Financial Plan 2023–2027

Financial Plan 2023-2027

MLC 2023 – 2027 FINANCIAL PLAN
Adopted by Town Council November, 2022

PURPOSE OF THIS DOCUMENT:
The purpose of this document is to provide recommendations to the community for the management of MLC’s invested funds, and suggestions for improving MLC assessments annual budgeting and for improving long-term financial planning.

This process is not intended to replace membership decision making about improvement projects, or other community needs which may arise in future. MLC’s adopted covenants and policies clearly mandate that the MLC community members are sovereign, and they may decide to spend fewer or more dollars from our investments than what is recommended in this Plan.

BACKGROUND:
This will be the fifth Financial Plan adopted by MLC Town Council, beginning in 1992.

RESULTS during the past 5 years 2018 – 2022:
January 1, 2018: $383,152 balance in our MLC investment account

October, 2021: $545,000
December, 2022: $426,196 balances in MLC investment account (reflects stock market
decline in 2022 and significant expenditures during 2022)

MLC spent $93,251 of our Investment funds the last 5 years on:
• new community projects
• building and equipment repair and replacement
• invasive plant removal
• rebuilding Peacock Pass boardwalk
• attorney fees (consultation on HOA rentals), the David Guest mediation (payments to MLC Coordinator for preparation and to an attorney for consultation)
• taxes and accountant fees.

Adding the dollars spent during the 5-year period to the ending balance reflects:
A 35.5% increase over beginning balance during the past 5 years, a cumulative increase of 6.3 % each year.

The increase is partly due to share price increases for our mutual funds, and partly due to sale of stocks and also dividends and capital gains paid each year by our funds. During the 5-year period, we were paid $145,793 from dividends and sale of stocks (4 sales during the period.)

Guiding Principles Suggested by the FPC Committee and MLC Groups:
1. We are unsure of how and when our economy will recover from the effects of a multi-year pandemic, historic inflation, international conflict and resulting shortages in major commodities including oil and grain.

2. The MLC Investment fund has declined about 20% from its highest balance (in 2021). We expect less income from MLC’s investments in the next 1-2 years, and more volatility. However, there could also be significant growth in the later years of this planning period, if government investments in infrastructure and climate change boost the economy. Much depends on conflicts in the world, government spending on catastrophic damage due to climate change, pandemic caseloads, and American attitudes toward consumption (which greatly impact our economy.)

3. Twenty thousand dollars ($20,000) of our declining Investment balance went to community expenses this year, including Peacock Pass boardwalk. Our community buildings and boardwalks need major repairs. It is the older folks in our community who have led the work parties and provided much of the labor, and many are becoming less able physically.

4. It seems that most of us now would prefer to emphasize taking care of what we have already built, prioritizing safety, except for exceptional new projects with significant community support. This next five years may be a time to enjoy and protect what we have.

5. All groups supported resetting our Asset Replacement set aside to a realistic number so that sufficient funds will accumulate to keep our physical plant, roads, boardwalks, etc. in good condition.

6. MLC assessments increased 33% from $326 to $435 during the past 5 years. Also, members together paid a special assessment of $5020 to rebuild our roads in areas where serious erosion has occurred. With the inflation we are facing, more younger people in their early working/ earning years coming to live at MLC, and a significant number of retirees on fixed incomes…..there is a desire to stabilize assessments.

7. Some MLC members have difficulty paying our assessments. We are a generous community….. we support giving to those with unmet needs in our neighborhood, in the Tallahassee area, and throughout the world. One group suggested that MLC could create a Designated Giving Program to make it easier for MLC members to donate money to community resources they want to further support. These extra funds would help to contain or reduce assessment increases from year to year.

8. MLC financial reporting could be improved, to better enable assessment budget management and also to enable monitoring of Investment fund expenses. Current Profit and Loss statements are not well understood by Town Council members or the community, although they are necessary for tax prep and to carry out our fiduciary responsibility. In the last year we have introduced a simplified report which the Treasurer prepares, and this has improved understanding of our expenses. But we do not produce an integrated report of both assessment and Investment fund expenses by budget line item.

9. A budget is a planning tool. Most non-profit organizations monitor their budget and make changes as needed throughout the year. Town Council currently does not “manage” the assessment budget, monitoring expenditures as compared to the budget for various operations. Some MLC volunteer managers spend more than their budget, and others do not spend the budgeted amount….and these results do not necessarily translate into changes in the amount budgeted for the next year. As a result, the amounts our HOA spends on various budget categories is not the same as what the community approves in the annual vote on the budget.

For example, consider these totals for the past few years, for three budget categories:

MLC Budget Category A MLC Budget Category B MLC Budget Category C
Budgeted 2018 –
2021: $ 8320 Budgeted 2018 –
2021: $ 30,825 Budgeted 2018-
2021: $28,100
Spent 2018 –
2021: $ 7336 Spent 2018 –
2021: $ 34,100 Spent 2018-
2021: $26,397
$984 under budget $3275 over budget $1703 under budget

Financial Planning Committee recommendations for 2023 – 2027:

1. We could stabilize assessments by adopting a budgeting process that assumes a 4% cost of living increase in assessments each year, and then learn to live within that amount of funding for administration, operations, and maintenance of our community. (For the past 4 years our assessments have increased an average 7.5% a year.) Expensive maintenance over $500, special projects, and asset replacement will still be financed by Investment funds.

2. MLC members who chair a committee or manage an activity are key members of the committee that proposes the MLC annual budget and assessment fees. But the process could be improved by the addition of more members who are not seeking funds, and younger members who might have different priorities for expenditures.

3. MLC budget management could be improved if Town Council took a more active role, with late year budget reconciliation and reallocation of unused dollars to other activities which are demonstrating a shortfall. These changes could be reported to the community for review and approval. Town Council might also look at end of the year expenses reports for the previous year –where there were either significant expenses over budget or unused funds– and take that into account when proposing to the community a budget for the coming year.

4. Profit and Loss statements necessary to prepare tax returns could be published in the AC less frequently, since very few members read or understand them. The combined financial report which the Treasurer and Bookkeeper will design could be printed instead in the AC each month. The P and L reports used for taxes could be printed in the AC once a year or every 6 months, instead.

5. MLC members need to discuss and agree on funding for land management, and what budget we will support. Some say this is an ongoing activity for which an annual budget should be included in assessments, with amounts varying based on activities defined for the coming year. Others say that investment funds should support land management as a special project.

6. Research the impact on MLC accounting and our Bookkeeper’s hours, if MLC were to implement a Designated Giving Program. Ideas for designated funds include: MLC Community Center, Boardwalks, and a Tree Fund. These donations could help reduce assessment increases that are difficult for some of our neighbors to afford.

7. The MLC Treasurer and Bookkeeper propose to Town Council an expense report format that is easy to prepare using our current software, and which reports both Assessment and Investment fund expenses by budget line item at least quarterly.

8. At the end of each year, consider transferring to the Investment fund project budget ..any unexpended assessment dollars over 5% of budget for that line item. Or, deduct a corresponding amount for that line item from the following year’s budget and adjust assessments accordingly. Financial Planning could make a recommendation each year to Town Council, based on assessment of our financial position.

WHAT CAN WE EXPECT IN EARNINGS ON OUR INVESTMENTS DURING THE NEXT 5 YEARS?
Based on the pattern of earnings for our mutual funds in the past, and taking into consideration what little can be surmised about the US economic cycle, our expectations are summarized below. (This is better known as crystal ball gazing.) This projection is for income only (dividends, profit from sales of stock), and does not take into account increases or decreases in the Investment fund balance based on changes in the price per share of our mutual funds. If our income is LESS than this projection, it may become necessary to revise the recommendations below.
NOTE: In 9 of the past 22 years, the stock market did not earn 3.5%, and for 5 of those years, the stock market declined (by 37% in 2008).*

PROJECTION:
If our investments earn 20% over the coming 5 years, they would yield approximately $85,000 income, based on our beginning balance. Although it is expected that share prices and the total balance will fluctuate during the period, this projection assumes less income on a larger beginning balance than the previous 5 years (which did include an historic bull stock market.) This is a conservative estimate.

Financial Planning Committee Tasks Accomplished During the Past 5 Years
1. Prepared a brochure to request that in their estate planning, community members and others include donations and bequests to MLC.

2. Researched, recommended and was responsible for overseeing the merger of MLC and CLI into one corporation (thank you Mo and others). This gives MLC tax advantages and reduces administrative tasks as well.

3. Developed a list of socially responsible funds, researched their fees, risks, and Return on Investment, and diversified our investments to include two additional mutual funds.

4. Discussed the possibility of MLC contracting with an Investment Advisor or Asset Manager, and determined that – since the MLC community approves only one investment (green mutual funds with low fees) – this would likely not be a wise expenditure (minimum $5000 a year).

5. The MLC Treasurer (as a member of Financial Planning) contacted knowledgeable MLC volunteers to review the current Asset Replacement Schedule (ARS), and project more realistic costs and expected years of life left. FPC is revising the ARS, including creating a new schedule for Major Repairs anticipated. A new “set-aside” amount and annual contribution will be defined, and it will be adjusted based on cost-of-living increases. All funds will continue to be invested until needed.

6. The MLC Treasurer deigned a simplified financial report which she prepares and submits to Town Council and the community each month.

Ongoing Financial Planning Committee Tasks
1. The Financial Planning Committee post announcements of meetings in a timely fashion, so MLC members may attend, and speak at a designated time if they wish.

2. Continue to ensure representation from each MLC neighborhood group on the Financial Planning Committee. Groups are expected to appoint representatives with experience in financial planning and investing, and/ or who are knowledgeable about economic cycles and the stock market. Groups may choose a representative of another neighborhood group, who is willing to represent them.

3. Continue to monitor the performance of our mutual funds as compared to other green funds and the overall performance of the stock market (using the S and P 500 index for comparison), and submit quarterly reports to Town Council and the community.

4. Ensure access to $50,000 in investments which can easily be liquidated to obtain cash for emergency purposes.

5. Monitor the Asset Replacement/ Major Repairs Schedules and the annual “set aside” amount, and recommend amendments from time to time based on our actual experience and cost of living increases. Ensure that these funds are reserved, although they remain invested.

6. Make recommendations as part of the process for preparation of MLC’s annual budget proposal. Review proposals with financial implications referred to the committee by groups or Town Council, and make recommendations as requested.

7. At the end of each calendar year, consider and make recommendations for transfer of any unexpended assessment dollars to the Investment fund. These dollars will remain invested but be added to next year’s budget for community projects. Or these dollars may remain in the assessment account, but be deducted from the following year’s budget for that line item. Unexpended assessment dollars collected from members should not be allowed to accumulate; but should be returned to the membership.

Investment Funds Supported These Expenses during the past 5 years.

Repairs to the CC building: decks, railings, door closers, repainting doors, AC
and plumbing repairs, foundation repair, downspout repair
Replacing CC equipment (ice machine, stove, refrigerator)
New well water tank and drain field
New water fountains
New AC in the CC downstairs lounge
Peacock Pass boardwalk replaced
Funds for Coordinator to take a course and register for exam to become a Certified Association Manager
Upgrading CC bathrooms
Moving Tan Mouse Road and the McCann driveway
Materials for package storage lockers and a billboard at the mail kiosk,
Erosion control and new sidewalks at the CC
CC ground lighting, northside parking, and low level lighting for down field parking
Contributing to the purchase of Nature’s Acre ($6000)
Costs of the David Guest mediation and consultation with HOA attorney
regarding collection of fees from owners who rent
Federal taxes on Investment income
MLC accountant fees (for filing tax returns on both assessment and investment income)