Two camps can't agree on debt level One faction insists CA stop borrowing

other cites income

'You're going to pay'

Community has load of $88.4 million, hopes to be clear by 2015

August 18, 1996|By Dan Morse | Dan Morse,SUN STAFF

The brief financial statement that went out with the Columbia Association's annual assessment bill last month suggests, at first glance, that the nation's largest homeowners association will spend only $1.7 million this year for interest payments.

But the association's total payments on its debt are much greater -- something only hinted at on the financial statement by an asterisk and a footnote in small type.

This fiscal year, Columbia Association (CA) will spend $12.7 million on interest and principal payments -- or 34 percent of its annual budget.

The difference between the financial statement and CA's financial situation indicates the complexity of the continuing political debate over CA's debt load of $88.4 million -- a debate that pits two camps sparring over how the association should serve the 29-year-old planned community of 84,000 residents.

Those in the anti-debt camp say CA must stop borrowing money and shelve plans for such new projects as a proposed $6 million health club in River Hill village and a proposed $2.6 million ice rink and sports center in Harper's Choice village.

They warn that assessments are leveling off and Columbia will not grow much larger -- thereby limiting CA's ability to pay off its debt. They also say CA should be more candid with residents about its debt.

"Fiscal responsibility is just not happening here," says Karen Fireman, an investment consultant in Columbia and outspoken member of CA's financial advisory committee, a volunteer group. "They think they can just print more money."

But some local officials -- joined by Wall Street analysts -- say Co- lumbia residents need not worry.

"The level of debt, by itself, is a meaningless figure," says David Berson, chief economist at the Federal National Mortgage Association in Washington and a member of CA's governing body, the Columbia Council.

Berson says the association can handle the debt because it has a large income from assessments on residential and business properties and from recreation fees. "The income side of CA is the highest it's ever been," Berson says. "And it's more than enough."

He and others point out that CA's debt has helped pay for the community's popular park spaces and athletic facilities.

And now -- even as the building of Columbia's last village, River Hill, is under way -- some officials are recommending that CA should take on more debt. The association should build money-making facilities, they say, to increase its income so that it can pay off some of its debt -- more than $30 million over the next 10 years.

No one appreciates CA's ability to collect money more than Harry Hall, an assistant vice president at First Union National Bank in Richmond, Va., the trustee of the association's debt.

Each year, all assessment payments are deposited at First Union, which then collects what it needs to pay CA's creditors, according to Hall, Columbia officials and Wall Street analysts.

Later this year, Hall says, his bank will take skim off $10,981,053.73 for interest and principal on CA's debt. "We have first dibs on that money," he says.

The bank then sends the remaining money to CA. In turn, CA then makes the remaining debt service payments for short-term debt and leases, says Rafia Siddique, vice president of administrative services for CA.

Annual debt payments of the CA scale are way beyond the

experience of other large homeowners associations throughout the nation, according to a survey of such associations.

"I can't imagine anyone else that has got one that large," says Jim Blackburn, chairman of the Large Scale Community Managers Committee of the Community Association Institute, a national trade group.

By contrast, most large community associations appear to be debt-free.

They include Reston, Va. (population 60,000); Montgomery Village, Md. (34,000); Woodbridge, Calif. (30,000); the "Great Northwest" in San Antonio (17,000); and the Woodlands just north of Houston (45,000), according to interviews with officials at those homeowners association.

But developers of many of these communities may have built their recreation facilities and passed on the costs through higher land prices, which in turn were passed on to homeowners as higher home prices. "You're going to pay for it one way or another," says Peter Kristian, a Montgomery Village executive.

The Rouse Co., Columbia's developer, and CA took a different approach: Columbia's parks, swimming pools, golf courses and athletic facilities were built by the association and financed by loans. Residents and local businesses pay this money back through the annual assessments.

Columbia Association officials point out that the large revenue .. stream that CA collects from business assessments is unique among homeowners associations -- and allows CA to carry more debt.

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