May 15, 2011
Dear Heritage Ranch Property Owner,
The summary pro forma operating budget for fiscal year 2011/2012 is submitted as required by California Civil Code Section 1365 for your review. The Finance Committee assists the Board of Directors in adopting the final budget based on examination of the last two years expenditure history of revenue and expenses.
The Board of Directors retains a professional under contract to conduct a physical inspection every three years of all property owned by the Heritage Ranch Owners’ Association (HROA), and advise them as to the Association=s reserves pursuant to Section 1365.5 of the Civil Code. A detailed report is produced as part of that process. The last physical inspection was done in 2010. The Association=s reserves are reviewed annually by the Board of Directors and a summary is provided to all owners which is included in with this budget. Approximately 70% of the overall reserve budget is for road repairs and road maintenance.
The Board of Directors approved the pro forma operating budget (including the estimated operating, capital and reserve expenditures) on April 15, 2011 for implementation on July 1, 2011.
The 2011/2012 assessment amount has not been changed which is $240.00/quarter ($80.00/month).
If you have property in Tract 447 the special assessment trash fee has not been changed. The special assessment trash fee will remain at $36.00/quarter ($12.00/month).
As provided by law, members may examine the complete pro forma operating budget at the Association Office, or may request a copy to be mailed by first class mail within five (5) days of a request. All accounting books and records of the Association are open to inspection at all times during reasonable business hours, exercisable on ten (10) days prior written request. The minutes (or a draft of minutes) of any meeting of the Board of Directors, other than executive session, are available for review within thirty (30) days of the meeting. The minutes are available to be mailed to any member of the Association upon written request and upon reimbursement of the Association=s costs for making that distribution.
Your comments are welcome. If you have any questions regarding the enclosed, please contact the Association Office for assistance.
Sincerely,
Dan Prunk
President
Following is a summary of the pro forma operating budget. The complete pro forma operating budget is available at the business office of the Association and copies will be provided upon request and at the expense of the Association. If any owner requests that a copy of the complete pro forma operating budget be mailed to the owner, the Association shall provide the copy to the owner by first-class United States mail at the expense of the Association and delivered within five (5) days. (Civil Code 1365(d))
SUMMARY PRO FORMA OPERATING BUDGET
FISCAL YEAR JULY 1, 2011 THROUGH JUNE 30, 2012
REVENUE
Assessment Revenue ($80.00/month per lot x 2,104 lots)
Association Operations………………………………... $1,549,840.00
Reserve Contribution………………………………...... $ 465,000.00
Capital Contribution……………………………………. $ 5,000.00
TOTAL ASSESSMENT REVENUE……………………………. $2,019,840.00
Other Income
Co-Owner Assessment…………………………………. $ 7,560
Campground…………………………………………….. $ 20,000
Marina……………………………………………………. $ 30,000
Equestrian Center………………………………………. $ 42,000
Equestrian Center Reserve Contribution…………….. $ 1,000
Boat Slips………………………………………………… $ 19,140
Boat Slip Reserve Contribution………………………... $ 20,860
Late Charges……………………………………………. $ 22,000
Association Fees……………………………………….. $ 20,000
RV Trash Fees………………………………………….. $ 28,944
Mowing and Chipping Fees…..……………………….. $ 5,000
Traffic and AECC Fines………………………………... $ 60,000
Miscellaneous Revenue………………………………… $ 29,000
Washer/Dryer Revenue…………………………………. $ 3,000
Interest Income (Operations Accounts)………………. $ 6,000
Other Income……………………………………………. $ 0
TOTAL OTHER INCOME…………………………………….… $ 314,504.00
TOTAL REVENUE $2,334,344.00
EXPENSES
Gatehouse/Security Department
Gatehouse Labor………….…………………………….. $228,650
Security Labor……………………………………………. $227,500
Payroll Taxes……………………………………………. $ 39,090
Group Insurance..………………………………………. $ 41,176
Workman’s Comp. Insurance…………………………. $ 25,163
Electricity………..……………………………………….. $ 5,000
Fuel……………………………………………………….. $ 25,000
Supplies………………………………………………….. $ 3,000
Labels, Stickers and Identification Cards…………...... $ 5,000
Small Tools and Equipment….………………………… $ 3,000
Uniforms…………………………………………………. $ 1,500
Telephone and Modem (& Handheld Phone)………... $ 5,500
Facility Repairs and Maintenance…………………….. $ 8,000
Water and Sewer………………………………………... $ 1,500
Other……………………………………………………… $ 0
TOTAL GATEHOUSE/SECURITY EXPENSE………..………. $ 619,079.00
Maintenance Department
Labor……….…………………………………………….. $228,000
Payroll Taxes……………………………………………. $ 17,562
Workman’s Comp. Insurance…………………………. $ 12,750
Electricity………..……………………………………….. $ 3,000
Propane………………………………………………….. $ 1,500
Fuel……………………………………………………….. $ 13,000
Equipment Repairs and Maintenance……………..….. $ 1,500
Landscaping……………………………………………... $ 10,000
Road Repairs and Maintenance (& Sweeping)………. $ 5,000
Vehicle Repairs and Maintenance…………………….. $ 15,000
General Repairs and Supplies…………………………. $ 30,000
Small Tools and Equipment….………………………… $ 3,000
Uniforms…………………………………………………. $ 1,000
Telephone (& Handheld Phone)….……………………. $ 3,500
Trash Collection……………………..………………….. $ 8,000
Water and Sewer………………………………………... $ 2,937
Safety Equipment……………………………………….. $ 300
Termite/Bug Service……………………………………. $ 1,900
Other……………………………………………………… $ 0
TOTAL MAINTENANCE EXPENSE…………………………… $400,482.00
Administration Department
Labor……….…………………………………………….. $164,500
Payroll Taxes……………………………………………. $ 13,448
Group Insurance……..…………………………………. $ 29,792
Workman’s Comp. Insurance…………………………. $ 1,344
Employee Relations…………………………………….. $ 8,000
Board of Directors……………………………………...... $ 2,000
Accounting and Auditing………………………………… $ 10,000
Electricity………..……………………………………….. $ 4,500
Propane………………………………………………….. $ 1,000
Mileage………………………………………………….. $ 4,200
Office Supplies…………………………………………… $ 13,000
Equipment Repairs and Maintenance……………..….. $ 4,000
Facility Repairs and Maintenance……………………… $ 500
General Insurance……………………………………….. $ 93,000
Legal Expenses………………………………………….. $ 85,000
Bank and Finance Charges……………………………. $ 16,000
General Printing Expense………………………………. $ 20,000
Postage…………………………………………………… $ 16,500
Telephone and Modem…………………………....……. $ 5,300
Contraband Control……………………………………… $ 1,000
Web Site………………………………………………….. $ 5,200
Taxes and Licenses…………………………………….. $ 12,000
Activities………………………………………………….. $ 3,500
Other……………………………………………………… $ 0
TOTAL ADMINISTRATION EXPENSE…….……………….…. $ 513,784.00
Campground/Marina
Supplies………………………………………………….. $ 2,500
Water and Sewer………………………………………... $ 4,223
Porta Jons / Fish Cleaning Station Cleanout……….... $ 7,000
Other……………………………………………………… $ 0
CAMPGROUND/MARINA EXPENSE………………………… $ 21,223.00
Equestrian Center
Labor……….…………………………………………….. $ 24,028
Payroll Taxes……………………………………………. $ 1,975
Workman’s Comp. Insurance………………………….. $ 3,565
Electricity………..……………………………………….. $ 300
Fuel……………………………………………………….. $ 2,000
Repairs, Supplies, Small Tools and Equipment……… $ 1,500
Water and Sewer……………………………………….. $ 2,635
Porta Jon.………………………………………………... $ 1,100
Trash Collection……………………………………….… $ 1,500
Manure Removal………………………………………… $ 2,500
Contingency……………………………………………… $ 897
Other……………………………………………………… $ 0
EQUESTRIAN CENTER EXPENSE……………..…………… $ 42,000.00
Boat Slips
Maintenance Labor Transfer……………………………. $ 9,000
Insurance………………………………………………….. $ 7,500
Dock Fees………………………………………………….$ 1,640
Supplies/Repairs…………………………………………..$ 1,000
BOAT SLIP EXPENSE………………………………………… $ 19,140.00
Recreation Centers
Pool Labor………………………….……………………. $ 34,429
Payroll Taxes……………….….………………………… $ 4,918
Workman’s Comp. Insurance…………………….……. $ 2,508
Gateway Park Electricity………..……..……………….. $ 500
Gateway Park Repairs and Supplies…………………. $ 500
Gateway Park Water and Sewer…………………..….. $ 10,000
Heritage Park Repairs and Supplies………………...... $ 500
Pool #1 Electricity……………………………………….. $ 12,500
Pool #1 Repairs…………………………………………. $ 1,000
Pool #1 Supplies………………………………………… $ 4,500
Pool #1 Telephone……………………………………… $ 100
Pool #1 Water and Sewer……………………………… $ 2,977
Pool #2 Electricity……………………………………….. $ 3,300
Pool #2 Repairs…………………………………………. $ 500
Pool #2 Supplies………………………………………… $ 1,700
Pool #2 Telephone……………………………………… $ 100
Pool #2 Water and Sewer……………………………… $ 4,500
Recreation Barn Electricity……….……………………. $ 3,500
Recreation Barn Propane…………..………………….. $ 1,200
Recreation Barn Repairs……………………………….. $ 500
Recreation Barn Supplies….…………………………... $ 1,500
Recreation Barn Water and Sewer……………………. $ 2,400
Other……………………………………………………… $ 0
RV Area
Electricity………..……………………………………….. $ 2,200
Repairs….……………………………………………….. $ 1,500
Supplies……………………………………..………..….. $ 1,000
Trash Collection……………………..………………….. $ 28,944
Water and Sewer………………………………………... $ 5,000
Other……………………………………………………… $ 0
RV AREA EXPENSE…………………………………………… $ 38,644.00
TOTAL OTHER EXPENSE $ 96,500.00
TOTAL OPERATING EXPENSE……………………... $1,842,484.00
RESERVE ALLOCATION…….……………………………………………….. $ 486,860.00
CAPITAL ALLOCATION.……………………………………………………… $ 5,000.00
RESERVE STUDY SUMMARY
The Heritage Ranch Owners’ Association (Association) is a planned development. There are 2,104 lots. The following financial projection is based upon certain assumptions regarding condition, replacement costs and estimated lives of the components in this study which was prepared for the Association by Facilities Advisors, Inc., in 2010. Estimated replacement costs are based upon bids received, prior costs paid, construction cost manuals and other sources. This study is limited to the components contained herein. Certain components have been omitted as they have useful lives in excess of the scope of the study (30 years), or major repair and replacement costs are included in the operating budget. The reserve study funding plan has been calculated using a pooled cash flow method. Under this method, funding is not directly linked to any specific component, but is intended to provide adequate funding for the future estimated expenditures of all common area components considered together. Factors considered in the calculation of the funding plan are estimated interest rates, tax rates, and projected incremental increases in the regular annual assessment, which are intended to compensate for the effects of inflation. The minimum funding level is $1,000. A site inspection was performed last year on March 25, 2010. An evaluation of the Association’s common area components was made to determine the age, condition, estimated remaining life, and estimated current replacement cost. This information, combined with an inflation rate and a contingency rate have been applied to determine the timing and amount of estimated future expenditures. The maximum interest rate permitted by statue is 2% in excess of the discount rate published by the Federal Reserve Bank of San Francisco at the date of this report. The maximum rate for purposes of this funding study is 4.5%. The actual interest rate used in this reserve study is less than the maximum rate established by statue. The tax rate is calculated as an offset of interest earned for purposes of this funding calculation. Assumptions for interest earnings on invested funds is at 2.00%; the inflation rate estimated for future replacement costs is at 1.25%; the contingency factor is at 0.00%; and the applicable net income tax rate is estimated at 15.00%.
The present annual contribution to reserves beginning July 1, 2011 is $465,000.00 with additional deposits to be made from fees collected for new home construction, the equestrian center and boat slips; the present year monthly contribution to reserves is $38,750.00; and the present monthly contribution to reserves per homeowner is $18.42. The annual contribution to reserves beginning July 1, 2010 was projected to be $465,000.00. Expenses in this report are based on extension of expenses determined for previous years.
The Board of Directors has not determined to defer or not undertake repairs or replacement of any major component with a remaining life of 30 years or less. The Board of Directors has determined that, based on the reserve study, no special assessments are presently anticipated for any year covered by this study. However, actual expenditures may vary from the estimated amounts, and the variations may be material. Therefore, amounts accumulated in the reserve fund may not be adequate to meet future needs. The Board of Directors regularly updates assumptions and estimates used in the reserve study in order to have accurate financial projections of future cash needs. The Board of Directors has determined that it will use the following mechanisms to fund reserves for the repair or replacement of the Association’s common area components: Regular Assessments = yes; Special Assessments = no; Borrowing Funds = no; Use of Other Assets = no; Deferral of Selected Repairs or Replacements = no; Alternative Mechanisms = no. The mechanisms noted to fund reserves for the repair or replacement of the Association’s common area components are those that are anticipated based upon the current reserve study. It is possible that other of the mechanisms not presently anticipated may be considered at a future date. The Association has no outstanding loans with an original term of more than one year.
Assessment and Reserve Funding Disclosure Summary
For Fiscal Year Beginning: July 1, 2011
1- Current Budget
Item Total Per Lot
Reserve Contributions – Monthly $ 38,750.00 $ 18.42
Operating Budget – Monthly $ 126,653.34 $ 60.20
Contingency for Bad Debt – Monthly $ 2,500.00 $ 1.18
Capital Improvement Fund -- Monthly $ 416.66 $ 0.20
Total Per Month $ 168,320.00 $ 80.00
Total Per Year $2,019,840.00 $960.00
Note: If assessments vary by the size or type of unit, the assessments applicable to this unit may be found attached to this report. Additional reserve contributions not shown above are projected as follows: Equestrian Center = $1,000/year; Boat Slips = $20,860/year.
2- Additional regular or special assessments that have already been scheduled to be imposed or charged, regardless of the purpose, if they have been approved by the Board and/or the Members are as follows:
Amount Per Lot Date Due Purpose Interest per month/year
N/A N/A N/A N/A
Note: If assessments vary by the size or type of unit, the assessments applicable to this unit may be found attached to this report.
3- Based upon the most recent reserve study and other information available to the Board of Directors, will currently projected reserve account balances be sufficient at the end of each year to meet the Association’s obligation for repair and/or replacement of major components during the next 30 years?
Yes.
4- If the answer to #3 above is “No”, what additional assessments or other contributions to reserves would be necessary to ensure that sufficient reserve funds will be available each year during the next 30 years that have not yet been approved by the Board and/or the Members?
Approximate Fiscal Year Assessment Will Be Due Total Amount Per Lot
N/A N/A
5- All major components are included in the reserve study and are included in its calculations. The following major components are NOT included in the existing reserve funding:
Major Component Remaining Life Reason Not Included Cost
Building Structures Unable to determine Lifetime Component Unknown
Landscaping Unable to determine Lifetime Component Unknown
Hardscape Unable to determine Lifetime Component Unknown
Underground Utilities Unable to determine Lifetime Component Unknown
6- Based on the method of calculation in paragraph (4) of subdivision (b) of Section 1365.2.5, the estimated amount required amount in the reserve fund at the end of the current fiscal year is $3,905,664.00, based in whole or in part on the last reserve study or update prepared by Facilities Advisors, Inc. as of June 30, 2010. For the Fiscal Year beginning July 1, 2011, the projected balance at the end of the current fiscal year is $1,528,757.00, resulting in reserves being 39.1 percent funded at this date. If an alternate, but generally accepted, method of calculation is also used, the required amount is N/A. (No alternate method considered.)
Note: The financial representations set forth in this summary are based on the best estimates of the preparer at that time. The estimates are subject to change.
7- Based on the method of calculation in paragraph (4) of subdivision (b) of Section 1365.2.5 of the Civil Code, the estimated amount required in the reserve fund, the projected reserve fund cash balance, and percent funded at the end of each of the next five budgeted years is shown in the table below:
Estimated Amount Required Projected Reserve Fund
Year In the Reserve Fund Cash Balance Percent Funded
06/30/11 $3,905,664 $1,528,757 39.1%
06/30/12 $4,362,088 $1,719,537 39.4%
06/30/13 $4,454,271 $1,721,340 38.6%
06/30/14 $4,849,866 $1,982,226 40.9%
06/30/15 $5,297,886 $2,152,097 40.6%
06/30/16 $4,754,220 $1,660,251 34.9%
Note: At the time this summary was prepared, the assumed long-term before tax interest earned on reserve funds was 2.00% per year, and the assumed long term inflation rate to be applied to major component repair and replacement costs was 1.25% per year. For the purposes of preparing a summary pursuant to this section: (1) “Estimated remaining useful life” means the time reasonably calculated to remain before a major component will require replacement; (2) “Major component” has the meaning used in Section 1365.5. Components with an estimated remaining useful life of more than 30 years may be included in a study as a capital asset or disregarded from the reserve calculation, so long as the decision is revealed in the reserve study report and reported in the Assessment and Reserve Funding Disclosure Summary; (3) The form set out in subdivision (a) shall accompany each pro forma operating budget or summary therefore that is delivered pursuant to this article; (4) For the purpose of the report and summary, the amount of reserves needed to be accumulated for a component at a given time shall be computed as the current cost of replacement or repair multiplied by the number of years the component has been in service divided by the useful life of the component. This shall not be construed to require the Board of Directors to fund reserves in accordance with this calculation.
RESERVE CASH FLOW ANALYSIS
Investment Earnings Ending Percent Ideal
Year Beginning Balance Income Net of Taxes Expenses Balance Funded Balance
06/30/11 $1,531,244 $465,000 $25,791 $ 493,278 $1,528,757 39.1% $3,905,664
06/30/12 $1,528,757 $482,438 $27,378 $ 319,036 $1,719,537 39.4% $4,362,088
06/30/13 $1,719,537 $500,529 $29,001 $ 527,727 $1,721,340 38,6% $4,454,271
06/30/14 $1,721,340 $519,299 $31,215 $ 289,628 $1,982,226 40.9% $4,849,866
06/30/15 $1,982,226 $538,772 $34,846 $ 403,747 $2,152,097 40.6% $5,297,886
06/30/16 $2,152,097 $558,976 $32,132 $1,082,954 $1,660,251 34.9% $4,754,220