Year to Date Expenses Trending Under Budget Due to Payroll and Payroll-Related Expenses; Hale Weighs in On Financials; Fetterhoff Proposes Purchase of Two Backhoes
The Hot Springs Village Property Owners’ Association Board of Directors met on May 4, 2022, for a Discussion Session. The main topics under discussion were the March financials and the proposed purchase of two backhoes.
New Controller, Karl Russ, Presented March Financials to the Board
Russ thanked the Board for its patience as the Accounting Department works through the transition. “It’s been an interesting two months, trying to put all this together. We’re making changes in the accounting group, and working on some process improvements.”
“For our balance sheet, we ended the month with $19.6 Million. All of these numbers are as of March 31.” This number is up $5.2 Million from last year.
“The cash balance includes $7 Million in reserves and fixed asset funds.”
We ended the month with membership assessments receivable of $3.2 Million, which is about $238,000 less than last year at this time.
“Our long-term debt, we’re at $519,000. It has increased by $519,000 since this time last year. Most of that is coming from the financing of the sanitation trucks.”
“Comparing to March of last year, our liabilities have decreased by $2.2 Million. Most of that is coming from the PPP Loan Forgiveness.”
“For our Income Statement, our year-to-date net revenue is $8.85 Million, as compared to a budget of $8.89 Million. We’re showing a $39,000 decrease from our budget.”
“Operational expenses are $7.32 Million, which is about $1.3 Million less than budget. You’ll see as we go through this, that a lot of the theme for the decrease in operational expenses is payroll and payroll-related costs as we work to add to our staff. We will get to a point where we hopefully break even on payroll costs, as compared to budget.”
“Our net income before depreciation is $1.5 Million and we’re exceeding budget by $1.2 Million. It’s reflecting an increase of $838,000 over 2021.”
“Just from an overall perspective of revenue, all of the divisions except for Food and Beverage and Public Safety show an increase in year-to-date revenue over the prior year. Food and Beverage reflects a decrease of $165,000 from the prior year due to our leasing of all of the facilities.”
“Net revenue, year-to-date, is nearly 100% of the year-to-date budget and $1.045 Million higher than 2021.”
“We are having good success with selling lots and they reflect $100,000 of year-to-date sales, compared to a budget of $50,000.”
“Decal revenues – $275,000 versus a $251,000 budget.”
The main revenue category under budget is assessment income – assessment income is $5.1 Million, compared to a budget of $5.3 Million, reflecting a decrease of $291,000. “I am looking into that. There may be a ‘budget spread’ and may not be exactly right. The budget in total was spread evenly over 12 months, but I believe there are timing differences in this.” Russ said he would report back on this after further research.
“For expenses, our year-to-date expenses are trending below budget. It is largely due to decreases in payroll-related expenses, running approximately $643,000 under budget. Our bad debt for assessments is also lower than planned by about $500,000.”
“Payroll costs are not just wages. It is payroll costs, benefits, and taxes.”
“Some of the major drivers in each of the departments for expenses. – Development is basically the Compliance Division, the Marketing Divison, and the Lot Sales Division. Their expenses are $116,000 lower than budget and it is related to payroll costs and some advertising costs and the contract for the Sells Agency [our advertising firm] that have not been incurred yet.”
“The Police and Fire Department, they are actually higher than budget by $42,000 and that is actually coming from payroll costs. Some of it is overtime costs…”
“Public Works is $214,000 less than budget due to lower payroll costs and maintenance of land and streets expenses, as well as the purchase of non-capital equipment that has not been incurred yet.”
“Public Utilities is $229,000 less than budget, due to payroll, contracts, and maintenance of the Simplex Pump Stations.”
“Lakes is $277,000 over 2021 expenses and $136,000 over budget. This is due to dredging costs that were budgeted in 2021 but were carried into 2022. We will show this budget adjustment when we do the year-end reconciliation.”
“Recreation is $223,000 less than budget, due to lower payroll costs, maintenance costs, chemicals, and other contracts with bands…”
“Golf is $554,000 less than budget, primarily due to payroll-related costs, fertilizer, and chemical costs, and some special programs and events. The fertilizer/chemical costs are in the works. They were budgeted, obviously, but by the end of March, those costs had not been incurred yet.”
“Total Operational Expense for the year through March is 85% of the year-to-date budget. Expenses are $206,000 more than 2021 year-to-date and right now we are at $1.253 Million less than budget.”
The top five expenses under budget are fertilizers and chemicals, uncollectible assessments, wages, and related costs such as insurance and taxes.
“The top five items over-budget include the maintenance of lakes and dams, the dredging ($139,000), maintenance of equipment, legal fees, electrical costs, and then some other allocations.”
“As far as capital spending – 2022 capital spending, year-to-date is $1.595 Million, which includes approximately $1.1 Million of sanitation trucks. Excluding these trucks, the capital spending, year-to-date is 5% of the total 2022 budgeted funds for capital.”
“Comparing our capital expenditures to date, they are $182,000 over this time last year.”
“Cash flow – we started March with $18.75 Million. Net income for March, after depreciation, is actually a net income of $303,000.”
“The net change in current assets and liabilities were decreased by $1.1 Million, with an overall net cash provided by operating activities of $1.13 Million.”
“Net cash used in investing activities is $208,000, which are basically the capital purchases. The net cash used in financing activities is $56,000 – which is the current month’s loan payments. This resulted in end-of-month cash and cash equivalents of $19,605,000.”
“Just some other financial highlights – in Community Development, 2022 year-to-date, through March, there have been 28 new home permits. They have completed 22 Discovery Packages with 6 conversions, year-to-date. This brings the overall conversion rate of the Discovery Packages to 16%.”
“Forty-eight (48) POA lots have been sold, year-to-date. And twenty-three (23) lots have been taken back for a net change in lots of plus twenty-five (25).”
“The new buy-in fee for this year, year-to-date, is $109,000, coming from a total of 118 transactions.”
Golf Highlights
“Year-to-date golf rounds (this is through March) 1,480 less than 2021, year-to-date.”
“The golf surcharge – total cumulative since launched is $1.24 Million.”
“Year-to-date, we’ve had 454 playable days, compared to 458 days in 2021. Revenue per day has increased $107 since 2021.”
Accounting Department Staffing Needs
Russ said the Accounting Department has two positions to fill – Accounts Payable and a Staff Accountant. “Those are the two most critical [positions] to fill in the Accounting Department.”
Corry said that we have to take the Accounting Department staff shortages into account with the expectations. “That is the main reason the financials were late…”
General Manager Kelly Hale Responds to Financial Report
Accounting Staff
General Manager, Kelly Hale, said that the Finance Department lost four key employees in a week or so time period and this was a big hit. “Those were really the folks that did a lot of the end-of-the-month financials. He’s been rebuilding the department. “We’ve been streamlining some things. We feel very good moving forward on where he’s going to be.”
Bad Debt on Assessments and Strategic Locating of New Homes
“You heard Russ talk about ‘bad debt’ on the assessments – something I am getting really close to. I think we’d all be really appalled at the number of people that have bought lots here in the past and just don’t pay their assessments. These are unimproved lots.”
Hale said they have formulated letters and are working with a collection company. This collection company charges the POA nothing. “They do an upcharge on the member when they collect bad assets. We’re not incurring any costs at all.” This company is paid by the people owing back assessments.
“This is a significant amount of revenue and either we get them to start paying or we’ve got to take possession of that lot. We’re working through the counties. We’re working through the Arkansas State Land Management to be able to do that as well.
Hale said this is being done in a strategic manner as they are starting with delinquent lots where the POA has a plan to “block” together lots to create subdivisions, making it more attractive for builders, as well as the POA. This is being done to help eliminate the scattering of building new homes all over the Village. The expenses to bring utilities and roads to a new home, one at a time, can be high, and building on lots all in one block at the same time is financially advantageous to the POA. “We have to go in and put in a new conduit for electrical lines [for new homes]. That will run anywhere from $75,000 to $150,000 per neighborhood. It is a big expense.”
“We’re getting very strategic about how we are going after this bad asset. You saw the numbers. They could be close to a million a year, easily. We’re having some success [with] doing this. Kevin Sexton, [HSV Director of Tourism and Community Affairs, is handling this and giving the GM weekly updates.
“We are going to get that revenue ironed out or we’re going to get the property. One of the two.”
A lot of the property owners in arrears on their assessment payments to the POA are still paying the property taxes to the counties.
Board Chair, Joanie Corry, asked if the gate cards worked for those Property Owners owing assessments. Hale said, “They are not considered to be a member in good standing. We deactivated everything. Most of these people don’t live in the state of Arkansas. They’ve owned these lots for ten plus years.
Hale said the POA is trying to swap lots with some of the Property Owners in arrear on assessments. “The other thing we are doing too is being very proactive. A few years back, we were letting people come in with LLC’s and buy large blocks of lots here in the Village. The problem is, when we start digging into the weeds, a lot of these are set up down in the Bahamas. We have no recourse from the U.S. to be able to get any litigation [going]…” Hale said that there are 100’s of lots ‘locked up.’
Some of the LLC”s buy large numbers of lots, don’t pay the assessments. These lots are literally ‘tied up.’ “We are not going to repeat the same mistakes made in the past and will work with the State and the counties to unwind this legally.”
“We are not just land-grabbing and taking the property from them. We are offering to waive [assessments] if the Property Owner will turn the property back to the POA. Some owners have paid up to 50%. Hale said, “Something is better than nothing.” Or we swap them out and get a better lot for them and then they are motivated to move. A lot of the non-performing lots were interior lots that the Property Owner was not happy with.
Director, Bob McLeod asked if we are accounting differently for the bad debt, than we have in the past? “It is way under what the budget was.”
Russ answered, “You are saying it is way under 2021. I will confirm, but I believe that during 2021, they did a huge write-off of those bad debts – around $9 Million.”
Russ said they are accounting for the bad debt the same way they have in the past.
Hale said, “Last year John Paul executed a purchase of 2,200 lots back from the Commissioner of State Land.”
Avila asked for the POA to publish a more detailed chart every month of where the new assessment dollars are going. Avila also asked for the quarterly detailed financial report to continue. She said it means a lot to Villagers to be able to see these details. “They [Villagers] were really excited to see it and it meant a lot to them because it gave them a better feel for what was really going on in their Village.”
Director Bruce Caverly agreed that it was important to keep the residents informed about where the new assessment dollars are going.
Hale said that the Controller will work with the Board to determine what needs to be published.
GM Hale Talks Capital Improvements, Weather, First Responder Wage Increases, Lake Dredging Costs
“Right now with inflation and the weather, you saw that we [only] spent 5% of what we had allocated. You will start seeing an uptick of work [being done] as we find vendors. Some of the pricing has been way out of line for things that are not priorities right now. We’ll wait for the economy to kind of settle down a little bit and make it more strategic for us to spend that money. We are focused on in-house repairs and doing things that we need to…”
“The weather has played a big part, not only in our groups getting out [work crews] but also at the golf courses and throughout the Village. It’s just been very muddy. We’re behind, just like a lot of the vendors are behind, as well.”
Kelly said that the controller mentioned $42,000 in fire and police wages. This expense has increased so the departments can retain first responders. There was a high turnover because the POA was not competitive with the surrounding area in salaries.
In regards to dredging/draining of the lakes, the numbers look high on paper because the cost of dredging is accounted for all at once, but it is a budgeted yearly expense.
Job Fair and Outreach to the Surrounding Community
Avila thanked Hale for his efforts in outreach to the surrounding areas at the high schools, tech center, and also the college. Avila said she thought there were quite a few good job applicants as a result of this outreach process. Hale said this was a team effort and Avila went with him to the schools, meeting with four or five school superintendents.
“We have done a disservice to the communities around us, as a Village. We have to go mend those fences and engage. We can’t assume anything.” Hale said he and Avila knocked on doors and sat down with the students. “This has never been done before.”
Kelly Hale, HSVPOA General Manager
Fetterhoff Proposed Purchase of Two Backhoes
Fleet Manager, Dallas Fetterhoff, discussed the proposed purchase of two backhoes.
The first proposal was about the purchase of a backhoe from Scott Equipment in the amount of $120,384.67. Fetterhoff said, “The new backhoe will replace a 22-year-old backhoe.”
“Solicitations were sent to four vendors, with three bids received.” Scott Equipment bid $120,284.67. This was the highest bid received, but the only equipment that meets or exceeds all of the requests and specifications. “This bid is under budget by $9,715.33.” The approved budget for this was $130,000.”
McLeod questioned why Fetterhoff was recommending the most expensive backhoe.
Fetterhoff said, “We requested a three-stick backhoe, instead of a two-stick hydraulic over electric. The three stick is more, mainly hydraulic driven. This backhoe is for replacing water and sewer lines. With the direct hydraulic, you can feel what you are doing better [than with] the electric over hydraulic. It saves from us creating more damage when digging.
Hale said you have to be careful when digging around the waterlines or you end up creating more damage.
The second proposal was for the purchase of a backhoe from Stribling Equipment [John Deere] in the amount of $112,147.14. This new backhoe will replace a 22-year-old backhoe. The older backhoe is out of commission with transmission issues and also has issues with the engine. The cost to replace the transmission is $13,000.
Solicitations were sent to four vendors, with four bids received. The highest bid received was for $141,000. Other bids were for $140,000, $139,000.
The Stribling bid was the lowest and met all specifications and requirements and is $22,852.86 under budget. The approved budget amount for this backhoe was $135,000. “This backhoe also comes with a ripper tooth and a hydraulic hammer,” to be used for new construction of water and sewer lines.
Although the GM believes in repairing old equipment when appropriate, in this case, it would cost about $30,000 to get the old backhoe running, and “it is probably going to break down again. It is those types of decisions of ‘pay me now, pay me later'” that have to be made.”
Director Belair said that he noticed that staff seemed to be standardizing equipment when possible – buying the same brands for purposes of parts and repair.
Fetterhoff said that they are doing that when it is appropriate, but when we only have a few pieces of certain types of equipment, it doesn’t really matter.
Chair Corry said the proposed backhoe purchases will be voted on at the May 18, 2022 Board Meeting.
Cheryl Dowden, Publisher
hsvgazette@gmail.com
