By Robert Jester
Chair, Finance Advisory Committee
As published in The View, April 2024:
Question of the Month: What has the Finance Advisory Committee been doing over the past months for this community?
Since we are in the midst of the Board election season and a new Board configuration will be put in place in April, this seemed like a good time to look back over what the committee has been doing the past months.
One of the committee’s biggest tasks in 2023 was to assist in the budget process. We started on this in July 2023 and worked through the months until the final budget was approved in October 2023. Frankly, the committee had some input that did not make it into the 2024 budget, but the Board speaks for the community, and a budget was approved. We will carefully monitor the budget over the next months, and we will tackle the process again this summer. The committee is also drafting a budget process for the Board to follow for the 2025 budget, and we hope that the new Board will find it helpful and consider following it in the creation of the 2025 budget.
The committee is also close to approving an “operating cash available” formula for Board consideration and approval very soon. This is an extremely important formula to have so that the Board does not have to guess or assume how much “operating cash available” is present. Without this formula, the Board could be spending Association cash that would jeopardize the Association’s ability to pay its bills as they come due in both normal and crisis times. The guideline is to have enough available cash to meet two to three times the Association’s average monthly expenses. This is really just like all of us. We need that cash cushion for unexpected expenses.
We have also been doing an extensive analysis of our Reserve Fund and the items funded on the replacement list of components. They number approximately 834 components that have a useful life of less than 30 years. Most of these useful life and replacement cost figures have not been intensively studied for some time. Now that we have a vice-chair devoted to this purpose, we are plowing ahead. You just learned that as of December 31, 2023, we had 16.7 million dollars in our Reserve Fund.
But that is not the whole story, as there are more serious Reserve Fund concerns that are being considered by this committee. Today, if it was necessary to replace everything on the 30-year replacement list, it would cost 43 million dollars and that does not consider inflation and other economic factors. But thankfully, we yearly retain a licensed reserve specialist to calculate what the monthly resident reserve assessment should be to cover those costs spread over 30 years.
In addition, in the next five years we expect to spend 12 million dollars, so we will be focusing on adequate cash flows and the timing of the invoices that need to be paid. It is a laborious job, but it must be done. The Vice-Chair has spotlighted 80 components that comprise the highest dollar demands on the fund over the next 5 years. This requires the committee to carefully reexamine useful life and replacement cost on these 80 components, or we will not have the needed funds. We acknowledge that we are the “volunteers” who must spend the time to be sure the community is financially secure. We will accomplish our obligations, but we will need a Board that accepts our carefully researched recommendations for a healthy Reserve Fund. Remember that golf course maintenance equipment alone over the period of 2019 to 2024 has experienced cost increases of 62%.
A final thought on the future of the Association’s financial health, is the absolute need for a capital improvement fund and funding mechanism. We all hear the “we need a new or larger amenity” or “we need expanded clubhouse space.” But to date, we do not have a funding mechanism other than a special assessment, which everyone wants to avoid.
So, the committee’s request of you is to think outside the box and consider options and then be willing to accept new and inventive funding sources for your Association.
Contact the author at finance@scshca.com.