As published in The View, December 2023:
President
Now that the Board has reached a final decision on the annual budget, I thought it might be interesting to share my thoughts on the budget preparation process.
This yearlong process leads to the consideration of a final proposed budget in late October. The process is challenging because changes can occur until the last minute. This budget is a case in point.
In August, every year, our HOA asks Desert Resort Management (DRM) and Troon to develop and submit proposed budgets for intensive review by the Board and the Finance Advisory Committee (FAC). Each vendor is a little different because of the nature of its business. Some vendors are more employee-oriented, and others have a variety of issues that they need to address. After examining the first proposal, the Board asks for more “fine-tuning” and clearer explanations by line item. This process of “back and forth” continues over several months with each draft budget until it becomes more defined and ultimately accepted by the Board. This year was no different.
I want to thank the FAC committee, DRM, and Troon for all the hard work that they put into analyzing each line item of the proposed budget. The number of hours and energy expended was a testament to their level of professionalism.
In late October, the Board was looking at a rise in monthly dues from between $20 – $30 per month. It was suggested by our Capital Reserve Fund consultant that we raise the Capital Reserve Fund monthly payment (a portion of your HOA dues) from $62 per month to either $72/month or $82/month. The hike in dues to the Fund would be to keep the percentage of funding of the Reserves at either 65% or 70%, respectively. This would be on top of what we were going to need to budget for our vendors.
The Board decided to reduce the Capital Reserve funding by incrementally smaller raises of $5 each year over the next several years to avoid another very large monthly assessment increase. By taking this action, the Board was able to reduce the proposed monthly assessment increase to $13.88. Had we not done this, the monthly increase would have ranged from $18.88 – $28.88.
I want to acknowledge Terry Coon for his advice during a meeting in which he reminded the Board that the use of excess Working Capital could be used to lower the dues increase. The Board decided to take $207,000 out of our Working Capital and transfer that amount to the Capital Reserve Fund. This allowed the $5 to be taken off the $13.88 dues increase.
The final tally is a 2.67% increase in our dues. This solution affords vendors the subsidies they need to successfully conduct their business for the Association while at the same time funding the Capital Reserve Fund. The final monthly dues to the homeowners increased from $337 to $346.
I hope future Boards take advantage of excess Working Capital in this way to help fund the Capital Reserve Fund. I also want our residents to know that this Board is aware that this type of transfer should only be done if the funds are available and if the transfer will not have an impact on our ability to handle emergency needs. I also would like to suggest that all future Boards go through what I call a “Budget Boot Camp” to involve the members of the Board early in the process and to help each member understand their role. Currently, each Board member goes through a general boot camp, but I think this budget process needs to be a separate and more detailed camp.
Finally, happy holidays, and I hope your New Year is a terrific one!
Contact the author at jerry.conrad@scshca.com.