Board wages war of words

CA says $4.3 million extra isn't a `surplus' but an `increase in assets'

`A term that means nothing'

Group calls association's interpretation misleading

March 07, 2004|By Laura Cadiz | Laura Cadiz,SUN STAFF

Federal deficits could reach up to $2.75 trillion over the next decade. The state is struggling to close a gap of at least $700 million. Howard County expects $22 million less revenue than predicted last spring.

Meanwhile, the Columbia Association appears to be swimming in riches. When the board approved the fiscal 2005 $50.5 million operating budget last month, it included $4.3 million left over after expenses and income.

But don't call that money a surplus.

The "S-word" is hardly ever uttered around the homeowners association, and if it is, the speaker is usually promptly corrected and told the term the CA uses -- an "increase in net assets."

But most people don't understands what that means.

"It's just a term that means nothing to anybody," said Joel Pearlman, a spokesman for the Alliance for a Better Columbia, a citizens watchdog group.

Leaders for the nonprofit homeowners association have long tried to dispel what they say is a misunderstanding about the money that remains after income and operating expenses. They maintain that excess money is not a surplus because the association still has cash shortfalls. Accounting principles, they maintain, require the CA to use the term "increase in net assets."

In 2005, the association expects to borrow $3 million to $4 million, partially for capital projects. The CA also has about $78 million in long-term debt, which was partially accumulated from building amenities for neighborhoods before assessment-generating homes were developed to support them.

"The increase in net assets does not represent a cash surplus, which is a wide misunderstanding in the community," said Rafia P. Siddiqui, the CA's vice president for administrative services.

Board Chairman Miles Coffman wants the public to know that the CA is not "sitting on cash."

"We've increased our net assets, but we're still borrowing," he said.

Not everyone buys that explanation. Pearlman calls the CA's interpretation of its budget misleading.

"For accounting purposes and for income tax purposes, it's a profit," he said. "Whether they spend it or not, it's always going to remain a type of profit."

Board Vice Chairman Joshua Feldmark called an increase in net assets "an accounting technical term" and said that whether the CA has a surplus or deficit is only part of the association's financial picture.

"To continue to go back and forth about whether it is an increase in net assets or a surplus ... it's just silly," Feldmark said. "The debate over whether or not we should have an increase in net assets is a good one."

Pearlman's group has been hammering that issue, arguing that the CA should not use cash to finance capital projects. The group also maintains that the CA should drop the assessment rate to an amount that would produce a zero balance after income and operating expenses.

"They don't need that extra $4.3 million," Pearlman said.

Kathleen Larson, who leads the association's citizen budget advisory committee, likens the CA's increase in net assets to homeowners' making improvements to their property that makes it more valuable.

"It's not a surplus until you sell it," she said.

To help residents understand the CA's finances, the budget committee suggested that the association produce a cash budget and cash-based pie charts.

"They are required to use an accrual budget for their operations," Larson said. "But most of us run on cash, and we don't understand them."

Despite the arguments about the dueling terms, the association is in a much more comfortable financial situation than during other times in its nearly 40 years.

After being financially set up with a range of amenities to attract residents -- pools, day care programs and a petting zoo -- the recession of the 1970s hit the association. The CA was forced to lease some of its operations, slash staff and move out of its offices to a public works garage, which was dubbed "Le Garage."

Decades later, the association has closed fiscal years with increases in net assets of more than $1 million in at least the past five years. The association has attributed some of the recent financial growth to additional assessment income, savings in operating expenses and borrowing bonds with lower interest rates.

The association's primary source of revenue stems from the money collected from assessment fees, which got a $2.7 million boost in 2004 because of skyrocketing home reassessments in east Columbia.

The board approved dropping the assessment rate a nickel -- 68 cents per $100 of valuation assessed on 50 percent of the home's value -- as part of the 2005 operating budget, which also included a 10 percent ceiling on rising home assessments.

The board does not agree on whether that ceiling is contingent on state legislation submitted by Del. Shane E. Pendergrass, a Democrat, that would require the assessment limit.

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