Budget and Finance Recommendation
Below is the Budget & Finance Committee’s budget recommendation to the Governing Board.
Our committee has reviewed 2012/13 budget information and forwards the following comments and recommendations.
General Comments:
1. We commend Mike Whiting, Roger Lansberry and their staff for their conscientious, thorough work in preparing the budgets.
2. We believe the budgets were prepared with appropriate, conservative projections of revenue, that efforts were made to identify expenditure savings where possible, and that the net result is reasonable and in line with the results of previous years.
3. Our committee considered the following goals when reviewing the budget proposals:
a. To set membership dues at a reasonable, maintainable amount that favors steady annual increases versus the roller-coaster effect of single-year large increases.
b. To continue steady capital projects investment, approximating the $3 million spent annually in previous years.
c. To address future infrastructure needs, both from the standpoint of reserving funds to pay for those expenditures and beginning a practical program of completing those projects over time.
d. To maintain reserves at levels that protect against potential uninsured losses and provide funding for major infrastructure needs.
4. We have used the Fiscal Planning Model to analyze financial information and evaluate the amount at which membership dues should be set to accomplish the above goals.
5. We have discussed the use of Asset Preservation Fees and the funding of capital projects. Previously, the amount to spend on capital projects was viewed as the sum total of annual depreciation plus any net income added to Members’ Equity at the end of the year. In other words, the reserve for repair and replacement equaled net revenues minus expenditures before depreciation. We believe this approach does not accurately represent the source of funds for capital projects. Instead, the Asset Preservation Fees should be viewed as the first source of revenue for maintaining and improving our facilities, with any additional amounts required being funded through spendable Members’ Equity.
6. Here are some specific budget items of note:
a. The budget proposal includes an across-the-board increase in wage rates in addition to amounts for pay equity as determined by a compensation study. We recognize that Sun City West employees have foregone pay raises for two years and strongly support increasing pay for the dedicated employees serving our community.
b. A change in accounting method in 2011/12 results in a significant increase in the budgeted amount for employee vacation pay versus previous budgets. In the past, vacation pay was expensed as employees used vacation days. The method was changed in the current fiscal year to accruing vacation pay as earned, which is the generally accepted method. This does not affect the amount paid to the employees; it is an issue only of when those payments are reflected in expenditures. The 2012/13 budgeted amount is in line with the projected 2011/12 actual expenditure using the new method.
c. Previous budgets included a Budget Stabilization amount of $500,000. We do not believe this should be continued, nor that any amount of Members’ Equity should be reserved for budget stabilization.
d. The proposed budget includes additional expenditures for implementation of a program to allow Owner-Members to pay membership dues using credit cards. This program has been requested by Owner-Members and staff of the Membership Division.
7. In part due to the recent bylaw proposals and, in part, based on new data received as March, 2012 financial information is analyzed, the budget proposal remains a work in process. At the time of our deliberations, the amounts had not been finalized, particularly in regards to the capital budget and the rate for membership dues. This Committee will continue to review information as it becomes available and provide staff and the Board with feedback and recommendations.
Recommendations:
Based upon the above considerations, the Budget & Finance Committee recommends to the Board the following:
1. The Board approve transfer of the Reserve for Future Budget Stabilization to the Reserve for Future Capital Requirements.
2. The Board approve the operational budget, as modified per suggestions of this Committee at its April 3, 2012 meeting, excepting the rate for membership dues (see below).
3. The Board approve a budget containing approximately $3 million in capital repair and replacement/ongoing capital investments.
4. The Board approve a budget including a significant amount of capital investment in infrastructure in addition to the $3 million mentioned above.
5. The Board set 2012/13 dues at a level which will allow adequate ending Members’ Equity to support established reserve goals and 2013/14 capital investments.
6. Here are some specific budget items of note:
a. The budget proposal includes an across-the-board increase in wage rates in addition to amounts for pay equity as determined by a compensation study. We recognize that Sun City West employees have foregone pay raises for two years and strongly support increasing pay for the dedicated employees serving our community.
b. A change in accounting method in 2011/12 results in a significant increase in the budgeted amount for employee vacation pay versus previous budgets. In the past, vacation pay was expensed as employees used vacation days. The method was changed in the current fiscal year to accruing vacation pay as earned, which is the generally accepted method. This does not affect the amount paid to the employees; it is an issue only of when those payments are reflected in expenditures. The 2012/13 budgeted amount is in line with the projected 2011/12 actual expenditure using the new method.
c. Previous budgets included a Budget Stabilization amount of $500,000. We do not believe this should be continued, nor that any amount of Members’ Equity should be reserved for budget stabilization.
d. The proposed budget includes additional expenditures for implementation of a program to allow Owner-Members to pay membership dues using credit cards. This program has been requested by Owner-Members and staff of the Membership Division.
7. In part due to the recent bylaw proposals and, in part, based on new data received as March, 2012 financial information is analyzed, the budget proposal remains a work in process. At the time of our deliberations, the amounts had not been finalized, particularly in regards to the capital budget and the rate for membership dues. This Committee will continue to review information as it becomes available and provide staff and the Board with feedback and recommendations.
Recommendations:
Based upon the above considerations, the Budget & Finance Committee recommends to the Board the following:
1. The Board approve transfer of the Reserve for Future Budget Stabilization to the Reserve for Future Capital Requirements.
2. The Board approve the operational budget, as modified per suggestions of this Committee at its April 3, 2012 meeting, excepting the rate for membership dues (see below).
3. The Board approve a budget containing approximately $3 million in capital repair and replacement/ongoing capital investments.
4. The Board approve a budget including a significant amount of capital investment in infrastructure in addition to the $3 million mentioned above.
5. The Board set 2012/13 dues at a level which will allow adequate ending Members’ Equity to support established reserve goals and 2013/14 capital investments.
6. For this and all future budgets, capital projects are funded through Asset Preservation Fees first, with the remaining amount coming from spendable Members’ Equity, either unreserved or reserved.
Hi Mr. Novak. We’ll try to refer to the question the author asked in our responses to make it clearer which person we’re responding to. Thank you!
Good comment and response program. I wish the RCSCW would start each response with a line that denotes which comment/author that they are answering. Possible ?
The APF fees first go to the purchase of fixed assets in the year received. This generally funds 60% of the capital budget. The balance comes from the cash generated by depreciation. Any remaining net revenue generated for the fiscal year is then transferred to the Reserve Account (by current policy). The Reserve Account is restricted by the Governing Board for Uninsured Loss, and purchase of capital assets. The Reserve Fund is in interest bearing instruments which must be secured by FDIC insurance or securities which are backed by the Federal Government. This means only Treasury bills.
The compensation/salary survey, when it was complete, would have cost $172,353 to implement. This fluctuates with our employment levels, however. As of last week, it would cost about $165,485 to implement. That equates to a 1.6 percent increase. As for merit increases, we have a pool of 4 percent set aside. Not everyone will get 4 percent; some may get nothing – it all depends on their performance evaluations. There is NO across-the-board cost of living increase. The rest of the 10 percent increase is due to the housekeeping change in the way we log vacation time. If you’re interested in seeing the compensation study overview, please stop in and see Human Resources.
You stated that APF Funds go into the reserve account and are co-mingled with reserve funds from other sources,so they are not identified as APF funds at that point. Does this mean the funds can be used for other than Asset Preservation?
Are these funds in an interest bearing account?
Thank you
Bill Noble
I was referring to this part of the budget proposal:
The budget proposal includes an across-the-board increase in wage rates in addition to amounts for pay equity as determined by a compensation study.
How much of the 10% increase is an increase in wages or equity adjustments? Also, can we get copies of the compensation study?
Hi. The 10 percent increase in wages that you see on this presentation is primarily the result of a housekeeping change. We are now logging vacation as it is earned, rather than when it is used. Thus the large increase for next year.
As a followup to our comment on April 23, we wanted to clarify that APF funds go into our reserve account and are co-mingled with reserve funds from other sources, so they are not specifically identified as APF funds at that point. Sorry for any confusion.
How was the 10% increase in wages/benefits arrived at? It exceeds the inflation rate for the past two years and next year (predicted) combined and increases our fixed costs by over $1 million. Can you provide the study upon which this decision was based?
Hi Mr. Noble. The Asset Preservation Fund has $9.214 million in it. Our sweeps accounts (men’s and ladies golf) totals $180,000. We do return these funds to a spouse if the owner dies. If we cannot get a hold of a next of kin, we return the money to the club, per our agreement with the clubs. Hope that helps.
Hi Dudley,
I have a question,,,,”How much money is in our Asset Preservation Fund?” I cannot find this listed in the Financials.
Also How much money is held in the men’s and Ladies Club winnings..
I understand it is quite large…some of it very old. Could this money be returned to the clubs if it has been there some time?
Possibly some of the recipients are no longer residents?
Possibly Mr. Lansberry could help answering these questions…as he has been very helpful in the past!
Thank you
Bill Noble
Budget and Finance Committee is doing a good job following our budget and finance issues.
I agree with the additional capital funding for essential projects, such as re-paving parking lots.
Spending $ 200,000 at Palmridge on Tennis Courts that are not needed is wasteful extravagence!