By Lloyd Sherman, October 19, 2021
WHAT YOU SHOULD KNOW ABOUT THE 2022 BUDGET
Version 1 (V.1) of the 2022 budget was released to property owners this morning. The POA Board plans on approving this budget and the associated fee schedule this coming Wednesday. A Version 2 (V.2) is sitting in the wings waiting for the results of the assessment increase vote. Based on comments made in Discussion Sessions the only difference between the two versions is that V.2 will contain items to be expended if the increase is approved. While that sounds promising, the focus here will not be on V.2 but on V.1.
The first thing that struck me was that all projections for 2022 are based on data up through 7/31/2021. I recognize they needed a starting point, but budgets should be set up and approved based on the most current information available. This was an issue in the generation of the 2021 budget and it still remains an issue.
I have taken the time to perform a cursory review of the budget and I find some very disturbing details, but let me take a minute and explain the columns on the attached spreadsheet.
2022 Budget – These are the numbers taken directly from the proposed budget that was released this morning. Only the net numbers are being reported. Revenues – Expenses = Net.
2021 Forecast (1) – Again, these numbers come directly from the budget released this morning.
Difference – This is nothing more than the difference between 2022 Budget & 2021 Forecast.
2021 Forecast (2) – These are numbers projected through 2021 using the actual P & L’s for the period ending 9/30/2021.
Now let’s look at each of the line items:
ASSESSMENTS – As you can see the July numbers project collected assessment pretty close to the data of 9/30/21. However, it should be noted that these numbers do trend downward. For instance, 2021 projections are $578,142 lower than they were in 2020. This has been pointed out in Bad Debt explanations previously.
ADMINISTRATION – This will likely be confusing for some. The PPP funds were recognized as revenue in the Administration area instead of something like Other Income. This skews the numbers where it becomes difficult to assess how this area is doing from one year to the next. Bottom line is that this function is projected to have a negative number of $2.1 mil in 2022. This is generally the case as this function is not a revenue center but rather a cost center. This general line item is comprised of Admin., IT, and HR.
INNOVATION – This line item is comprised of departments named Development, Permitting and Inspection, and Tourism & Discovery. The 2022 budget is projected for this cost center group to cost $1,854,398 vs the projected negative number of $1,765,121 in 2021.
PUBLIC SAFETY – This line is comprised of Police, Fire, Ambulance and currently Animal Control. You will note that the 2022 numbers indicate these cost centers will cost an additional nearly $750K. Based on turnover and comments received especially on Police and Fire, our turnover has been extremely high due to our salaries being less than surrounding areas. This has been in need of a fix for some time now, but $750K sounds excessive.
PUBLIC WORKS – This line is comprised of Sanitation, Street Maintenance, Building Maintenance, & Fleet Maintenance. What is confusing about this line item is that based on 9/30 numbers, this group will lose $410,351 in 2021 but is projected to lose $1,655,832 in 2022. Yet V.2 will have minimum impact on compensation, which seems contradictory to a $1.2 mil increase from one year to the next.
PUBLIC UTILITIES – This line is primarily represented by water-related functions. The only cost center that actually produces a profit. None of the other major operating lines can tout positive results. Right now, it appears they will contribute an additional $350K of positive results in 2022 with a projected budget of a positive $3,510.914.
COMMUNITY, PR, MARKETING, LIFESTYLE – What a title! Especially when what it represents is F&B, Golf, & Recreation. Most are aware of what is going on with F & B and the projection for 2022 is that it will only produce a negative $91,827. However, GOLF is being projected to move back past the $2 mil loss category in 2022. It is currently projected to lose $788,779 in 2021, but with expenses planned for 2022 are now projecting for us to lose $2,347,742. Pardon my surprise on this unit’s projection, but I find this extremely unsettling.
RECREATION – is projected to continue as a losing unit at an even higher rate than 2021 adding an additional $300K in losses in 2022.
GROSS REVENUE – The current 2022 budget is showing that total gross revenues are projected at $42,311,777. Using the numbers from 7/31 would result in the year-end projection being $42,918,696. However, if you project out the revenue number using 9/30 data it shows we will end the year with gross revenues of $44,478,151. Now I know that the timing of how and when revenues are recognized would likely impact these numbers, the question should at least be asked. But here is the more puzzling factor. Let’s say the 7/31 projections are more accurate and we are talking $42 Mil (rounded). Something is not adding up. If the CPI number is the only increase that is provided this year, then that would increase revenues, by approximately $820K. A buy-in fee has been added of $1,500 per existing home purchase. We have been experiencing about 650 units for the past several years. That adds an additional $975K. A $250 buy-in fee will also be instituted. We currently have sold over 200 lots this year, so using that also new lot sales adds another $225K. This adds up to nearly $2.1 mil. And this number doesn’t account for the significant number of categories that will either receive an increase or have a new fee associated with them.
BAD DEBT – As has been pointed out before, the onset of the two-tier resulted in many properties being abandoned. Our current run rate is $5 mil. Will the 5.8% CPI negatively impact these numbers? That is an unknown, just as the impact an assessment increase might have on these numbers. We saw what happened with the two-tier and I believe it is predictable that it will happen again.
EBITDA – Earning before income taxes, depreciation, and amortization. Using the 9/30 results, it would indicate we will end the year with a number in the $10,486,709 area. We really need to remove the PPP funds from this number to normalize the numbers. Taking out the $3,089,000, that leaves us with $7,398,000 in round figures. And yet, the forecast for 2022 is $4,218,938.
While there are several areas that should be looked at to determine exactly what is going on with this budgeting cycle, all you have to do is look to the compensation line to see that COMPENSATION is projected for 2021 to be a total of $16,416,242 but projected for 2022 to be $19,374,199. A difference of $3,000,000 (rounded). Salaries have been an area of discussion for years and projecting an 18% increase in this number seems questionable.
If anyone is interested in knowing the answers to any of the numbers I have presented in this piece, you will have to take it up with the board. They apparently do not want to hear from me. One of the board members told me he was tired of my crap, while another recently resigned board member told me I should leave the Village, I see no reason to share my concerns with a board that doesn’t want input from the property owners.
2022 Projections
Lloyds-2022-Projections* * *
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Reuben McGilvary
10/19/2021 — 11:25 am
Thank you for your efforts in clarifying the financial statements. There are questionable areas that don’t appear to be supported (future decisions not supported by the data). These budget exercises can easily support the decision making process when you have a story to tell that is based on data that supports itself. I’ve had concerns that the conveniencing story has not been forthcoming from our decision makers.
HSVP J
10/19/2021 — 12:17 pm
To the poser on this website, pretending to be David P., your comments do not meet our website comment criteria for publishing. Just tuck it in and go spam somewhere else.
Dan Fitzgerald
10/19/2021 — 1:40 pm
Thank you Lloyd.
The pattern of drafting a budget here in the Village, seems to be taking how much you spent this year, per department and add 10/15% for the next year. Instead of actually drafting a budget with cuts in mind. That is just lazy, wasteful, typical government logic.
Crispin Heare
10/19/2021 — 4:16 pm
Lloyd,
Thank-you for explaining the budget, I’ve been trying to figure out where the $6.7M is needed other than POA infrastructure. I want to help maintain the village and don’t have an issue with the increases, other than making sure it is used for just that.
At this point after all I have read and I’ve read nextdoor comments, board meetings, reviewed prior years financial reports etc. I have concluded a NO vote is in order to get a better option of protecting assessment money now and in the future. A special assessment may be appropriate until the financial control can be written into our declaration or protected in escrow accounts to be used only for deferred maintenance as an example.
Tom Blakeman
10/19/2021 — 5:43 pm
Reminds me of “Ya Got Trouble”, by Robert Preston, from ‘The Music Man’. Substitute the word ‘POA’ for ‘pool’ in the play/musical film and here we are. Trouble in River City, a.k.a. HSVPOA. Look it up on Google if you are too young to remember of may have forgotten.
Diana Podawiltz
10/19/2021 — 6:06 pm
Here we go again. Is this what happens when you have a staff member try to serve 2 masters by being both the head accountant (Controller) and the Corporate Treasurer? Why hasn’t the Finance and Planning Committee raised questions with these expense and revenue projections?
Could some of the increase in Golf Expense be related to refurbishing work for Balboa GC? If so then, actual budget should be adjusted and footnoted for the use of Reserve Funds. This makes it a balance sheet issue rather than P&L.
I wholeheartedly agree with you that the accounting treatment of forgiven PPP loans is totally bogus.
Please help us if this BOD adopts past BOD practice of an approved budget setting expenditures in concrete. On the 2019 BOD, I was told countless times by my fellow BOD members, “it was approved in the budget so it can’t be stopped.” Total misplacement of fiduciary responsibility.
Sorry to hear that you’re being treated with so much disrespect. The last time I checked, the Bill of Rights was still in force; even here in HSV.
Mary Odom
10/19/2021 — 8:38 pm
Thank you Lloyd for this and all you do for us. I always learn and enjoy your synopsis
I too am so they have treated you this way…not professional in any way.
Bonnie Shiffer
10/20/2021 — 8:33 am
Sorry to say this but trust should be earned not bought. Sad to say but many of the BOD have yet to gain my trust. The interest of what will be in the new declaration weighs heavy on my mind. I do not want HSV to fail nor do I see it failing as we have many new, younger residence that I believe will be more involved in our lovely community. People move here to get away from city hustle bustle, they know infrastructure must be maintained, & people do not work for free. These same people do not want the changes that would take away the quaintness that it seems some board members are allowing to happen. I will be praying for a new declaration that will be made by caring people, that care about the village residence that made the village what it is today beautiful. What I have not seen anyplace is why contracts that were made for infrastructure, the new pool, tennis, pickle ball courts has not been brought up for warranty information on them. With what was paid for each surly there was a guaranteed on their work they are responsible for rather than costing the POA money. What about monies lost when these places can not be utilized? It is past time people be held responsible for their actions even in personal liability if you are signing a contract.
Mark Oliver
10/20/2021 — 12:39 pm
I just left Mcdonalds after verifying that the story the board is telling is a complete lie. They have repeatdly stated Mcdonalds at the west gate is starting employees at 15 dollars per hour. The employees got a laugh out of that. The response was “That is complete bullsh@t, we make 11.” This is the lie they have used to promote their living wage argument and a massive increase for salaries. It is a lie. Bring on the threats.
Lloyd Sherman
10/20/2021 — 5:04 pm
Does this really surprise you? I have no doubt that some of our positions need evaluation on what we are paying them, but if compensation survey’s have been performed, that certainly hasn’t been communicated to the property owners.
The general attitude seems to be that we don’t have a right to know, but if it is believed that we are paying too much for some positions and not enough for others, then share the data with us. We are not asking for salaries for each and every employee, only the data that establishes the salary ranges. My research has certainly pointed out that we are under-paying our fire department personnel as well as the police officers.
Arkansas also boasts the 16th highest entry level salary in the nation at $11 an hour. Many social security recipients don’t even make the equivalent of $11 an hour.
This issue will remain controversial as long as we the property owners are told we don’t have a right to know what is going on.
Mark Oliver
10/20/2021 — 6:22 pm
What is starting for FD? I doubt it is much beyond 11, but firefighters are paid much more than 40hrs per week due to shift schedules. It can be misleading if you just look at hourly pay.
Lloyd Sherman
10/20/2021 — 7:19 pm
Firefighters are currently at a pay grade 3. Pay grade 2 is entry level.
$11.55 ($24,024) $14.44 ($30,035) $18.05 ($37,544)
This is the low mid and high of pay grade 3.
Mark Oliver
10/20/2021 — 7:55 pm
Not much different than many other paid depts. in Arkansas. The yearly will be a good bit higher than shown due to the hours paid per week. Shifts are 24hrs. and typical shift schedules will have firefighters working 3 to 4 shifts per week. It’s not a high paying profession, but it does pay better than the hourly would lead you to believe. Been there, done that.
Mark Oliver
10/20/2021 — 8:08 pm
Cabot FD currently pays 35k per year for scheduled shifts, which is roughly 3 per week.
Lloyd Sherman
10/20/2021 — 8:55 pm
Off of a Statewide survey that I have and zoning in on the Hot Springs market here is the low mid and high of this salary survey for firefighters:
$22,680 $36,730 $43,670
Our again is: $11.55 ($24,024) $14.44 ($30,035) $18.05 ($37,544)
Once you get a little time under your belt, that seems like a pretty large disparity to me.
Larry J Welsh
10/21/2021 — 4:02 pm
Lloyd Sherman is to be commended, not condemned for making the effort to dig into the budget and as we used to say, “peel the onion”. If I have ever seen a budget onion that needed peeling the POA budget is one that qualifies. Having been responsible for mult-million dollar budgeting within another complex organization (hospital network) and a credit union board chairman in another life, I have come to suspect there is an important missing element in the budgeting process that is manifest in this POA budget. Annual budgets can be increased with an overall framework approved by the BOD, within which department managers must justify exceptions to upper management who then compile the resultant total and submit it to the board for final approval. Alternatively, a zero-based budget method with everything on the table and requiring justification to senior management could be used. Zero-based budgeting is generally a more accurate approached but rarely used because the additional effort is more time consuming and often not worth the effort. Accurate or not, what appears to be happening with this particular budget is middle management have submitted their wish lists without a board-approved overriding framework to work within and/or required critical senior-level analysis is wanting. That may be explainable, in part, by vacant position(s) in senior management that may have been deliberately or inadvertently taken advantage of. If that is not what is happening, I would appreciate being educated to the process used. It was never my intention to get involved in operational matters as I am retired and had adopted the lazy approach that it is the board’s job, not mine. However, evaluation of the assessment issue has raised more questions for me, and apparently others, than answers, and led me to digging deeper than I ever intended. My apologies if I am stepping on board toes, but when asking for major changes it should be expected. Budget issues raised by Lloyd warrant a deeper dive and explanation, not only into the budget detail but also the process, IMO. He may be perceived by some as a pain in the @@@ for his efforts, but he is the kind of pain we all should respect and not write off. I just hope not to be compelled to become a pain also! We all have a vested interest in the results.
Karen Bump
10/23/2021 — 6:22 pm
If I remember correctly, the zero-based budgeting was being introduced either last year or year before as Coreena was training managers on how to do it. I don’t know if that continued or not, just remember reading and hearing about it from board meetings.