Introduction:

The following represent the current dues situation for operating purposes and debt service for activities already incurred

Current Dues/Assessments for the community are as follows (per household, as of 1/1/2011):

Total $3,100 per year

            Lakeshore

                        Operating purposes                   $1,000 per year

Dam-Dredge Debt Service $ 250 per year*

            Association

                        Operating purposes                   $1,200 per year

                        Dam-Dredge Debt Service         $   250 per year

                        Roads Debt Service                   $   400 per year

Note regarding known issues with current dues structure:

·         * Lakeshore expects to raise dues $250/yr by 1/1/2011.

·         Association Roads Loan is repaid in approx 2.5 years ($400/yr)

·         Dam/Dredge Loan repayment complete:

Association - 11 years ($250/yr)

Lakeshore - 17 years ($250/yr)

The Finance Committee has concluded that a need exists for $650,000 worth of capital improvements per decade.  Assuming that this estimate is correct, the following represent options for raising the needed money to address these needs.  For the purposes of discussion and comparison, each is described as if it were the only option chosen to raise the entire amount (or, in one case, as much as can be raised by this mechanism).  This is for clarity and discussion purpose only.  We recognize that the best way to address the need may well be a combination of approaches, but any such combination must address the entire problem, that is $650,000/decade.

OPTION 1:  DUES INCREASE FOR CAPITAL IMPROVEMENTS -

Proposal:

• Association – Introduce a yearly “Capital Improvement Reserve” dues category at $650.00 per household per year

Pros and Cons:

• Pros:  This option spreads the financial responsibility equitably among all households.  It is a per-household levy that uses the existing infrastructure of yearly payments and collections and requires no new expenses or mechanisms to administer

• Cons:  It is an increase in the per-year costs for each household.

OPTION 2:  LAND SALE TO FUND CAPITAL IMPROVEMENTS

Proposal:

• Sell enough property to raise $650,000 per decade (probably two to three parcels per decade depending on price and taking into consideration capital gains tax obligations).

Overview:

• The current inventory of Lakeshore-owned land is 22 parcels assessed at $3.8 Million on which we paid $$37,250 in annual property tax (2009-2010 period).

• We will agree upon enough property to sell on the open market to generate $650,000 per decade after Lakeshore taxes.  The proceeds to be placed in an interest bearing account.  The funds are available upon closing of the sale.  If this is the method of choice to raise funds, we would be looking to sell enough property approximately every 10 years.

Questions:

• What is our tax liability on the sale?

• How do we equitably determine which lot(s) should be sold?

• Who/how determines fair market value?

• When is the best time to sell?

• Should we offer lots to the community-at-large first and at what price?

Pros and Cons:

• Pros:  This is an asset that we all own jointly.  This could be used to raise the entire $650,000 per decade without additional dues increases and/or assessments of any kind.  Funds will be available upon closing and will be earning interest (albeit at a very low rate currently.)

• Cons:  No one wants to overdevelop the community.  Some do not want to see ANY lots get sold…EVER. 

OPTION 3: REDUCE LAKESHORE PROPERTY TAXES THROUGH EASEMENT AND REDIRECT THOSE DUES TO CAPITAL IMPROVEMENT *ORIGINAL FC PROPOSAL

Proposal:

• Select certain lots to be placed into permanent tax abatement; therefore, reducing Lakeshore's annual tax burden.

Overview:

• Any reduction in current property taxes would be reclassified as a Capital Improvement Reserve assessment

• The current level of property taxes paid by Lakeshore is $40,000/year, so easing every parcel in Lakeshore’s inventory only raises $400,000 per 10 years.

• Initial FC proposal was to ease all but 6 lots proposed saving approximately $18,000.00 per year in taxes, or $180,000.00 over a 10 year period.

Questions: 

• How do lots get chosen?

• What are the costs involved (to surveyors, lawyers, town, etc.) in putting properties into tax abated status?


Pros and Cons:

• Pros:  Reduce annual tax bill, maintain maximum rural beauty.

• Cons: Render potentially millions of dollars of a community asset worthless.  NOT reversible. (Increases property value of those households that directly abut the chosen properties – inequitable.)  There would be some costs involved to tax abate properties.

OPTION 4: TRANSFER FEE ON PROPERTY SALE   *ORIGINAL FC PROPOSAL

Proposal:

• Assess a fee, based either on a percentage of sales price or a flat rate per sale, payable on closing of property transfer.  The fee is designated for the Capital Improvement Reserve.

Overview: 

• At a % of sales price, 1% would raise $300,000/decade at an average of 4 sales per year and an average sales price of $750,000/sale.

• At a fixed per-sale rate, $7,500 per sale raises the same amount ($300,000 per decade) with the above average yearly assumptions

• When a property is purchased, the new owner is responsible for paying a fee to the Association/Lakeshore to help meet ongoing capital requirements.

Questions:

• Should transfer/sale within the family be exempt from the fee?

• What happens if no properties are sold for an extended period?

• Are there any legal fees involved in collecting these funds?

• Is it fairer to use a percentage-based approach or a fixed rate per sale?

Pros and Cons:

• Pros:  Money will be made available with each transfer of property.

• Cons: Who really pays the fee?  Who will be responsible for collecting the fee?  And how far are we willing to go to get the fee (if someone is resistant to paying?)  Cannot plan on money coming in…we can look at historical data to predict, but past performance is no guarantee of future activity.

OPTION 5: DO NOT PREFUND CAPITAL IMPROVEMENTS

Proposal:

• Don't create long-term capital reserves at all.  Instead, decide how to fund a project at the time the need arises.

Overview:

• We don't need to have excess reserves.  We have never had such reserves and the community has acted in the moment to best deal with the situation.  In some cases this was done through borrowing; in others through sale of land, contributions, or dues increases..

Questions:

• What needs to be done to assure funds will be available? (e.g., Line of Credit / matching state funding to needs such as water infrastructure loans / …)

• Will we be able to borrow in this environment without substantial reserves?

• Is borrowing the best option if interest rates are high?

Pros and Cons:

• Pros: Eliminates the need for managing large reserves of monies, something with which we do not have historical experience.

• Cons:  We don't know what/who the future leadership of the lake will be and if they will deal responsibly with funding projects as they arise.  Potential for large assessments without much notice.  Interest rates could be high when we need to borrow

HYBRID PROPOSALS

• Any combination of two or more of the above options, sized so the result is funding of $650,000 per decade. Three examples are shown

• .Example 1: $450/yr Capital Improvement Assessment raises $450,000
and $20,000 per year from Property Tax reduction raises $200,000

• Example 2
 Transfer fee of $7,500 per property sale raises $300,000

and Sale of one property at $600,000 raises $350,000

• Example 3 Transfer fee of one year dues (4 sales a year) raises $122,000
and Retain $400 per year dues when road
loan is repaid (2013) raises $380,000
and reduce property taxes by $14,800 per
year via easement raises $148,000

• What mix-and-match combination can you think of that you favor?

COMMUNITY QUESTIONS:


1)  What is the level of community consensus on Borrow-and-Repay vs Pre-Fund-with-Reserves?


2)  Land Sale vs. Ease?  Where is community on the question of Build-out?  Are we there?  How far away are we?  At what point on either end of the spectrum do we have 2/3 support from the community (necessary for disposition of land)?  Do 2/3 community favor easing all but 6 properties?  How about all but 4?  How about all but 10?  Do 2/3 of community favor sale of one lot in next ten years?  Two lots?


3)  Should Transfer Fee be progressive (% of sale price) or flat ($/sale)?  Should there be any exceptions?  Should there be a start-up mechanism to avoid two-tier residents (those who paid and those that did not)?


4)  Can/should we segment this overall issue into a start-up problem (assessment on existing residents or sale of one lot) and an ongoing issue (dues and some other ongoing mechanism)?

5)  Should we begin a project of perc-testing all community owned properties?  Are all lots realistically salable?

6)  What are the tax implications of these options as applied to Lakeshore and/or the Association

7)  What happens if capital improvement needs develop before we have enough in the fund?