Oct
25
2024
From The Blog
Finance Committee Prompts Discussion of Long-Term Funding Challenges and Strategies in Its First Review of the 2025 Draft Budget
On Oct. 17, KICA’s team of financial experts on the Finance Committee took their first high-level look at the association’s 2025 draft budget, focusing a portion of the discussion around long-term funding strategies. The committee began outlining a strategy that would consider the volatility of revenue streams over time, inflation, and the increased costs of doing business on Kiawah, with a goal of alleviating uncertainty in future assessments. This overall philosophy would reduce the need for a reactive response to annual volatility, and leave members with a greater ability to anticipate assessments in advance. The committee also discussed the financial responsibilities related to the recommended transfer of the ARB to KICA.
Funding KICA’s Reserve Budget
KICA receives a 0.5% transfer fee called Contributions to Reserve (CTR) from all real estate sales, which funds the major repair or replacement of island infrastructure. Over the last few years, spurred by the pandemic, Kiawah’s real estate has surged to its all-time highest volume and prices. Construction costs spiked as well.
HEDGING AGAINST FUTURE VOLATILITY
KICA’s annual Reserve Study forecasts facility and infrastructure maintenance projects for the next 30 years. Over the long term, two key factors are expected to impact the Reserve: real estate sales will slow as new development opportunities diminish and rising construction costs will make infrastructure maintenance more expensive.
The Finance Committee discussed establishing a Reserve assessment philosophy to lower the risk of volatility for members’ reserve assessment rates. Committee members contemplated a predictable and moderate annual rate of increase, tied to the construction cost inflation rate index. There was general consensus to define a philosophy to memorialize the committee’s strategy for future boards and Finance Committees. The committee intends to discuss this strategy further at the Oct. 31 Finance Committee meeting.
Funding KICA’s Operating Budget
The Finance Committee will consider a similar philosophy as the Reserve strategy along with capital expenditures and expected cash flows to determine the appropriate level of general assessment for recommendation to the Board.
The Joint Member Fee
Nearly 20% of Kiawah properties are owned by multiple families. Each additional owner pays an annual Joint Member Fee which contributes to the costs of maintaining island infrastructure and more specifically, for access to and maintenance of the Sandcastle and recreation facilities. The 2025 draft budget includes a $250 per household fee, consistent with recent history.
Earlier in the year a subcommittee of the Finance Committee conducted research into the background and purpose of the fee and presented findings to the Finance Committee. The Finance Committee concluded that the fee is justified and that the Committee would review the amount of the fee within the budget process. A committee member suggested this fee, like assessments, should increase over time using the same increase rates to be determined for the assessment types.
Consideration to Future Architectural Review Functions
The committee briefly discussed the association’s anticipated architectural review responsibilities, which are expected to begin transitioning from the developer to KICA in 2025. The 2025 budget includes a placeholder for two ARB positions pending the outcome of the Board’s activities for ARB function implementation.
Next Meeting
The Finance Committee will meet again on Thursday, Oct. 31 to complete their 2025 budget review, culminating in a recommendation to the board. All finance meetings are open to members and online attendance is available.
The Finance Committee
The Finance Committee is led by board Treasurer Lisa Mascolo and director of Finance Dale Schoon, with diverse financial expertise from members Mary Ann Ashton (2024-2027), Debbie Diddle (2023-2026), Paul Hough (2021-2025), John McGowan (2024-2027), David Nielsen (2024-2027), Bran Petranovic (2021-2025), Michael Petrecca (2021-2025) and Larry Wolahan (2024-2027).