GUEST EDITORIAL

I have some concerns with some of the content in the presentation for the assessment increase.  I thought I’d share my review and I would appreciate some clarifications and answers to questions posed herein.

 

Chart 2:  Implies that HSV Board/POA made adjustments for the downturn in 2008, I along with others pleaded with the Board to make adjustments (documented in emails), which were categorically ignored.  The only adjustments made in budgets were due to unrealized revenue gains resulting from significant fee increase for amenity utilization.

 

Chart 4:  There were many concessions made to NRPI including waving of lot fees for a period of time (may have added up to >$1 million), priority access to lots returned, open gate access for marketing busses, yet no protections for the POA (Property Owners) from default by NRPI on such a large block of lots.  There should have been escrowed funds and lot return agreements in case of default, but none were included.  The result is the 3,500+ lots we have in limbo held by the Arkansas State Land Commission.

 

Chart 5:  The Board has always seemed to look for the easy and usually wrong answer.  The main reason for reduction in golf rounds is higher costs levied on a population with a fixed income that also experience other required expenses increasing (energy, medical, food, etc.) (see chart 13 comments below).  Yes aging is part of the reason, the financial crisis is a significant contributor but fee increases is the major driving factor and the Boards/POA have ignored all except “aging population”.  Revenues were never realized from fee increases!

 

POA Revenue from Amenities & Services (extracted from POA data)

		2008	2009	2010	2011	2012	2013
Fees for Service	YE bud		$16,741,600	$17,019,400	$16,155,190	$16,647,120	$16,262,733
	YE act	$15,252,100	$15,147,500	$15,581,700	$15,698,007	$16,651,280	$15,243,933

Note: the change year over year even as the Board/POA raised fees, more than doubling the golf green fee over this time period.  Yet the Board keeps raising fees, why?

 

Chart 6:  (See comment for chart 5) Additionally consider that rapidly increasing fees may well have signaled potential new residents not to move here unless they could afford to pay the year over year increasing costs resulting from Board/POA policies and if you plotted the trend line from 2006 to present, it’s scary, no one can afford the amenities.  Potential resident owners expectations were dashed for enjoying the amenities they originally bought for.

 

Chart 7:  Pretty chart but useless with no static’s or analysis to go with it.  It shows that developed lots are primarily on lakes and golf courses, but there are plenty of lots that can be developed just for the amenities if one can afford to utilize them.  That is one of Twiggs’ jobs is to contain costs and keep amenities in top shape to attract new residents, new “amenities” is not the answer they just create additional liability, we have a good mix of amenities and plenty of excess capacity with what we have today.  I see nothing from the POA and the Marketing effort to attract new residents, do you know who our target market should be, I do!

 

Chart 8:  Where is the analysis, why are people abandoning/turning back lots (I hear a lot of talk and conjecture but no research based analysis) we’re talking big bucks here.  Are there any multi lot owners (if so you’d better start worrying), we know ~3,500 are NRPI, but where is the analysis on how many of these lots are in improved areas (street and service) vs. unimproved or deteriorated areas.  For the amount of money we are talking about the Board/POA needs to get serious on understanding the problem and communicating that to the Members, not just personal opinion talk, where are the number that can stand up to scrutiny.

 

Chart 9:  From my perspective the Board/POA have been doing nothing.  Where are the results of the $2-3 million spent on marketing?  Why are we still building trails that generate no revenue just a maintenance liability?  The trails are lightly utilized because they are single purpose; other communities build black top/concrete trails so they can be used for not only walking but running, bicycling and golf carts to get them off streets.  Why are we re-doing perfectly good golf courses?  No one does that, remember we are a non-profit organization.  Why are we replacing lightly used golf carts with new golf carts?  We should be encouraging private carts reducing the Association’s investment in carts, instead the Board/POA make bad financial decision raising private cart fees from $450 to $650, at $450 the POA is making plenty of money.  I know, I did the analysis I have the numbers.  Other capital expenditures bear review as well. 

 

Chart 10:  You need a lot of backup for this one.

 

Chart 11:  We pay a premium for our water, sewer and waste pickup.  This is totally separate from the assessment or fees.  Throwing these in the mix here is nothing more than “smoke and mirrors” and scare tactics.  You are insulting the members with this chart.

 

Chart 12:  I’m sorry but you did not show the need or define a course of action.  You only used scare tactics and hand waving to claim, “all we need is more money”.  Not mentioning how unwisely our money is currently managed.

 

Chart 13:  This is a worrisome chart, not from what is says about amenities but what it says about the Board/POA perspective on reality.  Golf is our most valuable asset and generates the largest revenue to cover expenses (85-95%) as compared to ALL other amenities whose revenues only cover conservatively 40% of expenses.  The Board seems to be doing everything they can to kill golf, not realizing that without golf you don’t have HOT SPRINGS VILLAGE!  The Ponce De Leon Center requires close to $900,000/yr over revenue to keep operating to serve a small percentage of residents, not that it is a bad amenity but the transparency and rational is lacking.  The POA has the rent for meeting rooms priced so high not even members will rent them.  Why is this place not operated for the benefit of the members?  In 2009 (because these are the only definitive reliable numbers I could get out of the POA) there were 13,076 Property Owner Players that played an average of 15 rounds that year.  So if age is the problem a whole lot of people must have gotten decrepit real fast and golf rounds started declining before 2009.

 

Golf Revenue-Expenses-Capital by Year in Dollars (extracted from POA records)

Year		2008	2009	2010	2011	2012	2013
Golf Revenue	Budgeted		6,899,900	6,631,800	6,984,840	6,758,490	6,528,936
	Actual	6,043,300	5,706,700	5,860,100	6,517,331	6,841,590	6,080,462
Golf Surcharge	Budgeted		680,000	653,000	$3 rolled into base fee
	Actual	643,500	599,100	589,100	was to go away in 2011
Golf Op Expenses	Budgeted		7,438,900	7,583,600	7,141,490	7,445,581	7,421,976
	Actual	7,264,200	7,332,000	7,062,000	6,813,244	7,478,026	7,533,483
Diff Rev vs Exp		(577,400)	(1,026,200)	(612,800)	(295,913)	(636,436)	(1,453,021)
Golf Capital	Budgeted		1,066,200	710,300	201,690	641,980	971,704
	Actual	1,183,500	694,400	72,800	104,326	695,964	1,031,932
Diff Incld Capital		(1,760,900)	(1,720,600)	(685,600)	(400,239)	(1,332,400)	(2,484,953)

Note: If golf had responsible financial/operational management it could easily be break even, except for capital.

 

This table says that golf is doing well, especially if you put capital as a capital expense and not charge it to operating expenses and even if you do, the $2.5 million figure is shamefully misleading, we are already below $1 million for an operating budget.  This table is right out of POA financial records.  Much more discussion and statistics required.  The only reason it approaches your stated number in 2013 is because the DeSoto re-do/re-do was charged off, and I’ve played DeSoto twice and we didn’t get any value added and have a worst asset than we had before the re-do.

 

Chart 14:  Your conclusions and recommendations are very suspect and not supported by this presentation.  I am concerned that your recommendations will

-         Accelerate lot abandonment,

-         Bring new development to a halt and

-         Just increase the financial burden on Resident Property Owners.

 

The remainder of the presentation is just fill.  Without controls, statistics, responsible financial and operations management our beloved HSV will continue in a negative direction.  We need to get the country club mentality out of influence to the Board and out of high value committees.

 

What the Association needs is:

-         A rational responsible Business Plan, live within the revenue, that is what investors want to see not this runaway cost growth our new GM seems to be promoting

-         Responsible structured Budgeting Process coupled with Financial Reporting that clearly shows Revenues collected vs Expenses for and within each cost center

-         Operations Statistics and Analysis to support rational decision making and provide members insight

-         A real Marketing Plan, I doubt the POA can point to a single new resident for the $2+ million dollars spent.  Where and what is the money being spent for and where is the fact based results analysis.

-         We need an annually updated On-going Operating Plan briefed to members

-         We need accountability for POA management with visible goals

 

Blaming our current condition on Cooper is a folly and smoke screen.  Cooper left the member elected Board in good financial condition, 3-400 new home constructions/yr and 98% of lots sold.  The root cause is the decisions and policies of the member elected Boards that lead to our current status.  But in reality there is plenty of revenue it is just not spent in a responsible manner. 

 

The problems accelerated starting with the 2010 Board and beyond when the Board saw fit to start large fee increases that killed amenity participation and signaled non-resident lot owners what to expect on the magnitude of future expected costs to retire here.  What do you think is the job of the POA, to just spend our money and when they run out come ask for more?  Twiggs and the POA staff are paid well and have good benefits, there’s plenty of revenue, quit operating the POA like the Federal Bureaucracy.

In reality, all you will do with this type of increase is take $30/mo for each lot out of amenity fee spending and realize little or no revenue increase, history proves this.  The only path forward is to operate the POA in a manner to make HSV attractive to new residents and grow the population.  You need to show that HSV is a member focused Association, not a hobby for the POA.

 

It’s not to late to turn around the past ineffective management practices of the POA and change the culture by implementing Best Business Practices to provide structure, discipline, accountability and efficient utilization of our members’ dollars.  This Board could make great strides to ensure our future, but the inclination to continue “business as usual” will spell disaster for Hot Springs Village, regardless of revenue.

 

As shown by the data above, if changes aren’t made in the culture and mindset of the POA it doesn’t matter how much revenue there is it will never be enough.  It reminds me of the Federal Bureaucracy in D.C., spend, spend, spend, no management required.

 

Larry Frazer
A Concerned Resident Property Owner/Investor