Tahoe Donner Association

Transcription

1 Tahoe Donner Association Financial and Governance Matters Frequently Asked Questions Version 1.2 updated May 25, 2016 Prepared by Director of Finance and Accounting, General Manager, Finance Committee and the Board Version Approved by the Board 5/27/2016 For additional information please contact Michael Salmon, Director of Finance and Accounting (530) Back to Index tda faq financial and governance matters v1.2 Page 1 of 15

2 INDEX General Statements and Document Terms throughout this Document Fiduciary Duty and the Board of Directors Key Definitions and Other Information Frequently Asked Questions 1. Is the assessment the same for both improved and unimproved properties? Do owners of multiple properties pay a reduced assessment? 2. What is the financial structure that allows us to account for and accomplish the objectives of the Association? 3. What does the Recreation Fee cover and is it mandatory? 4. Why can you not just combine the Recreation Fee and the Annual Assessment? 5. Why is there so much money in Replacement Reserve fund? 6. How can the Board collect development fund dollars and spend millions of dollars on a project without a membership vote? 7. It seems like the dues are double what they were when I first bought here! Why do the dues (annual assessment) keep going up every year? 8. Why can I not pay my annual assessment with a credit card or just pay you monthly? 9. How is the annual Budget and resulting Assessment determined? 10. Tahoe Donner is a simple HOA, why are you trying to be like a Northstar or Martis Camp with all these improvements? 11. How is the financial performance measured, whom is accountable and where is the most current financial information? 12. How and who plans the capital expenditures each year and into the future? 13. Why do we allow Public? 14. That amenity operates at a loss. Why not let a 3 rd party run it better and stop the loss? Back to Index tda faq financial and governance matters v1.2 Page 2 of 15

3 General Statements and Document Terms throughout this Document This document was created to inform property owners in Tahoe Donner Association of general terms and other information about the Association. This is NOT a legal document. Certain information in this document is Policy, which can be changed at any time by the Board. Tahoe Donner Association (Association) is a California nonprofit mutual benefit corporation. The Association s members own the 6,473 membership properties within the Tahoe Donner subdivision in Truckee, California. The Association was organized to provide management services and maintenance of certain common areas owned by the Association. A significant portion of revenue is derived from the assessment of member dues. The Association owns, operates and maintains facilities, which include a golf course and pro shop, restaurant, downhill ski area, clubhouse, Nordic ski area, beach and marina area, equestrian center, campground, tennis facilities, recreation complex, pools, and open space with trails for hiking and biking. Operating revenues are derived from member and nonmember usage of these facilities. The Association s Board of Directors is comprised of five members elected to serve three-year terms by a vote of the Owners. The Board of Directors governs in accordance with the Association s bylaws and declaration of covenants and restrictions. The Board of Directors establishes members dues and user fees, and has the ability to enter into long-term contracts. Along with other actions, closing an Association amenity (as defined by the governing documents) requires a vote of the members. The Association is generally exempt from federal income taxes under Internal Revenue Code 501(c)(4), as a Social Welfare Organization. For California, the Association is taxed as a regular corporation. Association Tahoe Donner Association, a mutual benefit nonprofit corporation, incorporated in the State of California; anytime Association is capitalized in this document. If association not capitalized, referring generally to common interest developments. Owner Generally, each single family home and each condo is a unit within the Association. Currently there are 6473 owners within the Association. Increases as zoned multi-family unit lots are developed. The number cannot decrease. Members those persons associated with an Owner property via familial status (commonly referred to as the household) Back to Index tda faq financial and governance matters v1.2 Page 3 of 15

4 Communication Channels the Association serves the Owners and Members and operates in a transparent open business environment. There are regular Board meetings every month, open to Owners and Members. The tahoedonner.com website, TD News monthly magazine and weekly newsletters communicate information to the membership on a timely regular basis. The board s address board@tahoedonner.com is reviewed and responded to regularly by board members. General s to info@tahoedonner.com are reviewed and handled daily with a 72-hour reply goal. Back to Index Back to Index tda faq financial and governance matters v1.2 Page 4 of 15

5 Fiduciary Duty and the Board of Directors Fiduciary Duty: A duty to act for someone else's benefit, while subordinating one's personal interest to that of the other person. It is the highest standard of duty implied by law (e.g., trustee, guardian). -Black's Law Dictionary The Board the required by law to act in the best interest of the Corporation. Many board actions are not popular with a particular special interest group, while the decision benefits the Association as a whole. The director must remain focused on the best interests of the corporation. Loyalty to the corporation means subordinating personal objectives and needs to the financial requirements of the association. In this regard, Civil Code Section 1366 explicitly provides that the homeowners association shall levy regular and special assessments sufficient to perform its obligations under the governing documents and the Davis-Stirling Act, California Civil Code Section Because board members are entrusted with the money and property of the association they are held to a higher standard and must avoid conflicts of interest. They are deemed "fiduciaries" and have a duty to act in the best interests of the membership. A homeowners association has a fiduciary relationship with its members. It is well settled that directors of nonprofit corporations are fiduciaries Directors of nonprofit corporations such as the Association are fiduciaries who are required to exercise their powers in accordance with the duties imposed by the Corporations Code. This fiduciary relationship is governed by the statutory standard that requires directors to exercise due care and undivided loyalty for the interests of the corporation. The board is subject to two broad duties: DUTY OF CARE (Due Diligence; Duty to Investigate). DUTY OF LOYALTY (No Self-Dealing). Two Broad Duties of the Board Upon their election to the board of a common interest development, directors become fiduciaries with powers to act on behalf of the association. As fiduciaries, directors are held to a higher standard of conduct and have two primary duties: (i) duty of care, and (ii) duty of loyalty. This applies to directors of both incorporated and unincorporated associations. Back to Index tda faq financial and governance matters v1.2 Page 5 of 15

6 A. DUTY OF CARE (Due Diligence; Duty to Investigate). Directors must be diligent and careful in performing the duties they have undertaken. Directors must: 1. Attend and participate in meetings so they can be informed about the association's business. 2. Make reasonable inquiry re maintenance issues, rules violations, etc. 3. Make decisions. 4. Keep corporate records. B. DUTY OF LOYALTY (No Self-Dealing). Directors must act in the best interests of the association even if at the expense of their own interests. This is more than just embezzlement of funds; it includes steering contracts to family members or taking actions that result in personal benefits to the director at the expense of the association. Violation could result in (i) liability for all profits received, (ii) all damages caused by the breach, and (iii) punitive damages. "We note that the duty of undivided loyalty applies when the board of directors of the association considers maintenance and repair contracts, the operating budget, creation of reserve and operating accounts, etc. Thus,... [directors] may not make decisions for the association that benefit their own interests at the expense of the association and its members." The duty of loyalty can extend to the support of board decisions. Business Judgment. In determining whether directors violated their fiduciary duties, courts will use the Business Judgment Rule. To avoid potential breaches, boards should (and has) adopt an ethics policy to guide directors. The business judgment rule is a presumption that in making a business decision, the directors of a corporation acted on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the company. With Business Judgement Rule guidelines, Directors in a business should: act in good faith; act in the best interests of the corporation; act on an informed basis; not be wasteful; not involve self-interest (duty of loyalty concept plays a role here). Back to Index Back to Index tda faq financial and governance matters v1.2 Page 6 of 15

7 Definitions and Other Information Policy established by the Board of Directors, can be revised by Board. Certain policies are required to be noticed to members in advance, before the change can be implemented. Architectural standards rules and convents rules are policy examples. Governing Documents can be revised by member vote, typically 50%+1 of all units (not just voting units). In other words, with 6473 units, the vote would need to be 3237 in favor of the change to change. If only 25% of members voted, then not enough votes possible to make the change to governing documents. For these documents go to our website at tahoedonner.com/covenants/. Davis-Stirling Act - The Davis Stirling Common Interest Development Act is the popular name of the portion of the California Civil Code beginning with section 4000, [1] which governs condominium, cooperative, and planned unit development communities in California. It was authored by Assemblyman Lawrence W. "Larry" Stirling and enacted in 1985 by the California State Legislature. In 2012, the Act was comprehensively reorganized and recodified by Assembly Bill 805. The CA law firm, Adams Kessler PLC, maintains a website dedicated to this Act, providing user friendly information regarding this portion of the law Davis-Sterling Act is the section of CA law specifically addressing homeowner association matters. For clarity, the Association must abide by all CA law, not just this specific section on associations. C&Rs This is the common term for the Declaration of Covenants & Restrictions which is recorded with the County by the developer when a homeowner association is being formed, and is legally binding to all parties. C&Rs describes the rights and obligations of the membership to the association and the association to the membership. C&Rs generally cover the following: (i) restrictions on the use of property, (ii) member and association maintenance duties, (iii) enforcement powers, (iv) lender protection provisions, (v) assessments obligations and lien/collection rights, (vi) duty to insure, and (vii) dispute resolution and attorneys' fees provisions. For C&Rs link, go to our website tahoedonner.com/covenants/ or to directly view the PDF click here Articles of Incorporation - Articles of Incorporation are only a few pages long and (i) identify the corporation as an association formed to manage a common interest development under the Davis-Stirling Common Interest Development Act, (ii) state the business or corporate office of the association, and (iii) state the name and address of the association's managing agent, if any. PDF click here Back to Index tda faq financial and governance matters v1.2 Page 7 of 15

8 Bylaws - Bylaws establish policies and procedures for the governing of an association. They set qualifications for the election of directors, their number and term of office, their powers and duties, the appointment of officers, when and how meetings are held, quorum and voting requirements, appointment of committees, etc. PDF click here Governance Hierarchy At times, the laws, rules, policies can each be in alignment, while, other times there can be conflicting information. The hierarchy of governance provides prevailing authority in these situations. As provided for in Civil Code 4205 the hierarchy of authority is as follows: 1. Law (Fed, CA, Regional/Special, Local) 2. C&Rs 3. Articles of Incorporation 4. Bylaws 5. Rules & Regulations 6. Policies, Procedures, and Resolutions Fiduciary Duty The Board the required by law to act in the best interest of the Corporation. Many board actions are not popular with a particular special interest group, while the decision benefits the Association as a whole. See Fiduciary Duty information Back to Index Back to Index tda faq financial and governance matters v1.2 Page 8 of 15

9 Frequently Asked Questions (FAQ): 1. Is the assessment the same for both improved and unimproved properties? Do owners of multiple properties pay a reduced assessment? The assessment amount is the same for all properties with Tahoe Donner, including each dwelling on a multiple-unit lot (example a duplex). The assessment is the same for improved as well as unimproved properties and each property is assessed uniformly. [C&Rs] 2. What is the financial structure that allows us to account for and accomplish the objectives of the Association? Tahoe Donner utilizes a fund accounting approach in order to identify and control the revenues and expenditures of the various functions of the Association. The primary purpose of our fund accounting is to separate ongoing operations from long-term and capital requirements. This is achieved by the utilization of five separate funds. The Operating Fund accounts for the operating revenues and expenses of ongoing amenity and homeowner association operational and service functions. The Replacement Reserve Fund accounts for financial reserves needed for the repair, replacement, and enhancement of existing facilities. A comprehensive reserve study program is managed that tracks over 1800 individual components with regard to average useful life, present age, projected remaining useful life, and replacement cost over an expected useful life of 30-years. The Development Fund was established, as authorized in C&Rs, to accumulate funds for large-scale projects identified and subsequently approved by the board as necessary due to new capacity requirements of the association, or changing needs of the community. The New Machinery and Equipment Fund is used to account for financial resources designated for the acquisition of new assets identified as necessary for the association to be more efficient in operations or to provide new services to membership. Back to Index tda faq financial and governance matters v1.2 Page 9 of 15

10 The Property Fund is used to account for the Association s investment in its fixed assets and associated depreciation expense, the additions from other funds, and disposal of assets. 3. What does the Recreation Fee cover and is it mandatory? The Recreation Fee (Rec Fee) is an annual fee which allows unlimited access for eligible property owners to the private amenities and Snowplay. The Rec Fee is optional and should be evaluated in relation to the daily usage fees at each of the amenities. The Rec Fee is valid May 1 to April 30 and you may pay the fee at any time during the year. A determination of eligibility can be requested from Member Services. 4. Why can you not just combine the Recreation Fee and the Annual Assessment? On occasion, we have owners suggest combining the Recreation Fee and the Annual Assessment, and eliminating the daily entry fee (if no rec fee paid) for members. This concept is more aligned with a country club membership. We have surveyed the membership several times in the past 20 years and the majority of owners prefer a more amenity user based fee structure. As structured now, if an owner infrequently visits Tahoe Donner, they are not burdened with an excess amount of amenity access costs. The member can pay as they go, paying the daily access fee for each visit. With the Rec Fee, the more frequent amenity user has an unlimited season pass, which set a modest level of amenity usage costs for the member. Approximately 65% of our Owners choose to purchase the Recreation Fee. 5. Why is there so much money in Replacement Reserve fund? Short answer; while adequately funded and funding level has improved in past few years, the reserve funds are far from excessive when compared to industry standards. The current Reserve Study contains over 1800 individual components with a total current replacement cost of $45,000,000. The golf course components alone comprise over $10.3 million in current replacement costs. An industry standard calculation known as percent funded calculates the amount that should be saved in reserves based on the useful life and current age of each component. This percent funded calculated a 100% funded amount of $26.2 million for With the ending balance for 2015 of $6.9 million the ratio to $26.2 million is 26%. The board developed policy which specifies a goal of no less than 25% funded and no less than 10% of net reserve gross assets (currently calculates to $6.3 million). Accordingly, the Association is currently exceeding the minimum levels established by the policy. Currently, there is no California law requiring a certain minimum % funded level for associations. Industry related articles on the subject indicate that a 50% funding level should be the minimum level. The finance committee and board have Back to Index tda faq financial and governance matters v1.2 Page 10 of 15

11 reviewed with management the reserve study and reserve funding plan and, have deemed the current policy and funding plan to be sufficient. The board has a fiduciary responsibility (click here to learn more about fiduciary responsibility) by law to do what is best for the association both now and for the future. Current owners have the responsibility to pay for the depreciation of association assets, not defer the burden to future owners. Properly maintaining our common assets protects owners property values. 6. How can the Board collect development fund dollars and spend millions of dollars on a project without a membership vote? The governing documents of the Association specifically define and allow for the establishment of a Development Fund and for the board to assess the membership a development fund assessment. Expenditures from this fund on identified projects is specifically authorized in the governing documents and are review and approved by the Board. In general, a special assessment is considered an indicator of NOT properly planning for the future of the association. The special assessment vote by membership in 1993 at Tahoe Donner was primarily because there was no money saved up to accomplish the desired projects to replace aging and functionally obsolete common facilities. Recently, having Development Funds allowed for the purchase of Euer Valley, greatly improving our open space property holdings. Funds were utilized to replace the 40+ year old barn used for cross country and equestrian operations with the new Alder Creek Adventure Center. We now have a great building to operate our world-class cross country ski terrain. The snowmaking at downhill investment of less than $9 per year per owner protects (like a form of self-insurance) over $300 per year per owner in downhill ski operating revenues. With a break-even Return on Investment (ROI) of less than 1000 per year skiers, note we can readily gain skiers in one low natural snow year with snowmaking. Note that the ROI for homeowner association investment decisions is primarily and most often subjective in nature, as most all of our investments do not make money. Many of the positive returns are difficult to objectively measure financially. 7. It seems like the dues are double what they were when I first bought here! Why do the dues (annual assessment) keep going up every year? Short Answer: The Association s Annual Assessment has increased over time and generally you should plan on the Assessment increasing in the 3%-5% range each year. Assessment increases are not taken lightly by the board or management. Each year in the budget cycle, all aspects of the financials are reviewed in detail by management, finance committee and the board. This includes several open meetings as part of the budget review and approval process. The Compounded Annual Growth Rate (CAGR) for the Annual Assessment from 2006 to 2016 is as follows: Back to Index tda faq financial and governance matters v1.2 Page 11 of 15

12 Operating Fund portion, 4.5% Capital Funds portion, 9.0% Overall, 6.2% For the Capital Funds portion, the replacement reserve fund was deemed not sufficient in the past. Recent years, we have been focused on increasing this portion of the assessment to improve the percent funded level (for more on that click here). The Development Fund was nominally funded in the distant past, and has been held at $250 per owner since For the Operating Fund, recent cost pressures include workers compensation insurance, California minimum wage and sick pay mandates, as well as, the Federal Affordable Care Act impacts. Further, operating revenues have been significantly impacted by the two recent years of winter drought conditions impacting snow dependent operations. Legislative laws have a real impact on the cost of doing business, particularly in California. Further, the laws do not exempt non-profits or homeowner associations. For over 80% of membership, Tahoe Donner is their 2 nd home, a recreation base for vacations and weekend trips from the greater Bay Area. While we could cut service levels to balance the budget, this has not been our memberships indicated desire. Visitation levels by membership continue to grow at all of our amenities. For the period of May 2015 to March 2016, every month was a record level of volumes and operating revenues. To the extent we can continue to grow operating revenues, there is an inverse impact on Annual Assessment revenue requirement. Note the Operating Fund portion of the assessment was held flat for four years (2009 to 2012). 8. Why can I not pay my annual assessment with a credit card or just pay you monthly? You can pay with your credit card. We utilize a 3 rd party for this service and there is a convenience fee charged. If we simply accepted credit cards for assessment payments, the merchant fees would potentially be in excess of $300,000, and the board does not want to pass this cost on to every owner. By utilizing a 3 rd party, only those paying with credit card pay the convenience fee. The governing documents specify the assessment to be charged annually, invoiced November 15, due January 1 st, and delinquent March 1 st. This annual method is due in part to the large number of owners and payments volume. Hypothetically, with 6473 owners times 12 monthly payments would be processing over 77,000 transactions. We do allow for payment plans to be established, and if payed in full by March 1 st, there is no delinquency fee. Payment plans beyond March 1 st are subject to delinquency fee of 10% on remaining balance. Back to Index tda faq financial and governance matters v1.2 Page 12 of 15

13 9. How is the annual Budget and resulting Assessment determined? Tahoe Donner Association (the Association) prepares its annual revenue and expense budget in accordance with applicable laws, its own governing documents and budgetary policies and procedures. The Association s approved budget also reflects the fiduciary responsibility of the Board, management, and all owners in protecting our investment in the Association, both for the budget year and into the future. The process begins with general direction from the Board of Directors regarding influential factors, such as the level of service to be provided, new community projects, economic conditions and changes to business operations. Capital and equipment expenditure budgets are formulated to determine the funding needs for the Replacement Reserve Fund, the New Machinery and Equipment Fund and the Development Fund. The operating budget is traditionally developed with attention to historical trends in revenue generation, consideration of economic factors that may influence revenue or expenses, achievable cost reductions across all departments, service levels to be achieved and staffing levels required. The Finance Committee participates in reviewing the budget prior to submittal to the Board of Directors and offers input for the Board s consideration. The General Manager and Director of Finance and Accounting then present the staff-recommended budget for Board review. The Board subsequently directs staff to incorporate revisions it feels are appropriate. All budget review meetings with the Board and Finance Committee are noticed open meetings which any Owner can attend and participate in. The 2016 Budget approved by the Board is summarized here on our website and is included in the December issue of Tahoe Donner News magazine. 10. Tahoe Donner is a simple HOA, why are you trying to be like a Northstar or Martis Camp with all these improvements? Why do you need Development Fund? Your association is governed by an elected Board of Directors. The Board makes strategic decisions based primarily on membership surveys, member served committees, customer surveys, and management information. Replacement of buildings is expensive, particularly in the Tahoe region where building costs are close to highest in the country. The association is over 45 years old. Our building replacements are of quality construction, however, they are not the finish quality of Martis Camp facilities. The association does own and operate many of the same or similar operations as Northstar California resort. Tahoe Donner s golf course is on par with what Martis Camp has built recently and well ahead of Northstar s aged course. Lastly, preserving and protecting your association s common property assets is vital to protecting each individual s property investment. 11. How is the financial performance measured, whom is accountable and where is the most current financial information? Management utilizes a number of key performance indicators and monitoring tools. A flash report is issued daily, reporting on past day s volumes, sales, labor costs and other Back to Index tda faq financial and governance matters v1.2 Page 13 of 15

14 metrics; with comparisons to Budget and Prior year same day. This daily report also compiles week to date and month to date trending metrics. A comprehensive monthly financial reporting package is prepared by management, reviewed and approved by the Board, and posted on the website under Member/Financials. A monthly summary video report is also prepared and posted on the website for membership viewing. Management reports up to the General Manager. The General Manager reports to the Board of Directors. The monthly financial results are reviewed at the Finance Committee meeting. The Finance Committee is comprised of 10 Tahoe Donner property owners. These meetings are open to any member to attend. Key financial information is reviewed monthly with the Board at open session regular board meetings. The board commonly asks questions of the Director of Finance, General Manager and other senior management personnel during this review. At times, follow up items are identified and/or items for a future board meeting agenda. 12. How and who plans the capital expenditures each year and into the future? As discussed in FAQ 2, there are three fund types for capital expenditures. New Machinery and Equipment fund expenditures. Ongoing needs assessed by management and the board, planned in Fall for upcoming year expenditures. An example would be adding a vehicle to fleet or the new golf simulator equipment. Replacement Reserve study expenditures. Planned through a comprehensive 30-year reserve study, which is updated annually. Executing on the planned study spend each year also involves another level of review and approval. This is for over 1800 identified existing asset components. Examples include the pool and spa pumping equipment, snowcat grooming equipment, and existing fleet vehicles. See FAQ 5 for more information. Development Fund expenditures are for large scale projects including building replacement and amenity expansions. The General Planning Committee coordinates these expenditures. For more on this process go to this article on our website. 13. Why do we allow Public? Tahoe Donner Association is a Federal tax 501(c)(4) social welfare organization. This specifically acknowledges your association as being a part of the community. Your 45-yearold association has a wide variety of amenities and facilities. Some of these facilities are open to the public, others are for member and guests of members only. The primary focus has been and continues to be on the member. The public volume does serve to provide community benefit and public revenues help subsidize the member rates, and ultimately public revenues help lower the overall annual assessment. We estimate the annual public revenues to be in the $2.5 to $3.0 million range, which equates to a range of $385 to $465 per owner. The majority of operating costs are flat, whether the volume mix is 200 member Back to Index tda faq financial and governance matters v1.2 Page 14 of 15

15 or 200 member and 100 public; for example, lift operators at Downhill Ski or grooming ski trails at Cross Country Ski. Our pricing structure influences public visitation levels as well. 14. That amenity operates at a loss. Why not let a 3 rd party run it better and stop the loss? The whole is greater than the sum of its parts. Aristotle While this quote is often attributed to team sports, it also applies to Tahoe Donner. Your association is a diverse community with a wide array of amenities. The vast majority of these amenities were created at inception and are written into the governing documents of the association. Closing any of these original amenities requires a vote of membership. Many of our operations provide a valued service to our membership, some of these are at an assessment subsidized price. The net operating results of each amenity are reviewed annually as part of the strategic planning and budget process. The operating performance and value of services received are balanced with the impact on the Annual Assessment. With regards to outsourcing an operation to a 3 rd party, there are many factors to consider. 1 st and foremost, we operate the majority of amenities at or near break-even, so we don t see many applicants pounding at the door. You also lose a level of control when turning over the keys to a concessionaire. While we are open to the idea, with 45 years of operations, this has not been implemented with success on an operating unit scale. We do contract with massage therapist and other specialty service situations. Back to Index tda faq financial and governance matters v1.2 Page 15 of 15