure that we obtain good value for our resources and that we can fund our operations and capital plan within the assessments and user fees that are approved.
One element of the budget that receives extensive review is our plan for reserves funds. There are six reserve funds that are used to accumulate funds for future projects, to provide a financial cushion to absorb the bumps in the road that inevitably occur, and to accumulate funds for the annual TRDA lease payment. Following is a description of each fund, their sources of funding and some of the planned uses in 2019 and beyond.
Repairs and Maintenance Reserve Fund
The R&M Reserve is one of the three largest reserves, along with the Amenity Reserve, and the Water and Sewer Reserve. R&M is funded from the monthly assessment, and in 2018 received 13% of net collectable assessments. This level
of funding had been adequate for several years, but long-term estimates for road work indicated that this funding level needed to be increased. In 2019 R&M will be funded at 17.25% of net collectable assessments and at 20.75% thereafter. The R&M Reserve had a $1.15 million balance at the beginning of December. Significant amounts for road work (about $1 million) and a new dehumidifier and repairs to the Wellness Center ($570K) will reduce this reserve to about $262K by year-end 2019 before rebuilding with the increased funding level.
Amenity Reserve Fund
The Amenity Reserve has been funded at a rate of 4.5% of net collectable assessments for several years, and it is used to save up for major new amenities to be added during the Budget and Five-Year Plan. The last major new amenities were completed in 2014, those being the Pickleball courts at the Wellness Center and the Pavilion at Toqua Golf Club. Both of those projects were funded in their entirety from the Amenity Reserve. That reduced the Amenity Reserve temporarily, but we then began building the reserve for future amenity expansions. At the beginning of December, the Amenity Reserve had over $1.4M and another $400K will be added over the rest of 2018 and during 2019. We plan to use about $1.8M of this fund to help pay for the Kahite and Toqua clubhouse expansions. Yes, this will use most of the available Amenity Reserve funds, but we will begin saving again to meet future needs.
After the two clubhouse projects, there are no major new amenities included in the Five-Year Plan. Two smaller projects in 2021 and 2022 can be funded from future additions to the Amenity Reserve. During the 2019 budget process, we recognized that there is an expected shift in our longer-term needs away from more amenities toward repairs and maintenance, especially for road work. So, the sta recommended, and the Board approved, redirecting 3.5% of net collectable assessments away from the Amenity Reserve toward the R&M Reserve. This takes R&M funding from 17.25% up to 20.75%, and the Amenity funding from 4.5% to 1.0% of net collectable assessments beginning in 2020.
Water and Sewer Reserve Fund
The Water and Sewer Reserve is funded from water and sewer connection fees charged on new home construction plus approximately 5% of water and sewer revenues. Funds are used in large part to maintain our water distribution and sewer collection systems and to provide funds for expansion of those systems as the Village grows. There
is currently just over $1 million in the Water and Sewer Reserve. In addition to routine equipment replacements and maintenance projects, there is a new water tank scheduled in the Five-Year Plan for 2020 that will use a significant portion of this reserve before rebuilding over the next several years. One significant difference of the Water and Sewer Reserve is that 100% of the funding comes from water and sewer user fees, not from the monthly assessment. This is only fair in that water and sewer customers pay for the system that they use, while non-resident lot owners do not. If a lot owner decides to build a house on their lot, then the connection fees they pay at that time are deposited to the Water and Sewer Reserve. Our philosophy over the years has been that water and sewer capital and operating costs are paid for by water and sewer customers through their user fees.
Dock Reserve Fund
The Dock Reserve is funded from dock and PWC rental fees. Currently 16.25% of dock rentals fees and 8.25% of PWC rentals are contributed to the Docks Reserve. The funds are used for capital and major maintenance projects. There is currently about $110K in the Dock Reserve.
Safety Reserve Fund
The Safety Reserve is a carryover from our past practice of building up funds to pay for major capital projects of the Tellico Village Volunteer Fire Department. The expansion of the Fire Hall in 2012 was the last major project funded from this reserve. TVVFD is now responsible for funding their own capital projects out of their service contract with TVPOA and from their own fundraising programs. The Safety Reserve has a current balance of about $76K but no new funding is being added. It is available for funding any safety related project within Tellico Village.
TRDA Reserve Fund
Each year TVPOA makes a lease payment to the Tellico Reservoir Development Agency for the common property land and some of the buildings within Tellico Village. This lease was renegotiated in 2016 and changed from an operating lease (rent) to a capital lease (purchase) at a fixed rate of $400K per year through 2043. Each month we deposit one twelfth of the annual lease payment so that we have built up the full amount when it is due in December.
In summary, we manage our reserves funding and uses as an integral part of the overall budgeting and planning process. We make changes to the funding levels as our current and anticipated needs require. We are conservative
in our expansion plans and attempt to pay a large portion of the cost of new amenities from saved up reserves,
using debt only for those long-lived projects that are too big to fund entirely from cash. That was our practice when the Wellness Center was built in 2006 and continues to this day as we will pay about 62% of the capital cost of the two clubhouses from cash and finance about 38% with bank financing. While we will be using most of our Amenity Reserves in 2019, the remaining reserve accounts will remain robust enough to meet current projected requirements.