To: To All Palma Sola Harbour Owners
From: Tony and the PSH Board
Subject: Update and Response to Some Owner’s Assertions of Mismanagement
Date: August 3, 2018
Your current Board feels compelled to communicate directly with owners regarding misinformation and inappropriate attacks and/or written notes in circulation in the community. The accusations and slanderous language and threats of legal actions have made this memo a necessary obligation to those we serve. We will try to be brief and provide essential facts for owner’s awareness.
The personal accusations of conspiracy, mismanagement and FL Statute violations relates to 2 issues:
- The recent 2018 flood insurance decision and its procedural methods
- The governance approach to the recent Main Maintenance Building fire
The 2018 Flood Insurance Decision
PSH’s financial history is a reflection of a philosophical debate that continues to thrive among the diverse owners.
- PSH owners have maintained basic insurance to manage risk as a result of the Florida Statutes that required them to do so by law. In general, the community expects that owners would be “self-insured” for risk beyond this and will be assessed for any losses (pay-as-you-go). This assumes all owners are financially able and willing to pay for shared losses as they occur.
- In 2001, the PSH Board voted to eliminate flood insurance and transferred this financial exposure to individual owners (“Self-insured” model). The Board subsequently approved flood insurance for several years and then again, the risk for flood insurance on community assets was passed back to owners to be self-insured in 2007.
- While historical monthly assessment rates appear attractive, the “Self-Insured” model has caused substantially depressed PSH condo prices compared to peers (17-49% down). It has also reduced the competitive buyer’s pool; as most banks will not extend a loan and refuse to be exposed to such a large risk of potential losses.
The influx of new and younger owners has introduced more diverse opinions and questions to the PSH Board regarding the old philosophy. There are many owners that have expressed concern about the high risk exposures and the pay-as-you-go budget approach with property located in such a high-risk flood zone. This triggered several owner requests to explore the options for flood insurance in 2017.
The Board’s Exploration Phase:
The owner’s request to explore adopting Master Association flood insurance coverage triggered several Board actions:
- An informal owner’s survey at the 2018 annual owner’s meeting to assess the level of interest to the issue.
- A request to the Treasurer and the Budget Committee to explore the possible options to make such a purchase, identify cash sources, and timing of when it could be adopted;
- A request to our insurance broker to explore the “ball park” parameters and prices that might be considered, as it had been many years without pertinent information. The options were very complex with many moving parts, many prices and many variables to assess.
- Establishment of an Insurance Committee to spearhead the education and expertise needed to make the best possible recommendations to the Board.
- Consults and written opinions from Association’s legal counsel regarding the issue, risks and fiduciary obligations to the community. We were guided by their advice during the process.
The Board’s Transparency:
The Board believes that progress on issues can be solved using community involvement and established protocols. We have and continue to strongly solicit active participation of owner volunteers to contribute to managing our community. For this issue:
- The Budget and Insurance committee meetings were open to the owners and decisions were made with full debate and transparency.
- The Insurance Committee Chairperson made full presentations with Q&A to owners regarding risk tolerance, the budget (and cash) options and the complex issues involving the policies choices.
- Pertinent articles and documents were uploaded to the PSH web site for our remote owners to review.
- Each and every Board member responded to personal calls and queries throughout the process.
The Owner’s Petition and Accusations:
Some owners signed a petition to dispute the flood insurance decision. Responding to every misinformed claim would be excessive, as it appears owner’s passion regarding an appetite for risk is the primary driver for many folks. Key factual points are:
- The FL Statutes give full authority to the Association’s governing Board and documents to approve the budget and declare special assessments that are necessary to manage and protect the Association’s assets.
- In order to purchase flood insurance in time for the 2018 hurricane season, it required immediate cash! This one expense line item represents 26 % of the operating budget. The premium is due in full before the hurricane season starts. It was not feasible to record it in the operating monthly assessment; which then provides 1/12 owner payments and still be able to pay the full bill due in May.
- The Budget Committee assessed the available cash, the operating expenses and timing of payment and proposed that a portion of the premium could be paid within the monthly assessment because we had some available cash. The portion that was special assessed is the amount that was deemed to be absolutely needed in cash to still be able to manage the Association’s routine bills. It is expected that the cash and expenditure for future flood insurance can be further incorporated into the monthly assessment (1/12) and the transition to this routine cash payment can be completed.
- The FL Department of Business and Professional Regulation (DBPR) investigated the written petition that accused the Board and management of conspiracy and misconduct. It concluded the governance approach was acceptable and appropriate to meet the interests of the owners for flood insurance and and the case was closed.
The Maintenance Shed Fire and Rebuild:
The History and Facts:
- Pursuant to the Fire Marshall’s report, the Main Maintenance Building that burned down was an accident with unknown cause. Further conversations of the cause are purely speculative.
- The building was not part of the original developer plans. It was first built in 1982 and appears to have been later rebuilt in 1986.
- Within the Hazard Policy, the expert (Staebler) appraisal valued this building at a maximum of $14,116. The deductible in the Hazard Policy is $10,000. The coverage for the net proceeds required a premium rate that the Insurance committee deemed to lack practical economic value. This building, as well as other small buildings were evaluated for this risk exposure. Note, Golf carts are excluded from coverage under the Hazard Policy.
- In 2014, the governing Board and Insurance Committee chose to remove these small building assets from insurance coverage, as the maximum assessed value, premium and benefits of net proceeds seemed to be economically weak. The Insurance Committee again reviewed these specific items and concluded to continue to exclude them from the policy.
The building of a second Maintenance Building is in process, which was previously approved by the Board and owners in 2016. The rebuilding of the Main Maintenance Building is under consideration. Such an event provides an opportunity to evaluate the entire maintenance area and question what can be improved or changed to enhance the work done and perhaps also provide economical benefit. This assessment must be done while also keeping the maintenance services running daily. All options and creative ideas are in play. A reconfiguration can likely make the preferred options much different than the status quo layout. As always we will continue to ensure all appropriate authorizations and protocols are in compliance during this process.
Generally speaking, we are disappointed in the destructive tone and would like to highlight several macro issues that warrant owner’s strategic consideration:
- A demand for an owner’s specific vote on any budget line item (in favor or not) has serious implications for the future ability to manage the dynamic needs of the collective Association. The question is, how much involvement do owners want vs. delegating to a governance board as per our documents to remain educated to manage day-to-day options in changing times?
- A key ongoing factor within our decisions is that that the level of risk tolerance and financial condition of our fellow neighbors (or their estate beneficiaries) impacts all of us collectively. A self-insured portion not paid by an owner must be reallocated and covered by the other owners.
- There is a campaign by a small group of owners to recall Board members based upon their affirmative flood vote and replace them with Board members that will overturn the flood insurance decision. Whichever position you favor, we strongly suggest you choose wisely those candidates that will represent your investment in the future.
- Lastly, share your talents and get active in the Governance process. While there are many voices and passions, Palma Sola Harbour is a great place to live with wonderful people.