SCSH Finance News

By Robert O. “Bob” Jester
Chair, FAC Subcommittee

As published in The View, October 2023:

It is my pleasure to introduce two new members of the Finance Advisory Committee, who joined us this year. As I am sure you know, the committee is composed of homeowners with verifiable professional backgrounds in finance, accounting, or relevant business management. These skills are necessary so that they can act to assist the committee in its mission.

I begin by introducing Ronn Williamson, who has been appointed Vice-Chair of the Replacement Fund & Reserve Studies for the committee. This Vice-Chair position is critical to having an accurate Reserve Study, and Ronn has spent hours working with staff to better understand and update the data used to create the Reserve Study. The data supporting the study had not been reviewed critically for years, so the committee is extremely pleased to have Ronn’s expertise and skill on board. Ronn built a supply management consulting and training business over the past 25 years before retirement. His consulting business was based on his earlier 23-year career in manufacturing, engineering, and supply chain management gained with Thermo King Corporation. Thermo King is a billion-dollar global manufacturer. While serving as an independent professional consultant, Ronn was hired by organizations around the globe to analyze procurement and inventory management operations, that would drive industry best business practices. Much of the last 12 years were spent in the oil and gas sector to establish a supply management training curriculum for Petroskills, an industry leader in providing training for engineers. Ronn has a BS in mechanical engineering and an MBA from the University of Minnesota.

I now have the pleasure of introducing our newest committee member, Jim Bullock. Jim has been appointed Vice-Chair for the FAC Sub-Committee. The FAC sub-committee is the group of construction, engineering and business professionals who carefully examine every request to purchase a service or equipment in excess of $5,000 by the Administration and then make recommendations to the Board on whether to approve those requests. The budget that this Sub-Committee oversees reaches from 2 million to 3 million dollars a year. Jim was a Fortune 500 corporation Staff Systems Analyst for 7 years, working with the corporate audit team. This team performed audits of management operations, accounting practices, and computer systems for marginally performing divisional operations. Then, for over the last 34 years of Jim’s professional business experience, he worked for turfgrass (i.e., golf course) maintenance equipment distributors.

His responsibilities included informational systems, accounting, budgeting, and forecasting for a $50 million corporation. He also managed equipment leasing contracts, business inventories over three states, vendor relations, lease residuals, and the assessment of and dollar evaluations of trade-in equipment. Obviously, he comes to the committee with very sought-after skills, which the committee has immediately made use of for the benefit of this community.

As Chair of the Finance Advisory Committee, I am extremely proud of the skilled team that serves this Association and its residents. As with any advisory committee, some may disagree with the committee’s recommendations, but please rest assured that all the committee’s recommendations are well researched and are made to benefit the entire community of 3,450 homes.

Contact the author at finance@scshca.com.

By Robert O. “Bob” Jester
Chair, FAC Subcommittee

As published in The View, September 2023:

Question of the Month: Does California have a set of laws that apply to our Association?

The answer is YES and it is called the Davis-Stirling Common Interest Development Act. You find it at California Civil Code Sec. 4000 et.seq. The Act applies to any form of real estate where each owner holds exclusive rights to a portion of the property, which in our association is your lot, and where there are shared rights in common areas. The Act calls us either “members or owners” in the statutory provisions and we are a part of a “planned development.” The common areas are owned in our Association by the corporative entity that created and forms our Association i.e., the Sun City Shadow Hills Community Association, a California Mutual Benefit Corporation.

It is important to note that, even though the corporate entity has ownership rights; it is a common interest mutual benefit entity, in which all its members have shared rights and responsibilities for the common areas. Therefore, the Association’s powers are limited to those to be normally exercised for the mutual benefit of its members.

But with a member’s mutual benefit comes certain restrictions that “run with the land,” which means that each owner that buys property in this association acquires their property subject to the recorded restrictions. These restrictions include the community plan as recorded and the CC&Rs. If you have ever wondered what CC&R stands for, those letters refer to “Covenants, Conditions, and Restrictions.” In addition, the Davis-Stirling Act grants the association by law the right to create articles, by-laws, and rules which may not be recorded, but by California statute each owner is subject to those articles, by-laws, and rules that are lawfully enacted. All these noted restrictions and rules govern all the property in this association.

A property member/owner must also understand that the Davis-Stirling Act gives one specific rights under the law. The law provides that the statutes are to be liberally construed, which means that they are to be read broadly to accomplish the purpose for which they were written. Also, the Association’s governing documents must not conflict with statutory law. California courts will generally uphold an association’s governing CC&Rs and Rules, unless they are arbitrary or impose burdens on a few residents that substantially outweigh their benefits to other residents or violate fundamental public policy.

While the strength of the powers processed by the Association may seem overwhelming, there are many rights guaranteed to a property owner as well. Some of the many protected rights include: the right to display the American flag, the right to keep pets (although the number can be limited), the right to solar energy systems, the right to have satellite systems on your home, and the right to display religious items, are just a few of the guaranteed rights you have in this Association by-law.

The Davis-Stirling Act also provides for the structure of the Association’s governing Board, its obligations, and its limitations. The election process is also prescribed to assure fairness and accuracy. A member’s right to appeal on issues like fines or unreasonable failures to grant property variances, etc. is protected. Plus, the Association’s collection rights for unpaid assessments are carefully regulated by statute.

The statute also controls what reserve funds are necessary and restricts how they can be used. In addition, communications from the Association are required annually to provide association financial reports, budgets, insurance coverage, reserve study reports, and other items that impact the peaceful enjoyment of your property ownership.

We live in a “Google world” now, so if you have a question about your Association’s actions simply ask for the Davis-Stirling provision that can answer your concern or look at the Rules enacted by the Association.

We should all be very grateful that California has a law that protects our property rights and grants us, as owners, rights when dealing with the Association and its governing powers.

Contact the author at finance@scshca.com.

By Robert O. “Bob” Jester
Chair, FAC Subcommittee

As published in The View, August 2023:

Question of the Month: When does our Association start to plan the budget for 2024?

The answer is August 2023. We start in August because this is a complex process to plan financially for the operation of a community the size of Sun City Shadow Hills. The Association, its Board and its many volunteers must consider the daily needs of 3,450 homes, the residents, and all the infrastructure that allows this community to function efficiently on a daily basis for 365 days.

The process starts with the General Manager meeting with each department director reviewing with them the 2023 budget, if it has met their needs, and then what the needs will be in 2024. As the community infrastructure ages, there will be more and more replacement and repair issues and workers required to meet those needs during the year.

After these meetings, a draft budget is prepared and then begins the long process of review and adjustment in order to meet the community needs and still operate within a budget, that does not significantly increase the Association dues for the residents. The inflationary cycle that we have seen over the last 36 months, has constantly put pressure on the monetary requirements of the operating budget of the Association and unfortunately, we cannot predict when that cycle will end. We also do not want our community to decline in appearance, function, amenities, or residential values, so we spend the time necessary to try to satisfy all those needs.

Once the draft budget is reviewed and receives preliminary approval by each Association department, the Finance Advisory Committee, and the Board, it is time to ask the residents to participate in the budget process by attending the public budget meetings and by adding their opinions and input to this draft budget.

This “public inspection and review” of the budget by our residents is extremely important! This is our community, and we need to contribute our time and attention to this process. We all desire a sound financial plan for 2024 and this is therefore your call to participate in the following public meetings:

• AUGUST 16, 2023 | 10 am in the front half of the Montecito ballroom

• SEPTEMBER 20, 2023 | 10 am in the front half of the Montecito ballroom

• OCTOBER 18, 2023 | 10 am in the front half of the Montecito ballroom

We look forward to your involvement in preparing the budget for 2024. Please do not fail to add your voice to the creation of the 2024 budget, as once the Board approves the budget in December it is your budget and we all will want to feel that we have done our utmost to create a sound financial plan for 2024.

Contact the author at finance@scshca.com.

By Zerryl Becker
Vice Chair, FAC Subcommittee

As published in The View, July 2023:

Question of the Month: What does the FAC Subcommittee do to prepare a recommendation to the Board on a project/purchase over $5,000?

Have you ever wondered how our HOA Board decides on those New Business items listed at the end of each meeting agenda? Do they really just make a quick decision on spending our HOA funds?

The short answer is: Yes, the HOA Board makes the decision, but not without a careful evaluation of the recommendation. The FAC Subcommittee considers every request over $5000 and provides detailed comments to the Board on every recommendation. As mentioned in the November 2022 View article, the FAC Subcommittee members have expertise as engineers, contractors, golf maintenance equipment specialists, and in food service.

When a Board Action Form (BAF) is received by the Chair of the FAC, the team evaluates the BAF to be sure it is an appropriate request, there is solid justification for the expense, it includes the required two or three bids from insured contractors, and indicates a source of funding. They also evaluate whether not using the lowest bidder is a good decision.

The team visits the golf maintenance yard and the kitchens to review serial numbers and the age and status of the existing equipment. They discuss how this equipment is used with the greens superintendent, the chef and the director of maintenance. They view the concrete walkways and patios that need repair, the streets scheduled for surfacing or striping, the pickle ball and tennis courts, and even kick the cushions on the patio furniture to see if they need to be replaced.

Team members look at equipment availability, lead times, inflation and whether delaying a purchase is likely to increase the cost; they look at the ramifications of equipment failure – such as having no air conditioning in the Montecito Clubhouse with an eight-month lead time to get replacement equipment, or no irrigation for the North Course during the summer heat.

The FAC Subcommittee checks the request has been reviewed by other homeowner committees where appropriate: Landscape, Facilities and Services, Food and Beverage, Golf Advisory, Health and Fitness, Safety Advisory, Lifestyle Advisory and Design Review.

The Subcommittee frequently sends questions back to staff asking for more detail, clarification, justification, or evaluation of alternatives. The goal is a three-day turnaround on each BAF received, and if that does not provide enough time for thorough evaluation, the team recommends tabling the request for more analysis.

The Vice Chair for the FAC Subcommittee counts the Subcommittee votes and prepares a recommendation and summary of all the Subcommittee comments which is sent to all members of the Finance Advisory Committee, including the Board Liaison. The FAC evaluates the FAC Subcommittee recommendation and the funding source to be sure our HOA has adequate resources to fund the request without any negative impact on other operational or reserve expenditures. Reaching “End of Useful Life” on the Reserve Study brings replacement items to the attention of staff and committees, but it is not sufficient justification for immediate replacement.

So, every BAF for an expense over $5,000, other than the rare emergency need for funding, is reviewed by many SCSH homeowners before being placed on the Board agenda.

The final BAF, with the FAC and FAC Subcommittee recommendations and comments, is available on the SCSHCA website under Board Meeting Packets.

Contact the author at finance@scshca.com.

By Ronn Williamson
Vice Chair for Reserve and Replacement Studies

As published in The View, June 2023:

Question of the Month: Is our Replacement Fund adequate to cover future needs?

If you prefer a one-word answer to this question, it is a definite YES – and you can stop reading here. But if you’d like to learn why I’m so confident, keep reading to see what I am learning in this new volunteer role.

In the February issue of The View, Mike Whelan, FAC Vice Chair for Investments, talked about where the Association’s cash is held and included a summary of our Replacement Fund and its purpose.

I joined the FAC shortly afterward with a personal goal to better understand our Replacement Fund monthly assessment and the Reserve Studies that guide the HOA Board in maintaining the fund.

What I have found is a simple concept: An HOA should maintain a separate account with sufficient funds to keep its community in good repair for 30 years into the future. The difficulty that arises is with making financial predictions about the next 30 years when few of us have a crystal ball. How long will each community asset last before a major repair or replacement is needed? What are realistic replacement costs today? What will they be in the future? How do we plan for inflation (a hot topic these days)? What investment return can we expect on the significant amount of funds held? What items should be included for replacement? Will our funds be sufficient to cover unexpected breakdowns or premature failures each year without the need for a special assessment? Fortunately, these questions are addressed each year with a “Reserve Study” done by a professional firm that works with many HOAs for just this purpose.

In November, the annual budget mailer includes the summary pages of the SCSH Reserve Study. Did you know the entire report is available to all residents at www.scshca.com/reserve-study, in the “Documents” section of our website in a folder labeled “Reserve Study”? I think it provides a fascinating detailed plan for our community as it ages. In the report for 2023, you will find every component listed for eventual replacement, including its full useful life, remaining useful life, estimated current replacement cost, and possible future replacement cost.

In all, there are 1,218 components listed in the “Component Identification Report” section that include such disparate things as asphalt resurfacing, restaurant equipment, HVAC units, and our golf course sand traps. For 2023, the report indicates we will spend about $2.7 million for replacement items with zero remaining useful life. While this study guides our replacement decisions, actual approval to spend money is made by the HOA Board on a case-by-case basis based on staff and committee input throughout the year.

In California, the Davis-Stirling Act (Civil Code 5550) requires HOAs to have a reserve study completed, with a “visual inspection” of all components at least every three years (our consultants call it a “Level II” site study). SCSH’s last Level II site study was done in 2020, and we are scheduling the next one for this June. Once the site inspection is completed, the consultant will work with staff, the FAC, and our Board to finalize the Reserve Study Report for use in the fall during the budgeting process for 2024. When that process is finalized in November, we can be assured that our replacement fund will continues to be in great shape!
Contact the author at finance@scshca.com.

Contact the author at finance@scshca.com.

By Robert O. Jester
Finance Advisory Committee Chair

As published in The View, May 2023:

This has been a very busy month for Sun City Shadow Hills and the Nation. We will be considering two questions this month that we are sure are of interest to you.

1. Who is the new legal counsel for the Association?

We began March having received a resignation of the Epstein Law Firm as counsel for the Association. The General Manager and the Board immediately started a search for qualified law firms that principally represented California homeowner’s associations. We were very pleased that two of the premier law firms in this field were available to this Association. The Board conducted intensive interviews of these law firms and then made a unanimous decision on a new firm.

The new firm is the Tinnelly Law Group of Mission Viejo, California. This firm even has three seasoned attorneys in residence in Riverside County which is a real advantage for the Association. The Tinnelly Law Group has represented California HOAs exclusively for over 30 years and possesses the depth and expertise that the Board sought for our community. The firm has a deep understanding of the unique legal landscape faced by associations and their boards. This firm represents almost 1400 associations of various sizes so it knows the issues that confront an association from large to small. In addition, they are no strangers to litigation or the appellate courts and have numerous reported appellate decisions.

The other special asset that they bring to our Association is that they participate in the various California Community Associations on a state level and serve on various statewide boards that are in regular contact with the California legislature. Plus, they have created a comprehensive library of HOA law and legal information known as www.findhoalaw.com, and regularly publish a newsletter of current matters of concern to HOAs. During the interview process, they presented each Board member with their publication, Board Member Basics. This community should be very pleased that we have a law firm with HOA expertise, a depth of qualified legal professionals, and local access for our Board.

2. Is this Association protected from a bank failure?

The other hot topic of the month in the nation has been recent bank failures, with one of the largest here in California. As we all know the FDIC protects our bank balances up to $250,000.00, but what about protection for our Association that has funds on deposit each month that are much more than that coverage limit? Thankfully, this Association and its managing entity are aware of this exposure and have protected the Association’s funds for years from a possible bank failure.

I am sure your question is then, “How is it protected?” Desert Resort Management (DRM), our management entity, purchases a Private Depositor’s Bond that protects all moneys over which it has oversight above the FDIC coverage limit of $250,000.00. The FAC reviews that bond quarterly to be sure it is providing adequate coverage for the Association’s funds. The bond currently has a coverage limit of $300,000,000.00, and combining all accounts controlled by DRM in all associations that it manages, those accounts have a monthly average of 250 million dollars, so this Association’s funds are well protected from the adverse consequences of a bank failure. We certainly hope that this Association is never a victim of a bank failure, but rest assured the Association funds will not be lost.

Contact the author at finance@scshca.com.

By Robert O. Jester
Finance Advisory Committee Chair

As published in The View, April 2023:

Question of the Month: What is the annual Budget Mailer and why is it important?

Each year as required by California law, you, the residents of Sun City Shadow Hills, receive a “Budget Mailer.” The term, Budget Mailer, is probably not descriptive enough for what is really contained within it and why it is important for you to review it. I hope to let you know its importance in this article.

The cover letter sets out the applicable law that the mailer complies with and outlines for you its contents, and you will be aware quickly that the Budget Mailer contains a great deal of information that is important for you to know.

The President’s Message contains, each year, the monthly assessments that you are required to pay, and it specifies each area of the Association finances that it is designed to cover for the coming year. For example, you learn what portion of the assessment is attributed to the Operating Fund that covers the Association’s monthly expenses. There is also a colorful chart that highlights how much each of the day-to-day costs contribute to the total Operating Fund budget. This is followed by Pro Forma Capital Improvement and Replacement Fund Budget summaries for your information.

You are also provided the Association’s Reserve Study Summary along with the Statutory Reserve Funding Disclosure Statement. These reserve study documents explain how much of the assessment is attributed to the Reserve Fund and the Replacement Fund budget. In 2023, $62.41 of your monthly assessment goes to the Reserve Fund, which is the fund that will replace all the components used in the operation of this community that reach the end of their useful life. The actual reserve study lists all these items, but because of its length you receive a summary prepared by the reserve specialist who researched and prepared the study. The Association each year hires only reserve consultants who are registered with the state and meet the state-designated requirements to prepare such studies.

You also receive the Association’s collection policy, foreclosure policy, and its alternative dispute policy. This is followed by a summary of all the insurance coverages that the Association carries for the protection from claims and replacement of facilities.

Finally, you receive the notice of the Design Review Process that must be followed with respect to your property and the enforcement duties that this advisory committee has, if you fail to comply with the required design processes and your property repair and upkeep obligations. Many of these failures may result in fines, so it is important be aware of all the design review requirements of the Association.

So, this “Budget Mailer” is your guide to the Association finances for the next year, your monthly assessments, and the backup information that is accumulated to establish the budget and assessments. The Budget Mailer is a must-read for you to stay informed and understand your responsibilities as a resident of Sun City Shadow Hills.

Note: If you have misplaced your 2023 Budget Mailer, you may find it on the SCSH website under the HOA tab, then HOA Finance & Planning file, then Budget Mailers

Contact the author at finance@scshca.com.

By Robert O. Jester
Finance Advisory Committee Chair

As published in The View, March 2023:

Is there an annual review of the financial records of this Association by an outside independent Certified Public Accounting firm?

The short answer to this question is YES. But why it is done and what is reviewed is far more enlightening for you, as a resident of Sun City Shadow Hills. The California Civil Code Section 5305 requires a review of the Association financials by a licensed accountant and further requires that the Association financial records must be prepared in accordance with generally accepted accounting principles (“GAAP”). After the review, the report on the audit is to be distributed to residents within 120 days after the close of each fiscal year.

Sun City Shadow Hills contracts with an independent, licensed, certified public accounting firm annually for this review. The accounting professionals who conduct the review request the following as a part of the examination that culminates in the final audit report:

• Cash and Investments – This includes the Bank reconciliations for all cash accounts with supporting bank statements. Plus, a schedule of all cash transfers between bank accounts for a period 5 days before and after the year-end.
• Accounts Receivable – This is a detail listing and/or ledgers of all accounts receivable, as well as an analysis of all bad debts written off during the year.
• Inventory – This is a listing of all inventory accounts with supporting count sheets from all departments, which must agree with the general ledger balances.
• Prepaid Expenses – A schedule of all pre-paid expenses, which must agree with the general ledger. This includes all insurance premium billings, which will be reviewed by the audit team.
• Fixed Assets-- This is a review of the details with reference to all fixed assets and the accumulated depreciation at December 31^st.
• Accounts Payable and Accrued Liabilities – This includes a review of all accounts payable, accrued liabilities, sales tax returns, and the cash disbursements journal.
• Payroll and Related Liabilities – The schedule of all accrued payroll and vacation.
• Unearned Income/Deferred Revenue – This is the schedules and reconciliations of all unearned income, including gift certificates.
• Long-term Liabilities – Schedules of all long-term liabilities and capital lease obligations with statements reflecting current balances
• Income and Expenses – This request is for the gains and losses on all assets disposed of during the year and copies of all check registers.
• Income Taxes – This includes fuel tax credits review and total tipped wages.

As you can easily see, this is an exhaustive list of financial records that are reviewed annually, as required by the Davis-Stirling Act. The goal of these audits is to assure residents that the Association is functioning accurately, openly, ethically, honestly, and that the financial records are following GAAP. All of us should feel very secure in that the Association’s Financial records are under constant monthly review from the Finance Advisory Committee and the Board and an annual review by an outside independent licensed Certified Public Accounting Firm.

Contact the author at finance@scshca.com.

By Mike Whelan
Vice-Chair for Investments

As published in The View, February 2023:

Question of the month: In what Association accounts is cash held and for what purpose?

In discussions regarding the Association’s cash holdings at the most recent Finance Advisory Committee (FAC) meeting, it became apparent that an explanation regarding cash accounts might be helpful for the community’s understanding. Much of the confusion stems from the Statement of Cash in the general manager’s report. As I will explain, much of this cash is dedicated to specific expenses and is therefore not a summary of excess amounts or “found money.”

There are three separate accounts that hold cash. They are called (1) General Operations, (2) Replacement Fund, and (3) Capital Improvement. This third account is now formally dedicated to known and potential expenses of the North Channel Flood Control Project (NCFCP).

The Operating account receives and disburses approximately $900,000 each month. There are basically two commercial bank accounts that are both FDIC insured and covered by a Private Deposit Bond maintained by DRM for amounts in excess of FDIC limits. Some have looked at balances in these accounts (averaging approximately $3 million) and considered this to be “surplus” cash. But some of this cash does not belong to the Association. Some examples are expenses we have incurred but not yet paid, assessments paid in advance, club funds we hold, and cash held by Troon in their operating account. These items are shown as current liabilities on our balance sheet and average between $1 and $1.5 million.

The FAC calls this difference between cash and current liabilities “net working capital.” It is available for unbudgeted expenses, expenses that exceed budget, or other unplanned but necessary operating expenses. HOA consultants and accountants recommend that a conservative but reasonable amount of “working capital,” which should be held by the Association, is 1.5 to 3 months of operating expenses. Our operating budget assumes about $900,000 of expenses each month, so adequate net working capital would be between $1.350 million and $2.7 million. At less than $2 million, our average net working capital is comfortably in the middle of the recommended range.

The Replacement Fund is dedicated to worn out or damaged common area property. It is currently valued at about $14 million. Each item of community property is evaluated based on assumptions of useful life, cost, and inflation. In addition, we assume a net investment earnings rate. As a result of the Replacement Fund’s activities, there is always some cash (between $1 and $2 million at any given point in time) in the fund but, because this cash is dedicated to replacement, it is not available for any other purpose.

Finally, the Capital Improvement Fund account holds only cash. It was created by a Finance Advisory Committee recommendation and the acceptance by the Board and funded with $1.5 million of excess working capital previously held by the Association. In addition, $3,450 ($1 per household) is dedicated to this fund each month from the residents’ assessment payments. Approximately $354,000 of flood control project expenses have been paid by this fund, leaving a current balance of about $ 1.3 million. As the flood control project continues, we expect to incur significant additional expenses.

I hope this explanation lets you know that the Association does hold cash, but it is held and specifically dedicated to the needs of this community. In the future, when someone asks, “What about all that surplus cash the Association holds?” you will be able to tell them that there is no “excess cash.” It is all cash dedicated to a purpose and not to be used except for the specified dedications indicated in this article. The FAC monitors these accounts monthly to assure you, the resident, that the Association and the Board are in compliance with their use of all dedicated funds.

Contact the author at finance@scshca.com.

By Robert O. Jester
Finance Advisory Committee Chair

As published in The View, January 2023:

Question of the Month: Why have the Association’s insurance premium costs increased so much over the last two years?

It is extremely important to note that the insurance premium increase is not solely an issue for the Sun City Shadow Hills Association, but it is a nationwide problem for all homeowners’ associations. The reasons are in part:

1. The vast extent of natural disasters that the United States has suffered over the last two years are a significant contributing factor to premium costs. For example, the wildfires in California have caused extremely high expenditures by insurance companies and worldwide the catastrophic losses have been $210 billion due to natural disasters. The consequence is, that there are fewer and fewer insurance companies willing to cover properties that might be subject to a natural disaster whether that is wildfires, earthquakes, tornados, or hurricanes and those that are willing to write the insurance, have significantly increased their premiums.
2. It is important to remember that insurance companies “reinsure” the policies that they write, so they can control the extent of their losses on their policies sold. With large losses, a significant portion of the loss is suffered by reinsurance companies. Therefore, industry-wide reinsurance companies have been pulling back on how much risk that they are willing to accept. In addition, they have been increasing their premium charges to the insurance companies that they reinsure or in many cases simply refusing to write reinsurance for areas that have suffered large natural losses. For example, in northern California where communities suffered huge losses due to wildfires their insurance carriers passed a large portion of those losses on to reinsurance companies and many reinsurers have refused to renew policies. Nationwide insurance premiums have doubled, tripled, or quadrupled and in addition deductibles have been increased to as much as $100,000.00. The bottom-line is that this is not a Sun City Shadow Hills situation but a national situation of extreme insurance cost increases.
3. One must also factor in the inflationary forces that we have seen recently with building costs increasing at least 8 to 10 percent along with supply issues nationally. All these inflated costs also have a direct impact when an insurance company determines premium costs, especially when one has “replacement cost coverage.” If replacement costs continue to go up, the consequence will be continued increases in insurance premiums.
4. One specific factor that has touched our community is that we had two large liability losses due to personal injury claims in the period of 2018 to 2019 and those losses, combined with the natural disasters, caused our 2021 insurance carrier to not renew our policies. The good news is that we have not seen large personal injury losses since 2020 and those past losses will be approaching 5 years old, which means that they should no longer have an impact on our insurance premiums costs beginning in 2023.

So just remember Sun City Shadow Hills is one of 50,000 community associations in California where 13 million Californians live in 3,727,000 homes, we are all in this together and we are all suffering from increased insurance costs. Finally, the California Insurance Commission is studying ways to try to help all our 50,000 community associations find relief from these increases and hopefully we will see constructive progress in the near future.

Contact the author at finance@scshca.com.

By Robert O. Jester
Finance Advisory Committee Chair

As published in The View, December 2022:

Question of the month: Who are the members of the Finance Advisory Committee and what are their qualifications?

I want to begin this last article for 2022 by thanking most sincerely the dedication and work ethic of all the members of this Committee. We are a very busy committee that demands a lot of volunteer time with the goal of keeping this community financially sound in this difficult financial atmosphere with viruses, wars, and inflation.

The Charter requires that this committee be composed of resident homeowners with verifiable professional backgrounds in finance, accounting, law, investments, or relevant business management.

These are the professionals who have stepped forward to assist and guide the Board with in-depth reviews and recommendations on all assigned topics:

• Larry Anderson (Vice-Chair Financial Analysis) with an accounting degree and several years of experience with Big 8 accounting firms, he moved on to be the Chief Financial Officer of several hospitals and later became a Chief Executive Officer in the healthcare industry. He did all this while volunteering to serve in numerous financial and consulting positions with charities and non-profits.
• Mike Whelan (Vice-Chair Investments) joined our committee with over 40 years of experience in financial services which included sales, trust management, banking, and asset management. He was employed by two life insurance companies, seven banks (to include Comerica and the Merrill division of Bank of America) and two money management firms. He prides himself on being familiar with virtually every operation and practice within the financial services world.
• Zerryl Becker (Vice-Chair FAC Sub-Committee) is a recently retired Dean of Applied Sciences and Business at College of the Desert. She was responsible for numerous programs at the college to include the culinary program, the golf Turfgrass program, the air conditioning program, the construction management programs and accounting programs. She has an MBA in Management Information Systems and in her career has had extensive experience in construction and technology management while analyzing and procuring technology equipment, managing large budgets, and developing software programs for private industry and education.
• Todd Murphy (Vice-Chair Budgets) has a Business Management degree and a master degree in Environmental Education. He served as a Councilman and the Mayor of Yorba Linda California and President of the Big Bear Municipal Water District. In the 14 years before coming to our community, he held various executive positions with the Orange County Transportation Authority and started the first freeway Callbox program in California. He finished his service during the Orange County bankruptcy when he and his management staff successfully reduced the transportation budget by 10 million dollars without sacrificing service hours or the quality of service.
• Jerry Cavoretto (Vice-Chair Insurance) has over 40 years of Property Management and Association Supervision. His vast experience includes club management, project management, budget management, personnel supervision, facility management, contract development and executive administration. Jerry was the owner and operator of Premier Management and Consulting and only recently retired from years of Association Management in our valley. He even served in the past as the SCSH Treasurer for 5 years. He has earned accreditations as Certified Community Association Manager, Certified Manager of Community Associations and Association Management Specialist.
• Ed Levine (Vice-Chair Tax & Audit) has been a New York State registered Certified Public Accountant since 1967. He has served in the past with an accounting firm and with the Internal Revenue Service before starting his own accounting partnership and, in addition, for the last 35 years he co-owned and served as CEO of a school for special education in New York which was state funded and had 300 students with a staff off 175 while still practicing tax accounting. He serves this committee with his vast tax and audit experience.
• Larry Crestol (Vice-Chair Accounting Compliance) became a Certified Public Accountant in New York and after working with an International CPA firm moved his family to California. He worked with firms in Los Angeles and then started his own accounting firm and retired after 40 years in the practice. After the loss of his wife and a mourning period, he volunteered to join the FAC and share his accounting skills and experience to benefit our community.
• Bob Jester (Chairperson) was a practicing attorney for 44 years in Missouri. He and his partner formed a law firm in 1982, which still exists today. His practice began with civil litigation and over the years he developed a corporate and business litigation expertise that won for him the recognition of his legal peers by being selected as a “Super Lawyer” for an extended period of years. He has extensive experience in drafting contracts, overseeing contract compliance, and litigating contract issues.

We are still looking for another member with an accounting and business background, CFO experience or a CPA. Please consider applying to join our committee.

Contact the author at finance@scshca.com.

By Zerryl Becker
Finance Advisory Committee Vice-Chair

As published in The View, November 2022:

Question of the month: What is the Finance Advisory Committee Subcommittee, and who are the members?

Each proposed HOA expenditure over $5,000 is reviewed by the Subcommittee, which sends its recommendation and comments to the Finance Advisory Committee.

The Subcommittee works to preserve our community by ensuring a due diligence structured and detailed proposal evaluation and contract negotiation process for contractor bid evaluations and selections and by keeping our reserves at a reasonable level. Members review each request and visit the site of the proposed expenditure to review the need for replacement or repair.

There are three members of the Finance Committee on the Subcommittee and five additional HOA volunteers experienced in construction, engineering, equipment, and procurement.

Members of the Subcommittee include:

• Zerryl Becker, Vice Chair and member of FAC, is a former Dean of Applied Science and Business at College of the Desert, responsible for programs including culinary, golf, turfgrass, air conditioning, construction management, and accounting.
• Mike Whelan, FAC Vice Chair for Replacement Fund investments and the financial liaison from FAC to the Subcommittee, has 40+ years of experience in financial service, primarily sales, trust banking, and asset management.
• Bob Jester, FAC Chair, was a practicing attorney for 44 years. His practice included construction surety bond work for numerous large projects where the contractor had defaulted, including the selection of new contractors for the completion of the project and supervision of the project completion, and extensive experience in drafting contracts, overseeing compliance, and litigating contract issues.
• Chris Stevens has 40 years of experience working for the Caltech Jet Propulsion Laboratory in space flight technology development and line, project and program management for NASA earth science, astrophysics, solar physics, and planetary missions. Chris brings experience in technical risk management and cost estimation to the Subcommittee.
• Rick Ambrose retired after 35 years running a multi-staff civil/structural engineering firm that focused primarily on structural design involving military projects and public works facilities like bridges, box culverts, and pumping stations. In addition to design responsibilities, Rick was responsible for overseeing the contracts for and construction of these facilities. He is currently a member of these Advisory Committees: Emergency Preparedness, CVWD North Channel, Facilities and Services, and Five-Acre Parcel.
• Jim Bullock brings 34 years experience working for golf course maintenance equipment distributors in the fields of information systems, accounting, budgeting and forecasting, equipment leasing contracts, inventory management, vendor relations, new and used equipment sales, lease residuals, and trade-in equipment assessment.
• Ted Shettler has an MBA and is the former Public Works Director for San Marino, CA. Working in consulting, he designed a number of stormwater projects around LA County, including project management and environmental issues.
• Don Salvatore spent over 50 years in the construction industry specializing in commercial renovation projects, including Anaheim Stadium and Disneyland California Adventures. As the owner of his own company, Don negotiated many contracts between labor and management. He has been a member of the Subcommittee since 2013.

The committee is searching for one additional member with experience in construction, engineering, or procurement. It is a very rewarding way to learn more about your HOA and contribute to the community. Applications are available on the SCSHCA website at www.scshca.com/committeeinterest.

Contact the author at finance@scshca.com.

By Robert “Bob” O. Jester
Finance Advisory Committee Chair

As published in The View, October 2022:

Question of the month: Is it important to have the Finance Advisory Committee (FAC) conduct an annual insurance review for the Association?

The short answer is, of course, yes, but the real question is why is it important? When we discuss an annual insurance review, we are not referring to shopping for insurance or comparing insurance quotes. We are referring to the true need of reviewing the HOA’s current insurance coverage and getting a basic idea of what is insured, how it is covered and what insurance coverages might be missing as the needs of an HOA change with time.

Proper insurance coverage is an absolute necessity for a HOA, since without it, the assets of the HOA are exposed and at the same time the residents have potential financial exposure, since they fund the HOA with their monthly assessments. Most CCRs, including Sun City Shadow Hills (SCSH), require an annual review and the charter of the FAC requires it to conduct an annual review. In addition, it is necessary to make sure the coverage of the HOA meets all the required state law requirements.

The FAC and the Board must also ask “did the association make significant improvements or upgrade its property?”, which requires more coverage, or add new equipment to a department like maintenance, which again requires more coverage. Another question is always, has the HOA allowed a new unsafe condition to exist, whether it is temporary or permanent, that will present liability exposure in the coming year. In addition, we must always be concerned about “Mother Nature” and what she may throw at us that will cause damage to HOA property, notwithstanding our continuing concern with potential earthquakes.

All of these questions and concerns speak directly to the Board’s primary fiduciary responsibility to “protect, maintain and enhance the HOA property” and not having proper insurance coverage is a violation of that responsibility. Thus, the Board always must choose an insurance agency that “specializes” in HOA insurance coverages for our region.

California state law requires that an association maintain a minimum Directors & Officers insurance policy with a limit of $500,000 (Civil Code 5800) and a General Liability policy with a limit of at least $3 million (Civil Code 5805). Because the California legislature revises our laws almost yearly, the insurance broker, the Board, and the HOA’s legal counsel must be constantly on the watch for these changes so as to comply with the law and not expose the Board to personal liability for a failure of fiduciary duty. Plus, insurance policies of HOAs must comply with the other constantly changing guidelines of financial institutions, regulatory agencies either federal, state or local and certain outside vendors like Associa.

The FAC plays an important role in the annual insurance review by confirming what property needs to be insured and is the property insured for common hazards i.e., fire, water leakage, etc. The FAC looks at the exclusions and their impact on the needed coverages and reviews the applicable deductibles. The FAC must also ask does the coverage limits comply with the law, is there coverage for the Directors & Officers, has the HOA provided the required coverage in the contract with its administrative vendor, i.e., Associa? So, as you can see, there are a lot of questions which require careful annual reviews of the HOA’s insurance coverage for the protection of all of us not just the HOA.

I wish to thank our broker, Prendiville Insurance Agency, for their assistance in preparing this article, as they do specialize in providing insurance for HOAs and have the expertise that this association must have in this risk filled, litigious time for associations and their residents.

Contact the author at finance@scshca.com.

By Robert “Bob” O. Jester
Finance Advisory Committee Chair

As published in The View, September 2022:

Question of the month: How is the Association Budget for 2023 created?

It would be an understatement, if I said it was anything but a complex process, but I think that you should be pleased that a great deal of time and effort goes into creating each yearly Association Budget. It starts with the General Manager meeting with each department head and reviewing the past year’s budget and how the department succeeded or failed in meeting that budget and then the discussion turns to the coming year. Questions like what are your department’s needs in 2023 and then the obvious inquiry: “is that something that is really needed in the coming year?” After those series of meetings and discussions, a draft budget is prepared and then the real work begins. It is said that every $40,000 increase in the budget raises your monthly assessment by $1, or $12 a year. Now you see why this process is complex and really calls for complete and accurate reviews with a little prayer thrown in for good measure.

The draft budget is sent to each department for further review, and it is presented to the Finance Advisory Committee (FAC). The FAC, by Charter, is assigned the responsibility to assist the Board in the review, evaluation, and preparation of the budget(s). I say budget(s) as we are not discussing just one budget but a budget for the Association’s Annual Operating Fund and a Replacement Fund budget, as well. The FAC is also to work with all the other Advisory Committees who have requested budget allocations and it must carefully review each such request for its level of need and necessity and report to and make recommendations to the Board.

Once a draft budget has been created and reviewed and revised extensively, it is time to open it up to public inspection and review by our residents. There are three public meeting held each year in which the budget is displayed for the residents and comments are taken for further review. This year those meetings are at 10 am on August 24, September 21, and October 19 in the Montecito Ballroom. This will not be a normal year in which to create a budget because the US economy is experiencing inflation in the area of 8 to 12% and the investments of the Association funds have been affected as well by a weak financial market. Please join the FAC members and attend the public meetings and help the Association create our budget for 2023.

See you in the next scheduled Budget Meeting at 10 am in the Montecito Ballroom.

Contact the author at finance@scshca.com.

By Robert “Bob” O. Jester
Finance Advisory Committee Chair

As published in The View, August 2022:

Question of the Month: Does the Association have a Procurement Policy?

The short answer to this question is YES, but let’s look at what it states.

Our Board of Directors reviews the procurement policy and revises it as needed. The last revision was in January 31, 2022. It provides the rules for the purchase of ordinary and necessary goods and services for our community. The intent is to increase competition among potential vendors who want to bid on providing goods and services to our community so that we obtain optimum value for these purchases. The policy also provides accountability for the expenditure of funds by the Association.

To accomplish these goals, there are Approval Levels and mandatory bid requirements which you can review on the Association website. Generally, the policy provides that the General Manager may approve purchases of less than $2,500 but must report these expenditures to the Board President and the Treasurer every week. For purchases between $2,501 and $5,000, no bids are required; but the entire Board must authorize such an expenditure.

Purchases of $5,001 to $10,000 require two bids plus a review and recommendation by the Finance Advisory Committee (FAC), with the Board making the ultimate decision. Finally, a purchase in excess of $10,001 requires three bids, a review by the FAC, and a decision by the Board. ALL purchases must identify where the funding will come from in the annual budget. If it is not provided for in the budget, the purchase must be justified, and there must be a disclosure of how it will be funded.

There are numerous other conditions that must also be met for each purchase. One of the most important is that the FAC written recommendation to either approve, modify, rebid, or deny the proposed purchase shall be available for resident review. This provision as well as requiring FAC review on all purchases over $5,001 were only recently included in the latest review of the policy. Before that, the FAC only reviewed Replacement Fund expenditures over $10,000; but it now reviews ALL expenditures over $5,001. This ensures that each and every larger purchase is examined by many eyes before the purchase is made.

To read the Procurement Policy on the Association website, look under HOA, then Documents, then click on the HOA Board file. We hope you will be very pleased that our Association seeks to make its purchase procedures transparent. Members of the FAC plus its Sub‑Committee (including Vice-Chair Zerryl Becker) have a wealth of relevant experience and knowledge gained through their various previous careers.

The Sub-Committee has one opening for a resident who has had a career in construction, engineering, corporate or government purchasing, or other positions where sound monetary decisions were needed. If you have any questions about the functions of the FAC, do not hesitate to contact us at finance@scshca.com.

Contact the author at finance@scshca.com.

By Robert “Bob” O. Jester
Finance Advisory Committee Chair

As published in The View, July 2022:

Question of the Month: What is the Replacement Fund?

Last month we discussed the Reserve Study, and this month we will learn how the Reserve Study affects the Sun City Shadow Hills Replacement Fund. The items that need replacement after their useful life are found on the replacement fund list if they have a useful life of 30 years or less. This list is created by the experts we hire to conduct the Reserve Study. During a Type 1 Full Study, these experts visit our community, take photographs of equipment, and record measurements. Then the experts develop a useful life schedule and determine an estimated cost to replace each item at the end of its useful life. Once the experts make these determinations, they then determine an amount each year that our HOA must put in reserve to replace that item at some predetermined time in the future.

When an item needs replacement, it is identified on the reserve study so that the department head, such as maintenance, can seek bids for its replacement. The department head evaluates the quality of the suppliers and suppliers’ product and prepares a Board Action Form (BAF) to which the suppliers’ bids for replacement are attached. There are usually at least three bids on each replacement request.

This BAF then goes to the SCSH General Manager who will in turn forward it to the Finance Advisory Committee and its Sub-Committee for pricing investigation, inspection of the item for which replacement is requested, and preparation of a recommendation to the Board about whether the replacement request is justified and priced properly. The Board makes the ultimate decision on the replacement purchase using the replacement funds.

The list of items covered by the Replacement Fund numbers in the hundreds. The items range from patio furniture to ice machines and golf course mowers. The FAC Sub-Committee has members who have experience in various fields like construction, purchasing, and engineering. These members are all volunteers who spend their time assisting our community in evaluating if the replacement request is justified or if it can it be safely deferred.

A lot of consideration has gone into keeping this community in first class condition, and we are fortunate to have had management practices over the years that have created a sound replacement fund to meet the needs determined by the Reserve Study, without which we could be exposed to special assessments or community loans.

The FAC Sub-Committee has two openings. If you possess specialized skills or experience from your past or current work activities, we encourage you to complete a Committee Interest Form and help us keep this community financially sound.

Contact the author at finance@scshca.com.

By Robert “Bob” O. Jester
Finance Advisory Committee Chair

As published in The View, June 2022:

Question of the Month: What Is a Reserve Study, and Why Does the Association Have to Perform One?

A Reserve Study identifies major components of the facilities owned by an Association such as air conditioners, etc., that have a remaining service life of 30 years or less. The Davis-Stirling Act, which is the California law that regulates Homeowner Associations, requires an Association to perform Reserve Studies at least once every three years. The study is to be a report based on a diligent visual inspection of the accessible areas of Association components which the Association is financially responsible for maintenance, repair, and replacement. (See CA Civil Code sec. 5550.)

In addition to identifying the components, the study estimates the cost of maintaining or replacing the major components and provides a funding plan to meet these Association needs through the residents’ annual monthly contributions. The studies are also reviewed annually by the Association to determine whether events over the past year warrant adjustments to the reserve funding. The Reserve Study and the accumulation of the required reserve funds is designed to prevent the necessity of special assessments and/or loans to cover Association’s needs.

If the reserve funds are properly accumulated annually, the residents should feel that their investment in a community is jeopardized by special assessments or Association debt obligations. The latest Reserve Study conducted by SCT Reserve Consultations, Inc., confirmed that -- out of our current monthly assessment of $309.00 -- $51.23 is allocated to our reserves. It also indicated that the reserve amount that we presently have in our replacement fund is 77.37% of suggested total funding. Learned opinions have determined that this is excellent because it presents only a 1% or less chance that we would suffer a special assessment or loan.

As a resident-owner, you receive the Reserve Study Summary with your annual budget report; and you have the right to request an opportunity to review the entire Reserve Study.

The Finance Advisory Committee (FAC) assists in the selection of a competent reserve study consultant and makes that recommendation to the Board for approval. The FAC will also review the report regularly throughout the year, and the FAC has a voice in all proposed replacement fund expenditures in excess of $5,000 from the reserve funds. We at the FAC take this obligation in our Charter very seriously, as we continually work to keep our community financially healthy.

Contact the author at finance@scshca.com.

By Robert “Bob” O. Jester
Finance Advisory Committee Chair

As published in The View, May 2022:

Question of the Month: How Does the Financial Review Process Happen?

Interested residents will find it helpful to know how the review of the Finance Advisory Committee (FAC) comes together each month. Within ten (10) days from the first of each month, with the assistance of their Arizona shared services section, Troon generates the financial reports for the preceding month, and those go to the FAC and Association management. Within five (5) days thereafter, Desert Resort Management’s (DRM’s) corporate office in Dallas finalizes the Association financial reports for the previous month and submits those to Tyler Ingle, our Association General Manager, for review and submittal to the FAC.  The FAC receives the financial reports before its monthly meeting so members can analyze the reports in order to have a productive meeting.

By Charter, the FAC’s mission is to review and analyze the financial reports monthly to:

1. Ensure they are clear, concise, informative, and completed in accord with Generally Accepted Accounting Principles (“GAAP”);
2. Ensure they are free from material misstatements, whether due to fraud or error;
3. Advise the Board when those records have been reviewed and that they are recommended for approval by the Board;
4. Review and recommend approval of the Treasurer’s Report;
5. Review the monthly bank reconciliations of both the Association accounts and the investment accounts, and advise the Board if they are recommended for approval.
6. Review numerous other financial records, including the annual forecast of revenues and expenses, bad debt reports, and variance reports, to determine if the Association is operating within its approved budget. If a significant variance is found, it would be immediately reported to the Board for appropriate action.

There are, of course, many other assigned duties in the FAC Charter but these are the principal ones that deal with the monthly financial reports issued by Troon and DRM that require FAC action monthly and FAC recommendations to the Board.

We will provide other helpful information and explanations for you in future issues of The View. If you have any specific financial questions, please contact the FAC at finance@scshca.com.

Contact the author at finance@scshca.com.

By Robert “Bob” O. Jester
Finance Advisory Committee Chair

As published in The View, April 2022:

I prepare this article having been selected to lead the Finance Advisory Committee (FAC) on March 1, 2022, upon the acceptance of the resignation of the current Chair, Larry Helseth. I have some very big shoes to fill because Larry had a long and accomplished career as a Certified Public Accountant and had previously served for several years on the Finance Advisory Committee. I will not pretend to have the financial knowledge of any of my predecessors in the position of Chair, but I do commit to this community that I will do my best to lead the committee to accomplish its assigned tasks under the FAC Charter.

I have begun the transition process by redesigning the structure of the committee to profit from the vast professional and job experience of its current members. I have appointed Vice Chairs from the committee membership to take the lead in each area assigned to the FAC by its charter. Those areas are Financial Analysis, Audit and Taxes, Budgets, Contracts and Compliance, Investments and Replacement Fund, Insurance, and the Sub-Committee of the FAC that reviews all expenditure requests in excess of $5,000.. I will be asking each of these new Vice Chairs to introduce themselves to you over the next months and to provide you with their insights about the various functions of the FAC.

I know that many of you have questions about the oversight of the Association from a financial standpoint, so we always invite any questions that you might have. We are also in real need of another Certified Public Accountant to join our committee.

This committee is here to maintain the financial stability of our community in the face of the financial demands placed on the Association to provide security, a quality community appearance, and worthwhile amenity offerings for the benefit of our citizens. This committee promises to always be your “Financial Watchdog.”

Contact the author at finance@scshca.com.

By Larry Helseth, Chair of Replacement Fund Sub-Committee

As published in The View, January 2022:

Results of 2022 Reserve Study

Our 2022 Level 3 Reserve Study was completed in October 2021, and you can review it on the SCSH website (124 pages). It meets all the requirements set forth in the Davis-Stirling CID Act, Civil Code sections 5550 through 5580.

The reserve study is a long-term capital budget planning tool for the common area assets called components and includes a 30-year Funding Plan to repair, replace, restore, or maintain the components.

There are approximately 700 major component types in the study. Some examples are:  access gates, fountains, asphalt and concrete, fences, irrigation controllers, mailboxes, street poles, roofs, HVCA units, restaurant equipment, golf carts, lake liners, ceiling lights, fitness equipment, mowers, patio chairs, trucks, awnings, carpeting, pool heaters, plus tennis and pickleball courts, just to name a few items. Each component has a quantity, measurement unit, estimated life, remaining useful life, basis cost, current replacement cost, future replacement cost, straight line depreciation allocation, and a 100% funded level at beginning of the study year.

	2022	2021
Current replacement cost of components, note 4	35,743,196	35,117,247
Replacement fund balance, beginning of year (Cash in Bank)	14,054,829	13,343,219
Fully funded balance, beginning of year, note 1	18,166,159	17,321,131
Projected cash expenditures, current year	3,267,670	3,351,878
Percent funded, beginning of year, note 2	77.37%	77.03%
Average replacement fund deficit per homeowner unit	1,192	1,153
Monthly Replacement fund assessment	$51.23	$49.26
Percent of total budget allocated to reserves, note 3	16.6%	16.1%
Construction cost inflation rate	5.0%	3.0%
Return on investment rate	3.12%	2.25%
Income tax rate (Federal and State of CA)	28.11%	28.11%
Contribution percent needed in future years	6.63%	4.50%

Notes:

1. Accrued depreciation is calculated for each reserve component, then summed together for a total dollar value that represents 100% funded.
2. Dividing replacement fund balance by fully funded balance equals percent funded. Above 70% is considered a strong position for size and age of our association.
3. The percent of assessment allocated to the reserves should be around 20% of the operating budget. Fannie Mae and the Federal Housing Administration require a minimum of 10% of the total budget be dedicated to reserve contributions.
4. The three largest component categories are: Golf, 42.0%; Asphalt, 26.9%; and Clubhouse Buildings, 11.5%. All other components account for the remaining 19.6%.

FAC Members: Larry Anderson and Larry Helseth, Co-Chairs; Zerryl Becker, Bob Jester, Jerry Cavoretto, Mike Whelan, Mike Nilsson, Todd Murphy, Ed Levine. FAC Sub-committee Members for the Replacement Fund and Reserve Study: Chris Stevens, Don Salvatore, Mike Whelan, Bob Jester, and Zerryl Becker.

Contact the author at finance@scshca.com.

By Robert “Bob” O. Jester, Committee Member

As published in The View, December 2021:

Who Is on the Finance Advisory Committee, and What Does the Committee Do and Not Do?

In recent candidate interviews, it became apparent that there are numerous misconceptions about what the Finance Advisory Committee is and what it does. So I want to describe for our residents how this committee is composed and what we do and do not do each month in our meetings.

Who are the members of this Committee?

By charter, this committee is composed of residents who have expressed an interest in serving the community and have verifiable professional backgrounds in finance, accounting, law, or relevant business management in fields related to the committee’s responsibilities. These include insurance, investments, banking, corporate management, and best industry practices in financial reporting systems and systems of internal controls.

What does this Committee not do?

This committee has NO authority to spend Association funds or to direct Association staff to expend Association funds. Those powers rest with the elected Board of Directors of the Sun City Shadow Hills Association.

What does this Committee do monthly?

1. We analyze ALL Association and Troon financial statements in monthly meetings that last from three to five hours, and we commit approximately 12 to 18 hours in total each month to accomplishing the Committee’s obligations. In a typical monthly meeting, we review, analyze, and discuss approximately 125 pages of financial records. Our obligation is to look for errors in the reports, track trends, and compare the actual figures in all categories to the approved budget.
2. We assist with the annual budgeting process and advise the Board on budget issues.
3. We review all vendor contracts and insurance contracts and advise the Board about them.
4. We advise the Board on best industry practices, and the Committee is vigilant about the Board’s compliance with California law applicable to Homeowners Associations.

I count 20 areas of charter obligations that the Committee is to accomplish or consider each month.

What is the Reserve Study Sub-Committee?

The Finance Advisory Committee has a Sub-Committee with four Finance Committee members and two residents with specialized expertise. They review the Reserve Study Report, which is a key element of the Replacement Fund. The Sub-Committee also reviews proposed Replacement Fund expenditures in excess of $5,000 submitted by staff and advises the Board about whether the requested expenditure is justified.

Hopefully this gives you a better taste for what we do to serve the community and the Board. Future articles will discuss specific topics in detail.

FAC Members: Larry Anderson and Larry Helseth, Co-Chairs; Zerryl Becker, Bob Jester, Jerry Cavoretto, Mike Whelan, Mike Nilsson, and Todd Murphy. FAC Sub-Committee Members for the Replacement Fund and Reserve Study: Chris Stevens and Don Salvatore.

Contact the author at finance@scshca.com.

By Larry Anderson and Larry Helseth
Finance Advisory Committee Co-Chairs

As published in The View, November 2021:

The Finance Advisory Committee (FAC) is one of the standing committees established in our Bylaws and charged to make recommendations to the Board on financial matters.

At present, the FAC accomplishes this mission in many ways: financial reviews, analysis, auditing, compliance, research, and special studies with Best Practices recommendations.

 Each month a flood of over 60 financial documents is prepared by our HOA management company, golf management company, investment bank, insurance agent, contractor bids, and reserve consultant. To save the Board time, the FAC reviews all these documents for accuracy. Any imbalances or errors are corrected before forwarding them to the Board.

The FAC also reviews all contracts to ensure financial compliance with the CC&Rs and Rules & Regulations, and makes recommendations accordingly.

In coming months, we will discuss FAC’s activities in other areas of responsibility. But it is important to keep in mind that your elected Board makes all the decisions. The FAC can only make recommendations. This is why our conclusions are not published in The View. The Board, and rightly so, need not accept the FAC’s position.

In our current meetings, the FAC is reviewing the 2022 budget and the 2022 Replacement Fund Reserve Study plus participating in the Food and Beverage Special Subcommittee.

FAC Members: Larry Anderson and Larry Helseth Co-Chairs, Bob Jester, Jerry Cavoretto, Mike Whelan, Mike Nilsson, Todd Murphy, and FAC Subcommittee Members on the Replacement Fund and Reserve Study: Chris Stevens and Don Salvatore.

Contact the author at finance@scshca.com.

By Larry Anderson and Larry Helseth
Finance Advisory Committee Co-Chairs

As published in The View, October 2021:

Instead of our normal report we’d like to use this month’s article to pay special tribute to our retiring Finance Advisory Committee (FAC) Chairman, Bill Wethe.

Bill,

On behalf of the entire SCSH Community, the FAC wants to express our appreciation for your leadership and transformational efforts as FAC Chairman over the last five years. We are in a much sounder financial position because of your tireless and seemingly endless efforts as a leader, mentor, and caretaker of all our financial matters.

With your guidance, the FAC and the Board Treasurers have developed strong policies and procedures that will continue to enhance financial management, while providing confidence and stability for years to come. We all marvel at the number of hours you have devoted to the tasks at hand, your knowledge of our governing documents, how they need to be applied to new issues, and your extensive experience in the HOA management industry. You never lost sight of the big picture, yet no detail escaped your scrutiny.

You have provided Board members with invaluable analyses on a myriad of topics. Your expertise in construction, maintenance, and enhancements to hospitality venues has been a tremendous asset that is going to be difficult to replace.

Enjoy your “newly available time” to visit more often with your family members in Orange County and Arizona, play some golf, and participate in volunteer opportunities in the Coachella Valley and Orange County.

Thank you again for your service and dedication.

FAC Members: Larry Anderson and Larry Helseth Co-Chairs, Bob Jester, Jerry Cavoretto, Mike Whelan, Mike Nilsson, Todd Murphy, and FAC Subcommittee Members on the Replacement Fund and Reserve Study: Chris Stevens, and Don Salvatore.

Contact the author at finance@scshca.com.

By Larry Anderson and Larry Helseth
Finance Advisory Committee Co-Chairs

As published in The View, September 2021:

FAC Members

Larry Helseth returns to the FAC with the resignations of Bruce Marley in July and Bill Wethe in August. Larry previously served on FAC in 2016 through 2018. We now have seven members and Board approval for a total of nine members. As of this writing, we are interviewing one candidate. We are always looking for owners who have a financial background including accounting and financial reporting and an interest in serving on the FAC or on its Subcommittee on the Reserve Study. Please contact either of the Co-Chairs if you would like to discuss completing an Advisory Committee Interest Form.

Work Completed

During the month of August 2021, the FAC and its Subcommittee continued their work including:

• Review and recommend Board approval, subject to audit, of the unaudited July 2021 financial statements including the:
  • Combining and combined financial statements and supplemental financial information schedules.
  • Condensed financial information for The View magazine.
• Review of the year-to-date variance analysis on the:
  • 2021 Operating Fund revenues and expenses.
  • 2021 Replacement Fund expenses for the purchase and replacement of common area real property components and inter-fund transfers to the Operating Fund for the purchase and replacement of common area personal property and equipment components.
• Review and written recommendations on the 2021 Forecast (7+5) as compared to the 2021 Budget and the 2021 Forecast (6+6).
• Preparation of the Management Discussion and Analysis (MD&A) of the 2021 Forecast (7+5) as compared to the 2021 Budget and the 2021 Forecast (6+6) provided to the Board.
• Review and written recommendations to the Board on proposed BAFs for the expenditure of funds for the replacement or major repair of real and personal property common area components identified in the Reserve Study.
• Review and recommend Board approval of the July 2021 bank statements, bank reconciliations, and investment account statements.
• Regular meeting held on August 20, 2021.
• Preparation of the monthly written report to the Board for its meeting on August 30, 2021.
• Review of Q2 2021 HOA insurance market renewal update from the insurance agent with written recommendations for the 2022 Budget.
• Preparation of articles for Finance News on two new members and Replacement Fund investment in equity index funds.

Work in Process

• Review and written recommendations to the General Manager and the Board on the drafting of the 2022 Reserve Study.
• Review and written recommendations to Troon, the General Manager, and the Board on the drafting of the 2022 Budget.
• Mike Nilsson has volunteered to join the new Ad Hoc Advisory Committee studying the possible expansion and renovation of Shadows Restaurant.

Further Information

Additional FAC Members: Bob Jester, Jerry Cavoretto, Mike Whelan, Mike Nilsson, and Todd Murphy. FAC Subcommittee Members on the Replacement Fund and Reserve Study: Chris Stevens, Don Salvatore, Bob Jester, Mike Whelan, and Larry Helseth, Chair.

Contact the author at finance@scshca.com.

By Mike Nilsson, Member
and Bill Wethe, Chair
Finance Advisory Committee

Through December 2020 our Replacement Fund, per the existing Policy, was invested in cash based and fixed income assets. As we all know these investments are earning very low rates, far below construction cost inflation. In December 2020 the Board approved a change in the Investment Policy whereby up to 35% of the Replacement Fund could be invested in a professionally managed basket of low-cost equity investments. In April 2021 the Board approved moving $3 million (about 25% of the Fund) into equities. Almost $1 million was invested prior to July and the balance is to be invested over the remainder of this year. The “basket” is being managed by Comerica Securities and closely monitored by the FAC. The investments are in index funds, mutual funds and exchange traded funds.

To view a copy of the current Investment Policy use the following link on the HOA website:

https://www.scshca.com/wp-content/uploads/2021/04/Signed-Investment-Policy-Approved-12-21-20.pdf