FORMER FAC STRONGLY REBUTS THE TREASURER'S RATIONALE

FORMER FAC STRONGLY REBUTS THE TREASURER'S RATIONALE 

FOR ABRUPTLY DISBANDING THE FINANCIAL ADVISORY 

COMMITTEE. 

February 26 2022 

Summary: 

In early December the Treasurer of Sun Lakes announced the dissolution of the Finance Advisory Committee without any prior discussion or any communication with the FAC. On February 11 she posted a letter and a video on Sun Lakes Country Club website as well as Good Day Sun Lakes Facebook page to justify her decision. At first glance it seems like a cogent explanation until one realizes that she has based her decision almost entirely on "manufactured" facts far removed from the truth. Former members of the FAC, who felt that this was a personal attack on their reputation, requested permission from the board to access the same media used by the Treasurer to rebut her arguments. We were denied access without any explanation. We are therefore using whatever means available to us to provide a fact-based rebuttal to the Treasurers communications. 

In summary: 

1. The Treasurer's assertion that there was lack of work product from the FAC is fiction. On a routine monthly basis, the FAC diligently analyzed financial statements and provided the SLCC Treasurer's Report for both the board and the HOA. The FAC participated in the analysis of the budget. We outline below the various functions we routinely performed. There is absolutely no basis to support the Treasurer's accusation of "lack of work product" 

2. We took the initiative to present four projects which together could have raised about $2 million in additional revenues and cost reduction to Sun Lakes (equivalent to a reduction of assessment of $57 per month per household. These initiatives were not given serious and prompt consideration by the Treasurer. After considerable waste of time, they were eventually rejected on flimsy grounds without giving the FAC the ability to respond. The Board failed to come up with any revenue raising measures of any significance resulting in the largest increase in Homeowner Assessment in the history of Sun Lakes. 

3. The Treasurer states that we did not pursue certain tasks asked of us. Some are a figment of the Treasurer's imagination since we were never requested by the Board, nor did we propose a fee that she mentions. The rest were pursued by the FAC. 

4. We identify below one of several recommendations we made to the Treasurer which was not even brought to the attention of the Bard which should seriously cause Sun Lakers to question the Treasurer's performance as a fiduciary guarding the interests of the community. 

If necessary, we can provide documents to support the arguments that we outline. 

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We would wholeheartedly welcome an open debate with the Treasurer and the President on these issues and the need for the Financial Advisory Committee, that so very important for the welfare of Sun lakes. 

Former FAC's Response to Sun Lakes Board Treasurer's letter and video regarding her recommendation to the board on ending the Finance advisory Committee as a standing committee. 

The Treasurer's Letter and Video stated that the decision to disband the FAC was due to lack of work product from the FAC. We, the former members of the FAC, take great issue with this statement and many other assertions in her dissertation. She has blatantly misrepresented the facts, as she called them, after a short time as Treasurer, she concluded that a standing FAC was not needed. It appears that she does not fully comprehend the duties and responsibilities of the FAC, and the time involved for the FAC to discharge its Charter responsibilities and to do completed staff work on approved and requested projects. Perhaps it is due to her lack of background and education in financial matters. However, we feel it is very important to set the record straight as it is very important for our HOA to have a standing and functioning FAC. 

FAC Background: Since its inception, the FAC operated under a formal charter that specifically spells out its duties and responsibilities along with spelling out the needed financial skills and abilities needed to be approved for the Committee. The Charter states that the purpose of the FAC is to advise and make recommendations to the MBOD pertaining to" FINANCIAL projects given to the committee". The Charters requires all FAC recommendations be submitted to the BOARD for their consideration. Further, the FAC met with the then Board in August 2021specifically to review Charter Responsibilities and to review and have agreement and mutual understanding as to processes and procedures for discharging FAC responsibilities. Of major importance, was the agreement and understanding that the FAC would only work on Charter Responsibilities and Board approved or requested projects. Further, the FAC annually formally presented recommendations for major projects for revenue increases and potential cost reductions. Only projects approved by the Board were ever worked on by the FAC. In early 2021, the FAC formally presented 4 projects to the previous Board. These were enthusiastically received but due to the impending board election, they deferred approval of these projects, called initiatives, to the new board for approval. Again, the FAC formally presented our recommended 2021 projects to the new Board, and we received the new/current board feedback and approvals on 6/4/21. The treasurer refers to this as the FAC's desired project list for 2021 and it is a mischaracterization of the facts which are as follows by Arabic number from her letter. 

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1. Revamp of investment Policy and Procedure. This was not a 2021 initiative. Certainly not a FAC desired project. It was a completed project that was initiated in 2020 by a directive from the then Board to investigate alternate investment strategies to the current Policy that would increase interest revenues. This was presented to Board along with a suggested revised Investment policy that would allow investing 10% of the reserve Fund in equity instruments defined as ETFs and Mutual funds. We did extensive risk analysis and worked with Merrill lynch on a sample portfolio. They did a 10 year back test. There were no losses. Moreover, interest income would have been increased by $ 2 million over last 10 years. The board tabled this initiative after review. 

2. Assessment for first time home buyers. The FAC met with a number of HOAs in 2020 and early 2021to learn how their Finance advisory Committees functioned and are utilized by their Board and the HOA. In a visit to Sun City, Palm Desert, and a meeting with their Finance Director, they informed us about their Reserve Assessment for home buyers and provided some of the details of the assessment and materials used for their association n approval. The FAC felt there was a possibility and probability of implementing such an assessment for SLCC while not adversely affecting the current social fee. However, the board took over this review, asked for legal review, and fully accepted the legal opinion from the SLCC lawyer and did not seek a second opinion. We feel this project can be accomplished and could increase our reserves by as much as $600,000 per year. 

3. Institute a food and beverage minimum. We do not know what the Treasurer is talking about. This was not a 2021 project presented to the Board. The FAC never recommended or discussed such a fee and never discussed such a fee in FAC meetings or workshops. However, the FAC did pursue bullet points 2 and 3, beginning in 2020 as a member of the Food and beverage Task Force. In addition, FAC members attended Communication and Restaurant & Lounge Committee meetings in 2021. The Treasurers suggestion that the FAC did not wish to pursue the board request is unfounded and untrue. 

4. Investigate the Outsourcing of F&B operations. The treasurer's statement that the FAC did not deliver an Analysis is unfounded and misleading and not what we were working on. Our work product was not intended to be an Analysis but to deliver a recommendation as to the operational management of our F&B operations that would provide a better ability to control costs and assure F&B operations to be within their budget. Operational management is now provided by and outsourced to First Service. Under there tutelage, we have experienced over the last 3 years a $2.0 million loss for the amenity. Moreover, F&B operations have been over budget every year under First Service resulting in an unplanned use of cash of about $1 million. This has resulted in a very low level of HOA cash as of 12/31/21 and apparently an inability to pay current liabilities in a timely fashion. The FAC was working with three interested parties to develop options for outsourcing our F&B operations: Morrison, Troon, and Corky's Kitchen. Morrison is a large Provider of restaurant operations on a worldwide basis, Troon manages over 600 restaurants and golf courses for HOAs and private golf clubs. Corky's is a well-regarded So. California based 

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restaurant chain. We had meetings with all three, facility tours, and discussions regarding the issues raised by the Treasurer which would need to be incorporated in an RFP. To Το provide confidential financial information requested by these three, we needed to initiate Non-Disclosure Agreements. Our Treasurer and Board Liaison was tasked to obtain and sign NDAs but despite promises we never received one which put us on hold in working on proposals with the three the interested parties. It was embarrassing responding to their questions as to when they would receive information and certainly did not show any sense of urgency by the Treasurer or Board. Subsequently the Treasurer and President put a stop to this project with the statement "We need to give Thomas a chance" We informed the Board that this initiative was to explore the feasibility of such an option and that all three interested parties would retain all employees including Thomas, so Thomas would have a chance regardless of the management. We also reviewed the ABC license issue with a law firm to not lose control of our license. So, this initiative was a work in process and the Treasurer's statement that we did not deliver on this initiative is solely due to the Board and Treasurer initially delaying by weeks. Providing us a simple non-Disclosure Agreement which would have permitted us to make progress in analyzing this option. There is a need to continue this project as the variable costs of F&B continue to exceed 100% of revenues so increasing the use of the Restaurant and Lounge will only increase the cost of the amenity and create budget overruns. 

5. Create a membership program for outside golfers. The FAC has worked on this project for 3 years and it is offensive to see a public statement that we did not work on this and that there was no analysis presented to the Board. This project started in 2018 at the request of the then board for "the FAC to investigate the feasibility of outside play while keeping SLCC private". The FAC came up with the concept of creating a private golf club within Sun Lakes Country Club. We presented a feasibility study that would investigate and deal with all the issues and community concerns of such a Club and presented to the then Board and this project was subsequently put on hold due to pressure from the golfing community. We added this project to our 2021 Initiatives, and we were tasked by the current Board to "suggest what an outside membership would look like". We provided our Feasibility Study outline and an update on many of the issues that were addressed in the study. They were verbally presented to the Board, and we were working on a formal report and recommendation when the FAC was shut down. Issues we researched included: The 

Master Declaration created a Sun Lakes Golf Club, and it still exists; the current social fee was originally a membership for homeowners in the Sun Lakes Golf Club before the golf courses became an asset of the association. There still exists a Sun Lakes Golf Club, and it allows providing memberships to non-residents; memberships would only be offered to Four Seasons residents and would be limited to about 200 total members, and we would start with about 50; members would have an ID card specifically for the SLGC and what other SLCC amenities, if any, could be accessed; Members would pay an annual fee that would include the cost of GC maintenance; the SLGC would have formal rules and regulations similar to other high end private golf clubs. Additional revenues, net of costs, are estimated at about $600,000. So once again the Treasurer's conclusion and perception 

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of the facts are untrue and misleading, possibly due to her bias and misunderstand that this program would open SLCC to the public. 

Therefore "lack of work product" and other Board members and Administration Staff stating the reason for disbanding the FAC was due to "nothing to do are both totally untrue. In addition to the above Initiatives the FAC under its Charter Responsibilities was actively doing the following: 

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Participating in development of the annual Budget 

Review of Monthly Financials 

Preparation of the monthly Treasurer's Report 

Review, analysis and approval of Reserve and Capital Improvement Expenditure requests. And incidentally, the FAC proposed, and it was adopted by the then board in late 2020, a formal Policy and Procedure for the review, justification and approval of both reserve and CIP projects. The Policy makes Budgeted amounts for Reserve and CIP spending appropriations only and the policy calls for a formal Reserve Appropriation Request be completed and approved before a project implementation. This Appropriation Request requires FAC approval. It took a lot of work to develop the Policy and Procedure and in reviewing proposals. The board and admin have recently ceased adhering to this Policy Contract review. The FAC was asked by the Board to review the contract with First Service. We provided input on financial related issues, but the Board allowed automatic extension of the contract without understanding what we were recommending. We pointed out a major contractual issue that the Board was not aware of and needed to renegotiate with FSR. The contract provides FSR a monthly fee of $15,000. But embedded in the contract are several fees in fine print. It permits FSR an 8% override on all wages paid to employees. The recent increases in minimum wage mandated by the government resulted in a commensurate windfall for FSR. This largesse was not anticipated when the contract was signed and results in net annual payments of about $600,000 but possibly up to a $ 1 million by SLCC to FSR. This was pointed out to both the Treasurer and the President of the Board. We requested several times the exact itemized payments from the administration and Treasurer. We were provided incomplete information and despite several requests were never given complete figures by the Administration. The Treasurer and the President never pursued this issue and in fact announced proudly to the SLCC community that FSR had decided not to impose a 5% annual increase on their base monthly fee without mentioning the immense increase in other fees that they were granted to FSR This increase in fees due to increase in mandated minimum wages is one that is payable year after year to FSR.. In the opinion of the FAC not renegotiating the contract with FST constitutes a dereliction of its fiduciary duty to Sun Lake Residents. 

Review Reserve Study update. The FAC just received the RS update and was beginning to review it; It is 400 pages and will require time to fully review, the issues to review are estimated useful life of assets, replacement costs, repair or replace decisions, lease or purchase, etc. costs, 

Four Initiatives: It is important to understand why the FAC developed four initiatives for board review and approval for further refinement. All told if approved we estimated that they would generate $2 million approx. per annum additional revenue per annum, 

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equivalent to about $57 per month saving per Sun Lakes household. This stands in stark contrast to the $29 increase in monthly assessment per household that the Board eventually passed on to Sun Lake Residents. It is our contention that when costs are continuously rising, our only recourse is to find new sources of revenue to arrest an upward spiral in homeowner assessments. This was our attempt to develop budgets which would be a relief to homeowners, not a burden. The Treasurer not only nixed these initiatives but did not bother to offer any of her own. Consequently, the budget that was finally approved by the Board was not to the satisfaction of the majority of FAC members and hit Sun Lakers hard increasing their assessment by $29 a month. These four initiatives were presented also to the earlier board presided by Sandy Moyer. That board was very appreciative of the FAC's initiatives but because of lack of time left it to the current board to take action. The Treasurer not only did not appreciate our efforts to mitigate the budget burden on Sun Lakers but went a catastrophic step further in disbanding the FAC. 

It is extremely important that the financial affairs of our HOA are dealt with in a factual, objective, non-personal fashion. And due to the fact Board members are not required to have any management or financial experience, a Financial Advisory Committee is essential for our HOA. We are strongly recommending that the board re constitute a standing FAC. 

We would wholeheartedly welcome an open debate with the Treasurer and the President on these issues and the need for the Financial Advisory Committee, that so very important for the welfare of Sun lakes. 

Sincerely, 

Members of Former Advisory Committee 

Ron Varner 

2018, 2019, 2020, 2021 FAC member 

Chairman, Financial Advisory Committee 

Ajit Desai 

2019, 2020, 2021 FAC member 

Harry Finigan 

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2021 FAC member 

Mary Jo McElwain 

2020, 2021 FAC member