Some helpful tips for a successful referendum

Commentary by Tom Stauss

Coming soon to a mail box near you: A referendum ballot on whether to build a new Yacht Club.

That the board of directors will be authorizing such a referendum seems almost inevitable. Of course, conducting a referendum and actually winning it are hardly synonymous. To improve the odds of success, OPA policy-makers and administrators might consider the following:

1. As soon as possible, sever any consideration of what to do with the Yacht Club from proposals concerning the Country Club. While linkage theoretically exists, mainly in whether the OPA needs multiple catering/banquet facilities or a second OPA-owned restaurant in Ocean Pines, any perceived linkage at the time ballots are cast will only hurt the odds of a successful Yacht Club referendum.

Simply said, the proposal for a new Country Club is fraught with difficulties, ranging from its price tag ($3.7 million), a controversial idea to sell off a piece of the golf course, Hole ten, to raise capital for a new Country Club; and a not fully vetted suggestion to squeeze a new par three number ten on the 18th fairway. However you slice it – painful word play intended – approach shots to the 18th green will inevitably end up on the new tenth green; no golf course “expert” will be able to repeal this inexorable rule of the links: Have Golf Club, Will Err.

All things considered, this proposal needs substantial work, probably in the direction of someday replacing the Country Club with a new, more modest building that can be built for an amount of money not even requiring a referendum. But as a consensus has already set in that the board will not be so foolish as to schedule two referenda questions at the same time, and as the Yacht Club reconstruction is far riper for consideration than the Country Club, the wiser course of action would simply be to exile the Country Club to the back burner pending a community decision on what to do with the Yacht Club.

2. Ratify, affirm, attest and broadcast far and wide the fact that the Yacht Club referendum proposal does not include a companion idea to relocate and rebuild the Yacht Club swimming pool. Exclusion of the pool project from the Yacht Club rebuilding project has a number of virtues, primarily the fact that a new Yacht Club alone has been estimated to cost in the neighborhood of $2.5 million, a nice round figure, that could turn out to be lower once bids are obtained, given current economic conditions. A new swimming pool in a new location would cost upwards of $800,000, and the fact that $600,000 already has been budgeted for a new pump room, related plumbing and new concrete decking is irrelevant: The money has not been spent and need not be anytime soon. If not spent, it remains parked in reserves, no different from other unallocated funds.

A convincing case for relocating the pump room has not been made – it’s said to be “below grade” and subject to flooding, though no such event has occurred in recent years – and the existing wood decking is only ten years old or so. It’s not in need of replacement.

By detaching the pool project from the building project, the referendable cost remains at $2.5 million, far more palatable and salable to tight-fisted property owners. If voters think that the board is proposing and supporting a new swimming pool for which no need has been demonstrated, and is ready to pull the trigger on it as a separate phase two in a year or two, then voters will be given an excuse to reward the duplicity with a resounding rejection of a new Yacht Club. The pool project now exists as a separate phase; it needs to be deep-sixed for the foreseeable future or until such time as its support structure is about ready to collapse.

3. Document the case for why the OPA should be in the banquet business, including a detailed listing of banquet revenues and average profits from catered events over, let’s say, the last five years. There have been some reports to suggest that a detailed accounting of banquets isn’t readily available because certain costs are not easily segregated from aggregate costs, but that is a hurdle that should be overcome.

This is relevant because, as proposed, the second floor of the new Yacht Club would be a 200-seat banquet hall. While the potential of hosting weddings and similar events may very well be justified aside from financial considerations, the more detailed a business case that can be made for banquets the better the case for a two-story Yacht Club.

4. Reaffirm the Yacht Club business plan as suggested by General Manager Bob Thompson that envisions the Yacht Club as primarily a summer destination, with some room to accommodate “open for business” in the shoulder months. As recently described by Thompson, a new Yacht Club would close during the winter months, except for special banquet events at the amenity that would be held on the new building’s second floor. This is a business with historical roots – it was the original operating plan for the Yacht Club in its earliest years – and it remains a plan that has produced a break-even operation at the Yacht Club as recently as two years ago. This past October, the Yacht Club produced a modest surplus open seven days a week; imagine what that profit could have been if it had been open during the prime Friday to Sunday period only.

Thompson has announced that kind of attenuated schedule beginning this month; it will be interesting to see whether the results will more closely resemble October, with its modest profit, or November, in which the club lost more than $45,000. If January replicates November’s results, then the board and Thompson should apply that new found knowledge, by affirming that a new Yacht Club’s business plan will call for the facility’s closure for four or five months during winter, with the possible accommodation of special catered events on an ad hoc basis.

5. Thompson has proposed that the construction financing include both expenditures from the OPA’s major maintenance and replacement reserve and bank borrowing at 5 percent. If indeed this hybrid method of financing is adopted as policy by the board of directors – and it should be, resoundingly – then it goes without saying that big-ticket projects no longer need to be financed solely from increases in the lot assessment. If indeed hybrid financing is OPA policy – this is precisely how the Sports Core pool project is being paid for; so there is precedent for it – then it should be possible to stop the current five-year “funding plan” of $30 annual increases in the lot assessment – in this, its third year. It’s still producing $90 per lot that goes into the reserve pot -- granted, $4 out of the $30 goes to offset some prior year operating deficits – but still, $90 is a significant annual contribution, and there remains plenty of cash flow into the major maintenance replacement from prior year assessment increases and through funded depreciation.

The reserve summary for Nov. 30 published in this edition of the Progress reveals just how well funded the OPA reserves truly are -- $1,724,914 from these “historical” revenue sources and another $658,476 from the five-year funding plan. That’s $2.383 million that’s flowed into OPA’s coffers this year alone, almost enough to pay for a new Yacht Club in a single year. Ignore this salient fact at your peril, board of directors.

Thompson in proposing his hybrid financing mechanism has said that building a new Yacht Club will have “minimal impact” on the lot assessment, but the board should do him one better by changing “minimal” to zero in the Fiscal Year 2013 budget now under consideration. If the board wants to improve the odds of a successful referendum to build a new Yacht Club, it could go a long way to making a case for “minimal” impact by adopting a no-increase policy in next year’s budget.

The five-year funding plan has been kept alive by the fierce advocacy of OPA Director and Treasurer Pete Gomsak, who really does seem to believe that the money will be needed for big-ticket projects in the future. But that need, for the Yacht Club at least, has been cut in half or whatever by Thompson’s hybrid financing proposal, and does anyone really think that Ocean Pines property owners will vote to spend $3.7 million on a new Country Club, with or without the sell-off of the tenth hole?

Gomsak by all accounts is a staunch advocate for a new Yacht Club, and in this he and those who agree with him are faced with a dilemma: By holding on to the sacred five-year funding plan of regular assessment increases, they decrease the chance that property owners will feel kindly towards a new Yacht Club because the “minimal” impact of a new Yacht Club is same-old-same-old.

The converse is also probably true: By adopting a budget with no assessment increase next year, odds for a successful referendum are enhanced.

But not guaranteed, of course.

– Tom Stauss

http://www.OceanPinesProgress.com