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At KICA’s Annual
Meeting on March 18, Kiawah property owners will vote on proposed
changes to the Community Association Covenants. According to KICA’s
website, “The amendments would (1) expand the permitted uses of
reserve funds and (2) authorize donations for the conservation of
natural lands and habitat on Kiawah Island.”
Changing the KICA Covenants requires
approval by 75% of the votes cast. Because of the significance of
the proposed changes, KPOG is providing additional discussion for
consideration, as well as questions generated in our discussions
with property owners. KPOG is making no recommendation here.
Property owners should thoroughly read the information provided
in KICA’s Annual Meeting packet as well as the information provided
here, so they can make their own informed decision on this issue.
Our hope is this email helps property owners understand more fully
the issues involved.
At the urging of both individual
property owners and several standing KICA committees, the KICA Board
has scheduled a town hall style meeting Thursday, February 15 at 7
pm in Town Council Chambers to discuss the proposed amendment. At
that time, KICA Directors will answer questions from Association
members. Property owners unable to attend that meeting may submit
questions in advance via email to
tammy.mcadory@kiawah-owners.org. While it is not possible to
set up an audio link to that meeting for those off-Island, a report
summarizing the meeting will be posted on the Association’s
website. There is sufficient time for Association members with
questions to post their proxies after that meeting and still
guarantee their arrival well in advance of the March 14 deadline.
Discussion
The proposed amendment concerns use
of the Association’s reserve funds. The source of these funds is an
assessment buyers of property on Kiawah Island pay at time of
purchase. KICA’s 10-year budget projects these funds to add
$2-2.5m in each of the next 10 years.
As indicated on KICA’s website,
there are two major provisions of the proposed amendments.
According to the existing Article V, Section 6(a) of the Covenants,
the use of reserve funds is limited to major rehabilitation or major
repairs of infrastructure, emergency repair as a result of casualty
loss such as storm or fire, recurring periodic maintenance, initial
costs of any new service provided by the Association, and for
repairs, renovations, and improvements to the Sandcastle and its
related facilities. The proposed change would allow the Association
to spend these funds “for any purpose of the Association that
qualifies as being exempt from taxation under the provisions of the
Internal Revenue Code of the United States dealing with property
owners’ associations.” Exempt functions include the “acquisition,
construction, management, maintenance, and care of association
property,” but exclude operations.
Analysis
- This change
would give the Board additional flexibility in implementing
portions of its yet to be developed long range plan, particularly
in the area of property owner amenities. At the same time, it
would also remove some of the checks and balances currently
provided for decisions which now require a property owner
referendum.
- With the
exception of limiting spending to “exempt functions,” there are no
guidelines for decision making in this amendment. The Board has
expressed its intention “to respond to member priorities as
assessed in member surveys and the strategic planning
initiatives.”
Questions Raised
by Property Owners:
- Has the
Board of Directors considered locking in a specific dollar amount
or percentage of reserve funds as protection against future
emergencies?
- Who will
decide the allocation of funds, the Board of Directors or the
Chief Operating Officer? Will the Strategic Planning Committee
have any role? How will projects be evaluated and decisions
made?
- Will
property owners be given the opportunity to provide input on how
these funds are spent at specially called meetings or forums, a
Finance Advisory Committee meeting, or at an annual budget
hearing?
- If the Board
believes there are sufficient funds to address future emergencies,
maintenance, and repairs, did it consider reducing the increase in
the 2007 annual assessment, effectively “returning money” to
property owners?
- Has the
Major Repair and Replacement Committee (MR&R) endorsed the
proposed amendment? If so, what was its rationale; if not, why
not?
- How much
disaster coverage does KICA’s insurance provide? Even with this
coverage might property owners still face another special
assessment to help pay for recovery after a major storm, as there
was after Hurricane Hugo?
- If a major
disaster were to occur between when monies from this fund were
allocated and when they were spent, could that allocation decision
be revisited?
The second provision would allow the
Association to donate money from reserve funds to a tax exempt
organization “whose purpose is the conservation, protection, and
preservation of natural areas on Kiawah Island” to be “used
exclusively for the purchase of land on Kiawah Island.” At the
present time, the Kiawah Island Natural Habitat Conservancy (KINHC)
is the only organization meeting these requirements. No reserve
funds acquired before June 1, 2007 could be used for this purpose.
Analysis
- The
objectives of this KICA proposal and the goals of KINHC are well
aligned. In addition to maintaining healthy habitat for our
Island critters, the conservation of additional open space helps
to preserve our unique environment, ultimately supporting Island
property values.
- Any new
revenue stream for a qualifying tax exempt organization could
accelerate land preservation on the Island.
- A tax exempt
organization can reduce the cost of acquiring land by negotiating
a lower purchase price, thus stretching the purchasing power of
the monies it expends. If land is donated to a 501(c)(3)
organization, the individual seller benefits by being able to take
appropriate tax deductions.
- Individual
property owners would be unable to claim deductions for monies
donated by KICA on their behalf to a tax exempt organization.
- There is no
cap on what may be donated for land acquisition in any one year,
neither is there a guarantee that any monies will be allocated at
all.
- Since the
possible allocation of an unknown dollar amount will be done on a
year-to-year basis, it would be difficult for any tax exempt
organization to factor these funds into long range planning.
Questions Raised
by Property Owners:
- Recognizing
this will necessarily be different each year, in what general
proportions will reserve funds be allocated between land
preservation and other needs?
- Why isn’t
KINHC named as the specific and sole beneficiary of these funds?
If another tax exempt organization were to qualify, how would KICA
decide which organization to support or if supporting both, in
what proportions?
- Must monies
allocated be used by the receiving organization within a specific
period of time? Would there be any restrictions on how the monies
are handled or invested prior to their being spent?
- What deed
restrictions would be placed on land purchased with KICA funds?
Must the land be maintained in its natural state in perpetuity or
could a structure, such as a nature center, be built on it? Could
the property be “swapped” for another property or sold to purchase
other property in the future?
- Who
determines which pieces of property will be purchased and will
donations be earmarked for the purchase of specific pieces of
property?
- Must
properties to be purchased with these funds be identified as
critical habitat with appropriate supporting data? If so, how
will that be done and by whom?
- Should the
use of KICA funds be limited strictly to the purchase of property
which could otherwise be developed?
- What
requirements will be placed on the receiving organization for
stewardship of the property once acquired?
- When is it
appropriate for a not-for-profit corporation to donate funds to a
not-for-profit charitable organization?
Is linking the two provisions of the
proposed amendment change the correct approach? Property owners may
support one provision enthusiastically but have reservations about
the other.
The February 15 meeting will provide
the community an opportunity to raise, discuss, and hopefully
resolve any concerns about the proposed changes to the Covenants.
As a result of that meeting, property owners might change their
minds in either direction. As noted in the Annual Meeting packet, if
property owners designate a proxy and then register at the March 18
meeting, their proxy assignment will be revoked and they will be
issued ballots to cast during that meeting. Those not attending
the Annual Meeting who wish to change a vote should contact KICA in
writing to request a new proxy. Since such requests might impact
KICA staff resources, property owner volunteers could be enlisted to
assist with processing the new proxies, as has been done in the
past.
KPOG urges
property owners unable to attend the meeting to submit their
questions to KICA ahead of time and those on Island to attend that
evening. KPOG also urges property owners to return their proxies as
soon as possible after the February 15 meeting to assure a quorum
for the Annual Meeting on March 18. |
