Hot Springs Village Finance and Planning Committee met on Monday, March 18. This report was delayed due to complications caused by the tornado. In this report, Controller Jama Lopez gives an update on the audit. Investments, emergency reserve levels, the budget calendar, OMT (Operation Maintenance Tables), and fees were discussed. Also, Committee Member Don Schuettenberg updated the committee on his study of water rates. A couple of “personnel” changes were also announced.
Shaddix is slated to be Controller around mid-August
Lopez, HSVPOA Controller, announced she plans to leave her position in August at the completion of her contract and that Assistant Controller Phyllis Shaddix will take over as Controller. “She will do great! We need to start bringing her to the meetings,” enthused Lopez.
Wilmot to assume committee secretarial duties
Committee Member Ann Wilmot has agreed to perform the committee’s secretarial duties due to Tom Heau’s resignation. Heau was an integral part of the committee, and he will be missed.
Audit update
Jama Lopez, HSVPOA Controller, said the audit fieldwork was completed in three days. The testing is completed. Numbers were being tied down, and disclosures were made in the footnotes. “Basically, the work is completed, and you will not see a significant difference from the preliminary end-of-year financial statements,” stated Lopez. The financials will have to be reviewed by the Audit Committee and should go before the Board on Wednesday, April 17.
Investments
Lopez said that as the investments mature, she continues to roll them over and is going with 90 days if the interest is considerably better than 30-day or 60-day investments.
The sweep account is doing well.
Emergency reserve levels
David Moore, HSVPOA Corporate Treasurer and Board Liaison to the Finance and Planning Committee said that General Manager Kelly Hale is comfortable with the initial benchmarks for setting the reserve amounts and doesn’t see a reason to change them. Ken Unger, Director of Public Services, also felt the number was correct.
Moore said, “There is not a magic number.” The number should be something we are comfortable with.
Previously, the Gazette reported on emergency reserve levels saying,
“The Hot Springs Village POA Emergency Reserve Funds policy was adopted in 2017. The minimum funding levels in the reserve funds are designated by the Board of Directors.
“Lofgren [chair of the Finance and Planning Committee] stated that if memory serves him, the original reserve policy in 2017 only had one category, which concerned people. The new policy was adopted in 2022 to replace the old Reserve Policy.
“Lofgren said there are three categories:
“A. Utility Emergency Reserves: Funded through net utility earnings (except as noted in Section 3) and used for Emergency water or wastewater repairs and replacements.
“B. General Emergency Reserves: Funded through net earnings (excluding water and wastewater operations) and used for emergency asset repairs and replacements.
“C. Operating Emergency Reserves: Funded through net operating earnings and available line of credit access. These funds will be used for priority operational needs during a short-term cash shortage.
“The Utility Emergency Reserves account contains $2 M, and $2.5 M is reserved for General Emergency Reserves. The $3 M amount in the Operating Emergency Reserve account is $2 M with a $1 M line of credit. Lofgren said the last time they talked with Regions Bank about the line of credit; they were told it could be increased to $2 M with only a small financial carrying cost. Lofgren said, “The Board has the opportunity to review this and decide whether or not to increase the values.’”'”
Moore said he would like the Line of Credit opened with the additional $1 M, which would not be a significant financial cost [possibly $2,500]. He said they need to make this recommendation to the Board of Directors, which will be presented in April after the audit.
Jeff Lofgren stated that the current emergency reserve fund levels were set based on the depreciation of our assets. The policies say interest earned on the emergency reserve accounts should be rolled back into the accounts.
Moore said that even though the money is in three funds, “it is all available to the board” in an emergency.
Lopez asked why there are three separate emergency reserve funds. She said she didn’t understand the reason for three separate funds when the Board has the authority to “scoop” it together if they wanted to.
Lofgren answered, “The Operating Reserve was all about being able to make payroll. It was based on a historical problem in 2014 when we almost could not make payroll. We needed to have something specifically to address that.”
Lofgren continued, “The Utility Reserve was based on a valid point. Utilities should be separate from everything else. Utilities are supposed to be paid for by themselves and treated as a separate entity.” The Utility Emergency Reserve account should be kept separate because of ACT 605.
Lofgren agreed that the Board can adjust and use the money [as needed]. When the policies were implemented, the committee recommended that we be careful with the Utility Reserve Fund.
Water rate study
Committee Member Don Schuettenberg said Ken Unger provided him with the current water rates for the village, Hot Springs, North Garland County, and Bryant. Schuettenberg said he reviewed the websites for these communities to see what was posted about future rates and assembled rate tables for them.
Our monthly water rate has a base amount of 2,500 gallons. Lofgren said that in Hot Springs, the base amount is 1,000 gallons. Bryant water users are allotted 2,000 gallons a month.
Schuettenberg and Unger talked about educating the community on conservation practices.
Schuettenberg also looked at 30 additional communities for comparison. “It was interesting that the deliverance of information to the communities varied from rough half-page documents to multiple-page documents.”
Unger requested that Schuettenberg also look at the national level. Schuettenberg said the surveys on the national level were based on data from the previous year.
Arkansas water cost was ranked about 34 to 38 in a 50-state audit. “The average for the state is $26 [per month] for water use in 2022 or 2023.
Schuettenberg also said he met with the Public Services Committee Chair, David Childs. Childs provided Schuettenberg with information from two North Carolina and two Tennessee locations.
Fort Smith, Arkansas, has a 50% water rate increase to cover expenses.
Schuettenberg said, “Some communities are on top of it. Other communities are lagging behind and have done nothing, and they are waking up to [the need for improvements].”
Lofgren said the way forward is to use the data and write an article so the community can understand our water rates compared to others, our community’s challenges, and how we will handle our challenges,
Schuettenberg added that we need educational programs on water conservation.
Lofgren said they would write articles on water rates and water conservation.
Budget calendar, OMT, fees
This is how the budget calendar looks:
January through April is the time period set aside to review the Operations and Maintenance Tables (OMT) and policies and install the new Board Members. After installing the new Board, they will work on budget guidance and goals. The GM will examine compensation plans, employee benefits, electricity, general insurance, and fees. The OMT will be updated. This should provide the departments with enough information to craft their budgets.
Lofgren said it can be challenging to obtain budget guidance. The GM has to give guidelines on estimated new home builds and lot sales.
Lopez said the fees should be set with Board approval in August. In the past, this process has been pushed closer to the final budget.
Lofgren said they should have justification for fee raises, or the community may react with, “Why are you nickel and diming?”
Lofgren stated they were having a prep session for the OMT review with Hale after the meeting. He will send the Committee Members a draft of the OMT for familiarization. “I would like to enter the ’23 data before we sit down with the department heads,” stated Lofgren.
Moving forward, the F and P Committee will hold its formal meeting on the first Monday of the month at 1:00 p.m. in the Ouachita Room at the Ponce de Leon Center. The committee also has a closed working group session on the second Thursday of each month.
By Cheryl Dowden
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This is a very valuable committee for both the HSV Management team and the Board of Directors. Thanks for all your hard work. Since this meeting was only a few days after the EF2 tornado, it was too soon to discuss possible implant on general emergency reserve. I assume this will be discussed @ the next meeting.