ORPS CFO’S REPORT
Since we have had so many new owners over the last two years, I thought this would be a good time to review how our Resort operates financially. Our fiscal year runs from July 1 to June 30, so I ’ ll give highlights from our audited financial statements for the fiscal year that just ended June 30, 2020. You can find our complete financial reports, including monthly updates, at orpshoa.com under the tab labeled Financial Documents. At June 30, 2020 the Resort had three funds: the Operating Fund, the Replacement or Reserve Fund, and the Capital Fund. We ’ ve since renamed the Capital Fund to the Development Fund, which I ’ ll explain later. Operating Fund The Operating Fund is used to pay for the general day - to - day operation of the Resort, such as utilities, landscape & mowing, administration, etc. This is the majority of what we spend. Last year our total monthly HOA assessment was $394, $299 of that went to the Operating Fund. During the fiscal year, the Operating Fund received $5.07 million of income. This was made up of $4.35 million from owner assessments, $370,000 from resort fees and rental income, $110,000 from Activities fees, $94,000 from Laundry, and about $200,000 from miscellaneous sources like golf fees, the bar, etc. We spent $5.24 million, the largest items being $2.1 million on grounds and maintenance, $1 million on administration and front office, $900,000 on utilities (water, gas, electricity) and $450,000 on security (mostly which is labor costs). We started the year with $1.55 million accumulated in the Operating Fund from prior years and ended the year with $1.33 million. The decrease was primarily because in July 2019 we intentionally did not raise assessments enough to entirely cover California ’ s required increases in the minimum wage; instead the Board decided to spread the cost increase over three years. Replacement (Reserve) Fund The Replacement Fund is used to pay for things we already own as they break or wear out, such as building repairs, laundry machines, hot tubs and pools, streets, sports and exercise facilities and equipment. Yearly, we hire a consultant to do an update on our reserve study. This study list of things the Replacement fund or what we like to refer to as the Reserve Fund pays to fix or replace every year goes on and on. Of our $394 monthly assessment last year, $89 went to the Reserve Fund. Our independent consultants estimate that if we had to replace every- thing above - ground at the Resort all at once, the cost would be about $10.4 million. Since we will never have to pay to replace everything all at the same time (we have sufficient earthquake insurance), we spread the cost of each item (and we own thousands of items) over its expected useful lifetime. On that basis, our consultants calculated that our contribution to the Replacement Fund for the last fiscal year should be $1.06 million.
As of June 30, we had $3.8 million in the Reserve Fund, which was 68.5% of what we needed to cover the spread - out replacement cost of everything. Our consultants and our General Manager tell us that this is far better than most HOAs. A well - funded Reserve Fund will allow us to keep the Resort in top condition and makes it easier for owners to sell their lots to new buyers. Development (Capital) Fund The Development Fund is used to pay for new things that enhance the owner experience and value of our Resort, for example the Exercise Facility when it was built, or more recently the Pickleball Courts and a portion of the ES Kitchen upgrades. The planned Dog Park is an upcoming example. Of our $394 monthly assessment last year, $6 went to the Development Fund. The Fund began the year with a deficit of $122,000 and ended the year with a deficit of $79,000 as we worked to pay off cost overruns on prior projects. On the recom- mendation of our General Manager, the Board has predesignated the Capital Fund as the Development Fund and is transferring the accumulated excess assets ($1.33 million as of June 30) from the Operating Fund to the Development Fund. Looking Ahead When California adopted a series of significant increases in the minimum wage, the Board elected to spread that cost over time. The second planned increase ($12/month) took place on July 1, 2020. The third planned increase ($13/month) is scheduled to occur next July 1. Subsequently, owners should expect annual assessment increases more in line with inflation, currently around 2% each year ($8/month) plus whatever is needed to fund Resort improvements. As I write this in early November, it ’ s too early to tell whether Covid - 19 will significantly affect our Resort ’ s costs or revenue this season. We ’ ll see whether rental revenue and resort fees hold up through the coming season or whether we have to deal with an income shortfall. Some contingency was built - in to the current budget for this.
Charles Hare CFO
ORACLE
4
DECEMBER 2020 2020
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