Observing private and HOA/POA golf and country clubs through the years, I’ve noticed a “dulling of the line” between capital improvements and deferred maintenance. If funded at all, they are usually funded from the same source and often considered as one in the same. The fact is that (the correction of) deferred maintenance is mandatory and capital improvements are usually elective.
Deferred maintenance results from regular maintenance or replacement being deferred, frequently to the point of becoming problematic. If a roof is past its life expectancy and begins leaking because it wasn’t replaced in a timely manner, or because replacement reserves weren’t established in expectation of replacement it becomes a capital need as a result of the deferral. When improvements or expansions to facilities are contemplated, such as adding parking or developing a practice facility, that would be considered capital improvements. Confusion occurs when significant capital is required to address issues that were neglected due to deferred maintenance.
These need to be separated in order to consider objectively.
Given the politics that exist at many clubs and homeowners associations, pet projects of club leaders often take center stage and get primary consideration, whether deferred maintenance or capital improvements. Either way, all clubs should budget an annual expense for each and calculate those reserves in a detailed manner through a capital reserve study and analysis of normal maintenance costs. Though more difficult to predict future desires and needs, capital improvements should also be funded through an annual contribution to a fund established for that purpose.
The problem is that many clubs, facing challenging budget issues often forego the establishment of these two funds in the interest of balancing the budget through deferring BOTH normal maintenance/replacement and capital improvements. Just like our politicians in Washington, club leaders often “kick the can down the road” for the next group of leaders to deal with. That’s when the death spiral begins.
The two most disliked terms in the club world are assessments and dues increases. Either or both can occur in a significant way when club leadership puts off the inevitable, or decides to overspend on pet projects. Both can be fatal flaws for a club and are often a result of poor planning. Here’s what clubs need to consider:
- Identify and analyze (for cost) all deferred maintenance and establish a plan to correct.
- Develop a long term plan for regular maintenance designed to avoid deferred maintenance in the future.
- Establish a sinking fund for the replacement/rebuilding of items like irrigation systems, roofing, HVAC, equipment, bunkers, greens and other items that wear out and tend to “sneak up” on club leaders over the years.
- Have an independent market & facilities analysis performed to determine what capital improvements are in the long term best interests of the club from the perspective of the competitive market and the desires of the membership (as opposed to each board member’s pet projects). It’s critical to assess not only the desires of the current membership, but also the potential desires of future members in the interest of long term membership turnover development, as well as understand why those members who left the club resigned.
Once club leadership and membership are well-informed, a plan can be developed and implemented. In most cases, dues increases, assessments – or both are at the very least possible. However, planning like this not only helps to minimize those increases, but also positions the club for long term success into the future.
There’s a critical balancing act that requires attention when considering capital improvements. Depending on the culture of the club, leadership may want to satisfy every wish on the list and invest in items that serve a limited number of members. Conversely, it’s not uncommon for the slightest bit of opposition to kill a part of a project that may be a necessity for future membership development and serve a significant percentage of the present membership simply due to the aversion to spending money. A club can spend too much, or it can spend too little. The goal is to invest the right amount at the right time to achieve full membership, and a high level of member satisfaction at a reasonable cost, considering the market, the culture of the club and the club’s capacity.