In the local news this week, it was announced that an interfaith
chapel will be built at the corner of FM 980 and Waterwood Parkway.
It will be constructed on the existing foundation where Horizon's
sales office was located prior to burning down about 20 years ago.
Keystone's sales office (trailer) was located on that tract of land
until a few months ago. The Universal Ethician Church received the 10-
acre tract of land as a gift from George and Sue Russell. Plans are
to construct a glass structure, but construction won't begin until
perhaps next year. Tax-deductible donations to help construct the
chapel can be sent to The Universal Ethician Church,1401 19th St.,
Huntsville, TX 77340.

Speaking of construction, what's the growth rate at Waterwood and how
does it compare to our neighboring golf resort community, Cape Royale?
Ten years ago (1991),there were 364 water connections at Cape Royale
and approximately 395 at Waterwood. Since then, Cape Royale has
grown by 177 and Waterwood has grown by about 18. Cape Royale's new
connections were all custom homes built by lot owners. Like
Waterwood, Cape Royale doesn't have a developer. Annual dues at Cape
Royale are $293 per year and basic monthly water bills start at $35,
much more than Waterwood's $142 annual dues and basic water bill of
$23.50 per month. Obviously, there's a demand for homes in the Lake
Livingston area, but Waterwood's "bargain rates" aren't attracting
customers.

Why is Waterwood's ten-year growth rate anemic, five percent, in
comparison to Cape Royale's 50 percent growth? Perhaps there are
clues inside WIA's annual report. Yes, annual reports, the scourge of
reading material. They're being dusted off lately and given a second
look, thanks to Enron's and Halliburton's recent stock price
collapses. Investors have taken a re-newed interest in financial
reports. Even President Bush claims new corporate disclosure rules
may be necessary to protect investors' interests.

Enron, Halliburton and WIA have something in common -- all three have
played down the extent of their problems and liabilities to
"shareholders" (members). If a potential homebuilder scrutinized
WIA's financial reports, what clues indicate things may have gone
awry over the years? When real estate values are stable or
increasing, like stock prices, there's little reason to scrutinize
reports and second-guess Boards of Directors' decisions. But, when
real estate values plummeted at Waterwood during the late 1980s and
early 1990s, and when growth slowed to nearly a halt for several
years, instead of voting in all-new Board members to get the
community out of a rut, as most other communities would have done,
WIA's membership consistently trusted and voted in the status quo
Board of Directors. Nor was the membership's trust shaken over the
years when directors didn't mail annual reports to the membership
with their election material.

Most homeowner associations mail annual reports to their members, as
a courtesy and show of respect to a membership which pays for the
community's bills. WIA directors, however, contend that the Texas
Nonprofit Corporation Act doesn't require mass mailings of its annual
report to the membership. This stance, in itself, can be viewed by
potential investors (the future homebuilder) as a red flag. An
unwillingness to mail the annual report to the entire membership may
indicate arbitrary management decisions. Mailing cost shouldn't be
WIA's concern. Dave Carey's two campaign letters last October cost
the membership $1,500.

A major reason why WIA's membership consistently votes for the status
quo Board of Directors despite little community growth to show for it,
is Waterwood's largely absentee membership, including weekend
homeowners. The 250 or so full-time homeowners are in the minority
here, approximately 150 part-time homeowners, and of the 1,700 lot
owners, about 1,000 are current in their dues and thus eligible to
vote. Homeowner association consultants claim an absentee membership
is a major disadvantage for the full-time homeowners who are in the
minority. Problems in the community aren't conveyed to absentee lot
owners including the occasional weekend homeowners.

And since Waterwood's absentee lot owners and weekend homeowners
don't receive or request WIA's annual report, they're prone to accept
WIA's "blame game" as reported in their "Inside WIA" newsletter. For
twenty years, directors have blamed decreasing home values, lot
values, and slow growth rates on situations beyond their control.
During the 1980s, Carey said it was Horizon's fault. During the
1990s, Agee said it was the Country Club's fault. Some say it's
Keystone's fault. This coming year, the economy will be blamed. None
of these excuses sit well, however, in view of the fact that 25 miles
south, Cape Royale, another golf resort that was smaller than
Waterwood in 1991, is now much larger than Waterwood.

Smart investors ignore Board of Directors' lame excuses. PR hype
printed on glossy expensive paper gets tossed, preferring to
concentrate instead on annual reports for the real beef. Because
most Americans can't make sense of annual reports, the Securities &
Exchange Commission put together a handbook for corporations several
years ago on "how to create Plain English documents", one that would
enlighten readers about a corporation's financial matters rather than
befuddle them. This publication may gain more respect as a result of
Enron's debacle. But, for the most part, nonprofit corporations such
as homeowner associations (HOAs) have already adopted this "Plain
English" approach. Pick up any HOA annual report, often proudly on
display at an HOA office, and you'll get a good inside view of that
community's priorities and projects. Many offer detailed lists of
expenditures by using numerous accounting codes so that readers can
quickly identify unexpected higher costs or problems.

But, Waterwood doesn't disseminate a "Plain English" annual report to
the members or to prospective homebuyers or homebuilders because the
Texas Nonprofit Corporation Act doesn't require it. A quick look
inside WIA's annual report, however, reveals it falls short of HOA
standards. Instead of enlightening its membership, it raises more
questions.

If you haven't already read this report, contact wia@... and
request a copy. If there was a contest, WIA's annual report would win
first prize in the category of worse annual report issued by an HOA.
It not only omits certain information and lacks sufficient
narratives, the information it does include is presented in an
unprofessional, visually unappealing format. Line-item descriptions
are located on one page while corresponding figures are located on
the next page. The reader must remove the staple, draw lines with a
ruler on eight pages, and then overlap and line-up eight pages
horizontally with scotch tape across a long desk in order to make
sense of it. Some of the more cynical membership claim this is just
another shrewd mastery of obfuscation by our community's leadership.

One telling and critical number in HOA annual reports is its
attrition -- the percentage of members (both lot owners and
homeowners) who don't pay their annual dues. When members don't pay
annual dues, red flags wave. The directors must devise a strategy to
either bring the slackers back in line or compensate by raising
annual dues among those who do pay. In fact, realtors advise
potential homebuyers and homebuilders to look at a low or nonexistent
attrition rate as one aspect of determining good HOA management.

WIA's annual report doesn't specify the attrition rate, but the data
is there if you know which numbers to calculate. According to the most
recent report, of the annual assessments totaling $357,361 which were
billed to the membership, only $238,539 was collected. That means 33
percent, or 700 WIA members, are in default (known as "unpaid
assessments determined to be uncollectable"). By HOA standards, 33
percent is excessively high, an indication of poor HOA management.

But, some history is required here to understand why Waterwood is an
anomaly. Some 20 years ago, almost half of WIA's membership was
composed of undeveloped lot owners (lots located in the forest along
the seven-mile parkway). The initial developer, Horizon, like the
dot.com companies that went public in 1999, was amazingly successful
at selling promises of better things to come -- 1,000 "shareholders"
snapped up undeveloped lots for $2,600 to $5,700 and more per lot,
many of them buying two lots. But Horizon's marketing promotions
shaded the truth, promising much more than it could deliver. As time
went by, nearly half of the undeveloped lot owners saw the writing on
the wall. Instead of protesting and voting in a new Board of
Directors, they quit paying dues. To add insult to Horizon's injury,
WIA's directors refused to construct secondary dirt roads to their
lots. The Board made decisions that clearly neglected the
undeveloped subdivisions, in addition to penalizing those lot owners
with high capital improvement charges (now as much as $9,000) to
discourage homebuilding. That's why WIA's high attrition rate is
primarily composed of undeveloped lot owners.

But, WIA's Boards of Directors during the 1980s were prepared for a
high attrition rate when Horizon fell through on its promises. They
took steps to stuff that cushion against future loss of revenue by
increasing annual dues in the 1980s, to $250 and more in some years.
That money was plowed back into bonds, not into community amenities
or recreational facilities, for fear that the continuing fall-out of
undeveloped lot owners over the years would be an increasing burden
to the developed lot owners. Amazingly, the fall-out of undeveloped
lot owners was not as severe as directors had expected. As a result,
David Carey and his colleagues' "save for a rainy day" philosophy to
protect themselves against a high attrition rate has resulted in a
second source of revenue each year -- approximately $435,000 worth of
proceeds from $7 million that was saved and invested in bonds.

The undeveloped lot owners have been the Board of Directors' skeleton
in the closet for many years. When someone at the members meeting
asked Zimmermann about the excessively high attrition rate (one-third
of the membership), he confused those at the meeting by claiming that
there was no attrition problem. By normal HOA standards, an attrition
rate of 33% would be a severe problem. The reason Zimmermann and
many others believe attrition isn't a problem is because the high
attrition rate has remained stable at 33% for the past ten years.
That's why the Board reduced annual dues over a decade ago -- as the
attrition rate stabilized, there was less need to "save for a rainy
day."

But, the Board's 20-year "save for a rainy day" solution to the
attrition problem, under the careful watch of Carey, created another
problem. Like any other corporation which doesn't plow back earnings
into growing the company, the Board of Directors lost sight of its
mission. It lost customers (undeveloped lot owners), lost new
markets (homebuilders), and became stagnant (very little or
nonexistent growth). By concentrating solely on the attrition
problem, the Board began to view itself as Waterwood's "Departments
of Slush Fund, Roads and Street Lights". Under Carey's leadership,
they established a history of fiscal conservatism at the expense of
promoting growth and quality of life at Waterwood.

Some members mistakenly believe fiscal conservatism is a good thing.
Without our Department of Slush Fund, dues would be approximately
$425 per lot in order to cover the community's increasing expenses.
But, according to HOA experts, the Board's job is not to keep
assessments low. Their job is to maintain or increase property
value. Cape Royale is proof that high dues and lack of a slush fund
won't scare away homebuilders or lower property values. In fact,
Waterwood's Department of Slush Fund may have inadvertently caused
Carey and other directors to lose focus of the Board's purpose -- to
increase property value by improving quality of life at Waterwood.
One often heard criticism in the community is that WIA directors
perform their duties not as community visionaries looking for ways to
improve residents' quality of life by providing amenities and
services, but rather as trust fund officers.

And, like trust fund officers with millions of dollars in the bank,
WIA directors, too, have become somewhat smug, particularly toward the
undeveloped lot owners. Now that WIA has weathered the attrition
problem with plenty of money in the bank to protect itself against
the second wave of attrition (the remaining undeveloped lot owners),
WIA directors under Carey's leadership have been focusing for the
past six years on how to painlessly get rid of 18 undeveloped
subdivisions. They're motivated by a desire to keep the $1.17
million in the "Undeveloped Liability Fund" for developed
subdivisions rather than spend it on undeveloped subdivisions.

Last month, Zimmermann at the urgings of previous directors signed an
agreement which resembles a prenuptial contract with a timbering
conglomerate. WIA promises to sell and trade WIA land in the
undeveloped subdivisions, including greenbelts and common areas, only
to the timbering conglomerate, to assist, honor and obey, till death
do they part, in moving the undeveloped lot owners out. This
agreement extends to all future Boards (visit Waterwood Watchdog's
website, see new features on left column, click on Files to see
highlights of this agreement).

What red flags are waving in the annual report and in this latest
second agreement with WIA's sweetheart? Waterwood has some troubling
situations. The messages are particularly bad for undeveloped lot
owners. They must patiently wait for the timbering conglomerate to
offer them a developed lot as a trade. Unfortunately, the prenuptial
agreement doesn't detail exactly how or when trades will be done, nor
how many developed lots the timbering conglomerate plans to buy to
accomplish this massive project. Even if the undeveloped lot owner
is successful in obtaining a trade to Whispering Pines II, inland
developed lots are slow to sell. And a return on an investment in a
custom-built home at Waterwood is no guarantee under the present
leadership. With the exception of waterfront homes and lots, inland
homes and lots have not appreciated in value at Waterwood during the
last ten years. We can also expect to pay increasing dues each year
to compensate for WIA's increasing personnel costs as well as the
costs associated with helping WIA's sweetheart continue its quest to
"deplat" (legal definition unknown), timber and then resell what was
once 18 undeveloped subdivisions. None of these activities increase
the community's amenities and services to improve quality of life.

Waterwood isn't the only HOA with problems that scare potential
homebuilders away. Some HOAs hunker down and blaze new trails and
succeed in overcoming tough problems. One such HOA located in New
York faced problems similar to Waterwood. Their developer skipped town
and the Board lost sight of their mission. The membership voted in a
new Board of Directors, determined to find a silver lining in the
cloud. They began strategic planning—it's financial planning, reserve
analysis, brainstorming, and dreaming, all rolled together. To read
an article on how this Board overcame its problems and provided
residents with better and more appropriate services and amenities,
visit this article online at
http://www.caionline.org/feature/index.cfm

WIA's Board has historically underestimated the importance of its
mission, of voluntarily disclosing information such as the annual
report to the entire membership to encourage more informed voting, and
to improve quality of life by providing amenities and services, such
as free mail service, a playground, and more recreational and
landscaping projects. That tradition, however, may be slowly
changing. This year, in response to requests, a Recreation Committee
was appointed to provide a playground in the community. A
"Playground Survey" was disseminated to various homes this week. If
you didn't get a survey, you can stop in at the WIA office and get
one.

Another much needed amenity is free mail delivery closer to one's
home. At one time, Cape Royale had mail delivery similar to Waterwood
-- folks had to drive long distances to retrieve their mail at one
central place. But, with the cooperation of Coldspring's post office
which provided free mailbox clusters, Cape Royale provided the labor,
common area and the concrete pads to locate mailbox clusters in
various sections of the community. Free box keys are obtained at the
Coldspring Post Office. At Waterwood, there is expensive paid private
mail service at a central location, despite the fact that rural free
delivery was established by Congress over one hundred years ago.
Residents who want free mail delivery should email Jan Stanley, Real
Estate Chairperson, at wia@...

Special Note: Waterwood Watchdog has new options. The Home Page,
http://groups.yahoo.com/group/waterwoodwatchdog/ now includes
photographs, a database, one file so far, bookmarks, and a calendar of
upcoming local events. The new options are accessible to members only.
For your information, members' identification and email addresses have
never been and will never be viewable to the public or to other
members -- your privacy is guaranteed. For members' convenience, the
email delivery or email notification option can be turned "off" or
"on" (click on Edit My Membership). Members who turn off the email
delivery option will still be able to access all archived postings and
contents on the Home Page.

To see the new additions, click on
http://groups.yahoo.com/group/waterwoodwatchdog/