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BUDGET & FINANCIAL PLANNING COMMITTEE Budget Season 2017

Lodge & WCLL

Committee Members Attending: Lynne Miller (Chair), Dave Miller (Secretary), Jeff Rickert, Bill Lucas,

Pete Vindigni, Cathy Coughlin, Rita Roque, Pat Quinn and Ruth Ann Murphy

Committee Members Absent: None; Excused: None

BOD Liaison Present: Janice Miller-Lion (primary), Rick Harris (backup), Tom Filla, Jerry Grlica, Phil

Whitehurst, and Tony Russo

Management Present: Eric Usbeck (General Manager)

Guest: None

Overview

Each Fall, the Budget & Financial Planning Committee conducts a series of work sessions in which budget drafts, prepared and presented by Management, are discussed and evaluated in detail. The purpose of

this effort is to produce final revenue, expense, and capital plans for both ALCA and ASC, which are

submitted to the Board of Directors for final approval at the BOD meeting in December.

This year’s budget season was comprised of one work session that concentrated on the ASC budget and four sessions (involving 6 budget drafts) pertaining to ALCA. The summary results of those work

sessions are presented below:

1. Arrowhead Sewer Company (ASC) - Management presented a budget plan consisting of $1.4 million

in revenues with an operating expense level of $660K and a capital expenditure plan of $553K. Management assured the Committee that planning a $31.5k profit for 2018 provides enough financial

resources to administer the Sewer Company during the year.

a. On the revenue side of the ledger, Management presented a revenue plan that would hold all

sewer fees, including Lot Availability fees at 2017 levels.

b. In the original submission, however, a plan was presented for ASC to undertake two loans during 2018: one for $600K from ALCA, and the other for $400K, which would be an exercise of ASC’s

existing Line of Credit with Dime Bank. During discussions, the Committee arrived at a conclusion that borrowing the addition $400K from Dime Bank was primarily intended to set up

an on-hand contingency fund of $1 Million for the Sewer Company. It was the Committee’s

opinion that borrowing money from a third party (even money that comprises an existing Line of Credit and, as such, is readily available should an emergency arise) results in thousands of dollars

in interest payments to that third party that are otherwise avoidable. As a result, the Committee recommended that the $400K exercise of the ASC’s Dime Bank Line of Credit be removed from

the budget.

c. The Committee also determined that since there are fees incurred by ASC in the processing of

quarterly sewer billings, an increase in fees is justifiable to defray some of those costs. As a result, the Committees recommends that for those on the sewer with homes, who choose to pay

using quarterly billing, the cost per quarter be increased by $10 (from $225 to $235 per quarter).

For those with unapproved lot availability who choose to pay quarterly, the cost per quarter should be increased by $4.75 (from $106.25 to $111.00 per quarter).

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d. These recommendations were accepted by Committee in a unanimous vote.

e. There was also discussion concerning the need to increase the fees for customers choosing to

pay annually, but since there was no compelling reason to add revenue by raising fees, the Committee voted to maintain the annual fees at $900 and $425, respectively. There was one

dissenting vote on this motion (Mr. Lucas).

2. Arrowhead Lake Community Association - the presentation of the proposed ALCA budget drafts by

Management was well-prepared, with considerable attention having been given to both format and content. As a result, most of the budget was discussed and agreed upon much faster than in prior

years. The Committee gives major thanks to the General Manager and his staff for their hard work

and dedication to the budget process.

a. The final budget approved by the Committee calls for planned revenues of $5.8 million, operating expenses planned at $4.4 million (approximately two-thirds of which are for ALCA payroll), and

with capital expenditures, including a $1.4 million contribution to the ALCA Reserve, planned at $4.0 million ($2.6 million being a withdrawal from the accumulated ALCA Reserve). Effectively,

the ALCA Reserve balance will be planned at $2.7 million by the end of 2018, just slightly below

the 2017 year—end amount.

b. With regard to the payroll and non-payroll operating expenses, the Committee took note of considerable economies achieved by Management throughout 2017. As a result, there will be a

$450K contribution to the ALCA Reserve in budget savings.

c. Regarding the capital expense plan, this is the first year the Management and the Committee

planned capital guided by the 2017 Falcon Group Reserve Study. Utilizing that study, capital is allotted to the replacement of fixed assets annually based on the life cycle of each asset. This

process will virtually eliminate the repetitive “surprises” that have occurred in the past and have negatively impacted the budgeting process.

d. The Committee spent more than 13 hours this year on the ALCA budget drafts and much of that time was devoted to analyzing the cost/benefits of the various ALCA programs and activities

offered in which revenues are collected to offset costs (e.g., Aquatics, Rental Shack, Food Events, Tennis, Flea Markets, Golf, Yoga, Day Camp, and Sportswear). Each analysis proved the value of

the activity offered by ALCA with the exception of Day Camp, which was planned to lose $8.8K

during 2018. As a result, Management reviewed the Day Camp plan and revised the planned loss by $4.0K (as reflected in the submitted ALCA Budget). It is the Committee’s recommendation that

Day Camp should continue to be offered and Management has agreed to actively pursue opportunities to bring this activity closer to break-even status. In summary, it should be noted

that there is sufficient profit planned as the result of the total of all combined events and

activities to offset the planned shortfall in Day Camp.

e. Regarding ALCA revenue plans, some members of the Committee expressed concern that not increasing the annual ALCA assessments might create a false sense of security among home and

lot owners. After discussion, the Committee determined that there remains a commitment from Management that further savings against budget will be forthcoming in 2018, and that there are

additional economies that should be expected in the 2019 plans. Considering also that the

economic indices such as annual raises by employers and Social Security increases remain flat or not trending upward substantially, the Committee recommends that the ALCA population not be

assessed at higher rates in 2018. But this recommendation includes the caveat that everyone

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should be aware that 2019 budgets, which will also reflect the community’s Master Plan and Financial Plan, may include an adjustment in assessments.

Board Recommendations:

1. The Budget Committee recommends that the Board of Directors accept the Committee’s recommendation that the Arrowhead Sewer Company NOT borrow $400K through an exercise of its

Line of Credit with Dime Bank. Rather, since the Line of Credit is already approved, they will be able

to access it easily in the case of an emergency.

2. The Budget Committee recommends that the ASC fees for those who choose quarterly billing be increased to $235 per quarter for homes on sewer and $111 per quarter for those with unapproved

lot availability.

3. The ALCA Budget & Financial Planning Committee recommends that the ASC Budget proposal for

2018 as submitted by Management be modified to include the two modifications above and accepted.

4. The ALCA Budget & Financial Planning Committee recommends that the ALCA Budget proposals for 2018 as submitted by Management be accepted without modification.

Respectfully Submitted: Dave Miller, Secretary