ROTONDA WEST ASSOCIATION, INC.
Budget & Finance Committee
Minutes - Thursday, July 26, 2007

Present: Bruce Miller (Chair), Claudette Romano, Hank Artz, Lois Burger, John Carroll Fred Warner

Absent: Bud Nill

Management: Dianne Brophy, Secretary

Other Members: Geoff Lorah, Matthew Kuisle, Donna & George Krabbe, Margie Carroll, Bruce Vermette, Carl Couture and George Burger

Meeting was called to order at 2:00 pm. Roll call was taken and Minutes of June 28, 2007 were accepted as presented.

Chairman Miller introduced Matthew Kuisle from Reserve Advisors, Inc. to give a presentation. Reserve Advisors, Inc., is a company the does Reserve studies for homeowners associations and condominium associations.

Matthew Kuisle said what Reserve Advisors does is specialize in reserve studies. We are an architectural/engineering firm that services community associations throughout Florida and the nation to help them development capital plans for repairs and replacements of the common elements. The first thing we do is look at your association documents and meet with the Board members, community members and management. The first thing we try to do is determine what is it that an association should reserve for. These are the items that the state of Florida require that you reserve for are roofing, painting, paving and any items over $10,000. That is not always a good rule of thumb because there are a lot of expenses just under $10,000 that are significant expenses for the association regardless of the size. We identify items that are not funded to normal operation maintenance. If it’s not landscaping or not something that gets replaced every year, we identify it as a reserve component. Sometimes we will set up a threshold of anything over $1,000. We would identify it as a reserve component or as an operating budget expense which would be excluded as a reserve. We review the by-laws to determine what items would be a homeowners expense. We need to get an idea of all the elements. Once we have an idea of what we are looking at, an engineer comes and does a qualification of all the common elements that have been identified and a visible observation of condition, and gathering historical information. We gather all that data and then come back and process the information. That is done through a variety of sources including our internal data base. Historical costs are one of the best things we can go on. We have the benefit of doing these studies on thousands of associations. So we have data collected for other associations similar to yours. We also do a like analysis. Typically industry standards are used. Exceptions are when you have very aggressive maintenance program. We try to determine the total useful life, therefore projecting when these expenditures are going to be necessary and how much they are going to cost in future dollars. Once we determine all the expenses the association is going to have-I should mention we do a 30 year analysis-we determine how much the association should set aside on a monthly basis to maintain a reserve fund for these items. You will have a stable amount and not adjusting your budget year to year for changes may occur. Ideally this will prevent a surprise or special assessment or having to go for financing for a project. Those items are going to cost you more at the time you have to do financing and that is not generally well received by the membership when a special assessment is needed. We try to avoid special assessments. It is more as a pay as you go. The other thing is, when the project is done, instead of worrying where the money is going to come from you have a plan in place. The money is here for that project. This ensures the project is done in a timely fashion.

Ideally the money you put into reserve account, the money that you put into these expenses it going to return itself in the value of the curb appeal of the community. Another major point of the benefits of a reserve study is that it creates equitable funding for homeowners. Everyone is paying there fair share for these projects. It makes it easier to budget with a reserve study. It gives you a benchmark for costs of projects. Another benefit of a reserve study is it protects the Boards and Committees from claims of mismanagement. Having an independent third party come in identifying these expenditures takes the liability off of the Board and committee members to come up with accurate numbers. The reserve study is a working document. We use inflation costs to determine what the future dollars are going to be, but obviously they are always changing. So if we can predict exactly what a future project is going to cost 25 years from now, we would be in a totally different business. We cannot predict costs with 100% accuracy so we recommend you update the study between 2 to 5 years. Depending on how much prices are going up, how many changes you have, if a major storm comes through and changes the prices, or an insurance claim.

The best time to do a reserve study is before a community is being built. That way you will know what to set aside from day one. In your case as soon as possible is the time to do a study. We have developed a proposal based on conversations with Claudette Romano about the community and the elements we will be looking at. Develop a time estimate for our techs and engineers to come on site to conduct that study. We have given some sample reports for you to review for more information. Matthew gave the Board members a booklet giving all the requirements that his organization has met for this type of work.

John Carroll asked if his organization has done any studies in this area. Yes, Village of Holiday Lakes and the Landing on Lemon Bay. Hank Artz said you have a component method and a cash flow method. Discussion followed on both methods. What our company recommends is combining both those reserve accounts into one large reserve account for two reasons. First it gives you flexibility. If a project comes in for more money it allows you to draw from the overall account and you can adjust it the following year to make up the money used. The second is it requires you to save. Matthew Kuisle explained the benefits of this. Hank Artz said the reserve budget is kept separate from the operating budget. Yes. Discussion followed as to why the budgets are separate. Bruce Vermette asked about painting and paving are required by Florida but the cash flow method gets around that. Painting and paving are statutes for condominium associations. Cash flow method is a matter of how you compute required funding. John Carroll asked if an HOA is required to have a reserve fund. No, but you need to have a budget prepared for the property owners. John Carroll asked do you recommend that maintenance be put in a reserve budget. No. Only projects that don’t happen every year should be put in reserve.

Bruce Vermette asked about putting a new building into the reserve. Matthew Kuisle said you should see what it costs to maintain this building. That may make it easier to go forward on a new building. Geoff Lorah said you are very times in considering because effective July 1 state statutes for HOA’s did address reserve. They had been implied previously. Geoff Lorah reads a paragraph regarding the budget. A reserve study will give the homeowners a trail at how the costs were determined. Donna Krabbe asked the cost of this study. Matthew Kuisle said $4,300 all expenses included. Carl Couture do you have any extensive data basis. Yes R. S. means which is a national company and they specify to the zip code or closest city. Carl also asked how long does it take to do the study. This time of year our engineers are booked out 6 to 7 weeks until we can come and do the inspection. It will take 4 to 6 weeks to report back. Typically no more than 90 days, but as you get closers to fall budget season it could take longer. There was discussion on the life of this building and if the report would include an evaluation of this building and what it would cost to bring it up to code.

Bruce Miller thanked Matthew Kuisle for his time and said we will be interviewing other companies to see what they have to offer. Matthew Kuisle said our report sets us apart.

Bruce Miller asked Geoff Lorah to attend this meeting to help make the budget reporting more understandable. Bruce Miller said we have a project that we are trying in improve the reporting. It is Community Maintenance. We would like to know what is the cost of this and the cost of that. We cannot answer that because our reports do not tell us that unless we go into our GL system and pull it out that way. We are looking into one of the items that we want to expand out. We do not have a problem with the GL numbers as long as they are valid. One of the things we would like to know is what it is costing us to the electrify the various neighborhoods. We are talking about up-lighting, marinas and the lighting for the big signs. What is that costing us. Right now it is lumped into Florida Power and Light. We need to know what it costs to heat and cool this building. We also want to do the same thing with our reserves. Our budget gives us generalities. How much is it costing us to beautify West Boulevard as part of the plan but we also wanted to get some up lighting for some of the other entrances as part of that project for 2007? These are the things we would like to talk to you about. Geoff Lorah said more information is better than less even from an auditor’s standpoint. Mr. Lorah said Kendall Leach had a general ledger account for everything that happened. That was an 8 page general ledger. Over time more than half those account became idol as projects were completed. The information was there and accounted for by that general ledge account or sub account. As the evolution of the association took place the more general type budgeting and accounting process became utilized. That is how the budgeting process got to where it is now. The only way to find out what a specific cost in that line item would be to run general ledger history and to look at what the dollars were paid for. That is something that is available but not convenient to go over at a meeting like this. It is something you would sit down beforehand and look at. The Capital Improvements and Maintenance Reserves showing the audited balance as of 12/31/2006 were reviewed. The audited balance for deferred maintenance shown by the account was $128,231. Claudette Romano explained how the Deferred Maintenance figure of $29,769.64 came about. There was discussion on the figures from the 2006 audit. Geoff Lorah said the operating short fall budget was funded from two sources. One was the $11,000 increase due to the reserve funds because it went from $84,500 that the operating budget owed to reserves to $95,825. The would be viewed as partially funding the deficient. But the other funding came from your carry over from money that has been accumulated over prior years. $11,300 came from reserves. Claudette Romano stated we did not fund any reserves in 2007. The expenditures shown are the Marina and Gazebo for $10,960 leaving a balance in the Maintenance Reserves of $9,242 and Aquatic/Canal systems for $10,980 leaving a balance of $82,217. Which leaves total of $225,746.64 which should be the balance in our Reserves. Claudette Romano asked how do we make that reserve short fall go away. We will never be able to fund it. John Carroll said with the Reserve study we will come up with a new figure. We are going to adjust it anyway. Geoff Lorah said he would go back to the discussions at the end of the year where the committee recommended a reserve study. At that time we put on the table when a new reserve study was completed and the actual components that are required or recommended would be identified, then the reserve would be totally restructured and that would be communicated to the membership. In the restructuring we are going to eliminate the amounts the operating budget owes the reserve budget. It is the Board’s or manager’s responsibility to inform the membership as what full funding of the reserve would cost on a per member basis. There is discussion on the reserves and the community center.

Bruce Miller said if you look at Annual Assessment we have $952,180 but then we have these other incomes i.e. Credit card fees, other, interest, transfer fees, fining and RMC applications. This is not guaranteed income. We would like to take that out of there and show it somewhere else on this report but not under income. We would like to call it anticipated income. Our income is actually based on $952,180. It should not be based on $1,000,980. John Carroll said that does not reflect the lots owned by the County who does not pay any assessment, but what really should expect to come in. Bruce Miller said we would like to take out the items listed under other income. Show them under another category as anticipated income. We would base our budget on the assessment and the assessment only. How would we show that at the end of the year? What would be your recommendation as to what to do with the income that came in for the anticipated? Would we roll that over to the next year? Geoff Lorah said in the past there was a component of the income side and that was carryover. For the past two years we have had excess expenses rather than excess revenue. A carryover from the previous year would normally be a part of--considered part of income from an accounting standpoint and from a tax standpoint to have those monies non taxable. That is why we include asking the membership to approve the carryover. What I would suggest is on your expense side you are identifying what are the required expenditures the association must address in order to meet is fiduciary obligations. Going forward full funding of the reserves is going to fall into that category. What I suggest is that you have a second discretionary budget. That is your anticipated income. That could be your wish list. That is what you would like to do if the money is available. That is what some association do. Discussion followed. Geoff Lorah said the budget process is flexible. Bruce Miller said assuming at the end of year we have a carry over should we have recommendations that we take to the Board. Carryovers are at the discretion of the Board as to where they want to put that money or should it be a fixed thing that if there is any carryover you fund the reserves. Geoff Lorah said he would probably not recommend that it be a definitive policy. Keeping up your flexibility that carryover can be used either for operating or reserve. Supplementing your reserves is a good idea. Bruce Miller said I don’t know the answer to that question. Geof Lorah said I think you want to maintain the flexibility of going to the Board each year with a recommendation that is based on your situation at that point and time. I would not recommend that the Board make a policy. Of course the Board could always change the policy that the carryover automatically go to reserves. I think it is better to look at a year by year basis. Bruce Miller said I don’t see where it shows anywhere. Geoff Lorah said for tax purposes it would be considered on the income side. That would not be what you are calling anticipated income. That would have to go along with the monies you expect to collect from assessments. Discussion followed on other income. Hank Artz said we are still getting income where do we report it--the anticipated. The committee should know what we are getting.

There was discussion on a zero based budgeting. Geoff Lorah said I recommend that you have two components or two separate budgets that are blended together. You have your required budget. That is the monies you know you are going to collect and required to recognize than you have your anticipated or discretionary budget. That will be a much smaller budget. You would be obligated to identify what expenses you could live without. Because if you don’t collect those monies you are going to hopefully have the flexibility to not necessarily incur those expenses. The important component is, what the members are going to be charged on an annual basis is what you are required to spend. There will be 3 budgets reserve, required budget and anticipated budget. The reserve budget goes into the required budget under the statutes. There is discussion on GL numbers 9100 and 9120 that are on the operating budget. Bruce Miller said he would like to have Mr. Lorah look over the recommended changes before they are given to the Board of Directors. The committee thanked Geoff Lorah for coming to the meeting.

Bruce Miller asked Claudette Romano to contact the other Reserve companies to give a presentation. They are Papson and Druex Isaac and Associates, Inc.

The committee reviewed the CD’s. Discussion followed. The following amounts are being extended reserves. They are the July 5, 2007 for $30,000 coming due in December 2007. The August 5, 2007 for $60,000 will mature in February 2008. The September 5, 2007, will mature in March of 2008 and we have a CD maturing February 2008. These CD’s are not showing interest. John Carroll said we don’t want to show the reserve spending on the regular budget because it didn’t show where it came from. It wasn’t on there. On the reserve sheet the only CD’s it should show are the ones for the reserves. We should only show the four CD’s that are funding the reserves. The other CD’s are being used for the general fund. We are going to wait to see what we are going to do with the CD’s come due in November and December. Claudette Romano said she called First Community Bank on interest rates on CD’s and also called Englewood Bank. Discussion followed. The $30,000 CD will go in to the Englewood Bank maturing in December. Bruce Miller asked if Englewood bank is doing the nightly sweep. Claudette Romano said when we go in for the CD we can ask them about that. There is discussion on the daily balances and the sweep. Hank Artz asked do we know that the numbers are pretty good now -up to date for this year. Bruce Miller said not completely up to date. Getting the data base to work out is still a work in progress. I think we are up to April Claudette Romano said we are up to June. Then our numbers should be good. Hank Artz said we are holding off in publishing that. I would like to suggest once we have good numbers put a very short summary in West Ways. If the property owners could see where it is being spent it would benefit everybody. Claudette Romano said it has never been in West Ways. It should just go at the Board meetings where they get the reserve. Claudette Romano said I don’t think it is advisable to put in the West Ways. George Krabbe said at the Board meeting it is explained and questions can be asked. Discussion followed. Bruce Vermette said it would be too much information for people who no not live here. Lois Burger said people need to know where the Board stands on the budget. Bruce Miller said if you want to know what’s going on you need to be involved. Carl Couture said he is amazed at the amount of time and effort that goes into re-mailing certified mail. I would suggest that the fees are increased. People need to know that we need the funds on time.

Bruce Miller said he would like to invite Wachovia to come in and give a presentation on their services. I am going to send out a reminder the committees that the 2008 budget requests are due in August. Bruce Miller asked if the committee would like another workshop. The committee would like a printout of the general ledger from January through June 30. Dates are discussed for the workshop meeting. It is decided that August 6 at 1:00 pm. We will have one of the reserve companies make a presentation at 1:00 pm and the other at 1:30. The workshop meeting will begin at 2:00 pm.

Next regular meeting will be August 30, 2007

Meeting concluded at 4:00 pm

Dianne M. Brophy, Secretary