EDITORIAL:  HOW FEE INCREASES AFFECTED REVENUE

I just thought I’d drop you a note to share some interesting trends I discovered in reviewing HSV past financial reports.  I was wondering if any of the prior Board members know how something this obvious got overlooked?

I realize that many of you on the Board have had real life business experiences.  From your resumes, however, it is hard to identify but a couple who have had formal business education.  So you may not be as vigilant as you should be in reviewing reports from the POA.  If you passed the opportunity to study business in an academic environment, then you missed a thorough understanding of many business principles that provide heightened insight into everyday economic life, most applicable being: finance, cost accounting principles, economics and consumer behavior.

The reality in HSV of having a retired population living on essentially a fixed income that began at the retirement date is that there is no more money; you know raises.  That retirement income has to be allocated between required expenditures, and discretionary spending to purchase leisure items (such as HSV amenities).  Over time the purchasing power of the discretionary portion of income diminishes due to inflation.  Fee increases only accelerated the impact of inflation on discretionary spending. 

For those who want a good review primer on Consumer Choice I refer you to http://www.basiceconomics.info/theory-of-consumer-choice.php

Most people when they bought in or moved to HSV had expectations of retirement in HSV as being very good—or they would not have purchased property here in the first place.  They had performed their own personal economic analysis and decided that with their projected retirement income/financial status and prevailing HSV amenity fees, coupled with Arkansas cost of living (given a normal inflation rate over time and no significant change in Arkansas cost of living), they could look forward to a good retirement lifestyle in HSV.  They were in error on both counts.

No one envisioned the Board of Directors would repeatedly increase amenity fees year over year without looking at the impact.  Fees were increased in the hopes of generating more POA revenue from residents, particularly golf at multiples of CPI changes, but essentially no net revenue was generated!  And apparently no one on the Board(s) or the POA or the RASP Committee bothered to look at the impact and draw responsible conclusions, that raising fees on a fixed income population only reduces utilization.  The following table illustrates the impact on revenue and rounds played (even though some data is unavailable) for golf and fee revenue over time as fees for all amenities are increased.

Property Owner (PO) Daily Green Fees and revenue, plus change in fee based revenue over time as fees were increased for all amenities.

Year	2006	2007	2008	2009	2010	2011
Green Fee	$12.00(1)	$12.50(1)	$13.10(1)	$14.10(1)	$15.10(1)	$16.85(2)
# PO Daily Fee Rounds	198,484	185,586	171,379	160,364	(4)	(4)
Revenue Golf PO Daily Rnds	$2,381,808	$2,319,825	$2,224,278	$2,261,132
POA Revenue Golf (3)	$6,659,923	$6,720,083	$6,686,800	$6,305,800	$6,449,200	$6,517,331
POA Revenue Golf + Recreation  (3)	$7,652,121	$7,864,525	$7,794,111	$7,346,030	$7,481,930	$7,554,787

(1)    Includes $2 surcharge/round for golf course construction

(2)    Surcharge ended at the end of 2010

(3)    From year end Financial statements

(4)    Currently not readily available per Golf Dept

While golf has experienced the largest percentage increases in fees (68% over 5 years; inflation CPI was 14.6%, compounded), all amenities have experienced increases, often greater than prevailing CPI with resulting stagnant revenue due to decreases in utilization.  The only Property Owner outcome has been fee expenses have increased.  Is this in the Property Owner’s best interest? 

In my opinion, past Boards, as well as the POA, have practiced bad business policy and thereby been less than vigilant in their duties to represent the Property Owner member’s interest in providing oversight of POA operations, especially in the area of fee and revenue management.  It is important that the Board ensure a critical review of the impact of budget (fee) decisions, as is illustrated in the table above, to ensure the viability and marketability of HSV to current and future residents/owners.  A year-end review should be performed to determine successes and failures, and learn from them by revising operating policy procedures.  This is not being done!

This Board with three new Directors has the opportunity to change this trend and take positive steps to enhance Property Owner members’ interests.  A giant step in a positive direction is to start a slow fee roll back in all fees and adopt a similar golf fee structure/policy to that proposed in my prior e-mail to you, “Proposed Golf Fee Increases for 2013”, dated July 15 or just reduce all fees 10-15%.  This will:

-          Be a positive step in representing the Property Owner member’s interests

-          Illustrate to non-resident Property Owners that the Board of Directors is not on a runaway train in fee increases and their investment in HSV is a good one

-          Increase HSV’s competitiveness in the marketplace for the shrinking population of retirees that are going to relocate

-          Increase all members’ property values and increase their enjoyment of our common property amenities

-          Generate more revenue

-          And perhaps, most importantly, generate some positive PR with your customer, the HSV Property Owner.

Think about it, do the right thing!

Larry Frazer
A Concerned Property Owner