Frequently Asked Questions About the Big Canoe Capital Initiation Fee

Q. The Board keeps raising assessments and amenity fees. Why aren't these funds used for capital expenditures?

A. The monthly assessments and amenity fees do contribute to both operating expenses and capital expenses. The community has more than $24 million in assets that need annual repair and replacement. At the end of 2008 the total asset value will have grown to nearly $30 million with the addition of the clubhouse and marina restoration. The POA is spending $2 million annually just in maintaining and replacing the assets we have including roads, equipment and facilities, etc. However, we currently have no capital reserves and no funds for new facility requirements.

Q. Why is this new fee necessary now when real estate sales are at a low period and people are having a hard time selling their homes?

A. Two years ago the Finance Committee recommended to the Board such a fee. However, the POA did not have a recent Reserve Study, and the Board did not have a significant list of needs for the use of such revenue. Since then, a Reserve Study has been conducted by Miller Dodson and Associates, a well known financial services firm specializing in financial planning for communities like ours. This study concluded that the POA needed to establish a Capital Reserve Fund.

Also, the POA Long Range Planning Committee concluded many of our community assets are aging and need improvements or replacement. Also, the projected population growth indicates that we will outgrow several of our key facilities over the next 10 years. There are no funds for these upcoming facility expenditures so we need to start setting aside funds now.

Q. I thought the POA had a capital reserve fund. Why don’t we use that money?

A. The POA in years past has attempted to create a capital reserve fund but has never had the money to properly fund one. Often times the amenity reserve has been confused with a capital reserve. The amenity agreement assures the developer will be paid for the developer-built amenities and not capital expenditures.

Q. Why can’t the amenity reserve pay for the new facility projects?

A. The amenity reserve was established by the amenity agreement between the POA and the developer. This amenity agreement, modified several times, was established to assure the developer was paid for amenities the developer built and turned over to the POA. These amenity reserve funds come from our monthly assessments. Before this “amenities agreement,” the POA did not have the “reserves” to pay the developer. As a result, the POA had to borrow money to finance those amenities. Thus, the annual calculation of the monies that are designated for the amenity reserve covers the debt payments for the Fitness Center, a Golf Course Note, the Wildcat Pool, and the land for the new clubhouse parking.

Once these obligations are retired, this portion of the monthly assessments will be used for normal capital expenditures or payment of other POA loans. As part of the recommendation, the Committee recommends we replace the amenity reserve calculation with a more encompassing Capital Reserve Fund.

Q. Does this Capital Initiation Fee apply to just new home and lot sales or all sales?

A. The new fee applies to all new and resale transactions of homes and lots including developer sales. There will be an exemption for non-monetary transfers involving spouses, heirs, etc.

Q. What will the funds from the Capital Initiation Fee be used for?

A. The fund use will be limited to capital expenditure-related items only. This will include new or replacement facilities recommended by the Long Range Planning Committee and approved by the Board, funding the Capital Reserve Fund, debt service or retirement, interest on debt and an additional funding source for annual capital expenditures. The list of facility needs from the Long Range Planning Committee is as follows:

  • Fire Station #3 rebuild
  • Fire Station # 2 expansion
  • Maintenance Operations/AECD building
  • Facilities Maintenance Shops building
  • Equipment Storage building
  • Roads and Trails shops
  • Golf Maintenance Operations facility upgrade
  • Fitness Center expansion
  • Swim Club Building and Deck renovation/upgrade
  • Tennis Complex upgrade and growth expansion
  • Post Office upgrade
  • Village Hall

Q. Isn’t there a transfer fee already charged at closing of the sale of property?

A. Yes, there is a $350 transfer fee charged for administrative expenses and such things as gate transponders.

Q. Why should this Capital Initiation Fee be charged to new buyers rather than current residents?

A. The committee felt that current property owners are paying for the capital expenditures now with their monthly assessments, the $1,500 special assessment, and their amenity dues and fees. Thirteen million dollars worth of improvements will have been spent on community improvements since 2005, and the new buyer will reap the benefit of these expenditures.

Q. How did the committee calculate the one percent fee?

A. The committee calculated the need of $10-15 million over the next 10 years. To generate that amount of money we need 250 to 450 eligible property sales each year. Last year we had 262 transfers of property. This year is projected to be the same or lower. In 2006 there were 432 transactions where a 1 percent CIF would have yielded $1.4 million if the CIF were in place. In the peak year of 2005 there were 513 eligible transactions that would have yielded $1.67 million.

Q. Will this fee be collected and put into a separate account?

A. Yes, the fee will be deposited in the Capital Reserve Fund account and limited to the items specified. This will include new or replacement facilities recommended by the Long Range Planning Committee and approved by the Board, funding the Capital Reserve Fund, debt service or debt retirement, interest on debt, and an additional funding source for routine annual capital expenditures.

Q. What other similar communities charge a Capital Initiation Fee?

A. The committee did research and surveyed other communities. Many charge a transfer fee, initiation fee or capital reserve fee. The list below is just a sampling of the communities we found with such a similar fee:

  • Bald Head Island — 0.5 percent of Purchase Price
  • Belfair — $15,800 Flat Fee
  • Bent Tree — $491-934 Flat Fee
  • Brays Island –1.5 percent of Purchase Price
  • Chicasaw Point, SC –$2,500 Flat Fee
  • Colleton River Plantation — $20,000 Flat Fee
  • Connestee Falls, NC –$5,500 Flat Fee
  • Coosawatee River –$3,000 Flat Fee
  • Dataw Island — 0.5 percent of Purchase Price
  • DeBordieu Colony — $1,350 Flat Fee
  • Hampton Hall –$3,000 Flat Fee
  • Hilton Head Plantation — 0.25 percent of Purchase Price
  • Indigo Run — 50 percent Annual Assessment
  • Kiawah Island — 0.5 percent of Purchase Price
  • Lake Arrowhead, GA — Considering $3,000 Flat Fee
  • Long Cove Plantation — $15,800 Flat Fee
  • Moss Creek –$20,000 Flat Fee
  • Palmetto Bluff — 1.0 percent of Purchase Price
  • Pawleys Plantation — 0.5 percent of Purchase Price
  • Palmetto Dunes — 0.5 percent of Purchase Price
  • Reynolds Plantation — $65,000 + $475/month for amenities
  • Seabrook Island — 0.5 percent of Purchase Price
  • Shipyard Plantation — 0.5 percent of Purchase Price
  • Sun City — 0.33 percent of Purchase Price
  • Wexford Plantation –$20,000 Flat Fee
  • Wild Dunes — 0.5 percent of Purchase Price

Q. Why wouldn’t this fee just fall back on the seller of the property?

A. The fee would be part of the negotiation process, and the seller may decide to absorb the fee to make the sale. It is expected the impact of this fee will provide more than one percent worth of market value to the property. The POA will have upgraded facilities, a better financial condition, a capital reserve fund, and will be less likely to raise monthly assessments significantly or impose special assessments.

Q. Won’t this Capital Initiation Fee make it more difficult to sell a home or lot?

A. In discussions with other communities, there was no detrimental effect on sales. The real estate professionals should be able to sell this fee as a positive for the community and property owner.

Q. I heard there were going to be exclusions for current property owners and builders. Please explain.

A. When the committee originally recommended the flat fee method for calculating the CIF, we felt current property owners were already paying towards the community infrastructure with their monthly assessments and the special assessment. We intended to waive this fee if they bought a lot or another home in Big Canoe. We also didn’t want the builders who buy a lot and build a spec house to pay $4,000 on the lot purchase, and then the new buyer of the home pay $4,000.

Our POA attorney now says we need to treat all property owners alike with this new fee. So, we cannot have the intended exclusions. This is another reason for moving from a flat fee of $4,000 to the percent method for calculating the CIF. Buyers of lots (including builders) will pay a lower amount than the $4,000. In fact, no additional fee will be charged until a new home on that purchased lot is built and sold.

Example: a current property owner wants to downsize or upsize and stay within Big Canoe. They buy a lot and pay the percent CIF on the lot purchase. No fee will be charged when they build the home. If they eventually sell that new home, the new buyer will pay the CIF on the sales price at that time. Meanwhile, when they sell their old home the new buyer will pay the CIF.

There will be no CIF charged on non-monetary transfers to spouses, heirs, etc.

Q. What other options to this CIF are there?

A. The Board has several options. They can do nothing and let the facilities deteriorate and not establish a reserve fund. The POA can borrow to fund these projects and raise assessments to pay for the loans. Or, we can slowly build up a reserve fund and have a series of special assessments or accelerated monthly assessments for each new project when it is needed. The committee studied the options and recommended the Capital Initiation Fee concept as fair and reasonable.

Q. If the Board recommends this new fee, is a property owner vote required?

A. Yes, a favorable vote of 50 percent of the property owners who vote is required to enable this Capital Initiation Fee.

Q. If this fee is voted yes, how will the Board use the funds?

A. The Board and POA management will be limited to the specified uses and cannot use the funds for operating expenses. The Board will also be required to communicate to the property owners how the funds will be used on special projects or facilities.

Q. What is next?

A. The LTFC will continue to study its recommendation and make presentations to interested groups. The Board will vote on the final recommendation. Communication to property owners will continue including a presentation at a Town Hall Meeting. If the Board recommends instituting the Capital Initiation Fee, a ballot will be mailed to property owners.

If we have not addressed all your questions, please forward any others to the Committee: Chuck Palmer, Vince Flynn, Ev Hughes, Rich White, Sandy Filkowski and Board liaison John Seferian.