Another Resident's Opinion

Theme Newsletter -- 2005 Year-end Financial Review

This newsletter presents a variety of Sun City/TX CA financial and operational conclusions from 2005. WARNING = this stuff is pretty boring, unless you like numbers.

Employees -- The average number of Community Association (CA) employees in 2005 was 118. In 2005, there were 44 average employees in golf, 35 in food, and 39 in all other CA operations. Note: these are FTE (full-time equivalent) employees; in other words, two half time people equal one full time employee. Included in the food employees are ten supervisory staff. The overall staff totals exclude all Pulte sales and customer service staff, as well as contractors such as Brickman (landscaping).

Homes -- The number of new homes closed was 320 in 2002; 370 in 2003; 475 in 2004; and 513 in 2005. The total number of homes closed as of December 31, 2005, was 4,103.
Bonuses -- CA staff bonuses totaled $294 thousand in 2002; $202 thousand in 2003; $313 thousand in 2004; and $247 thousand in 2005.

Salary -- Total salary-related costs in 2005 were $4.4 million (includes golf and restaurants, but not contractors). Total CA utility costs (water, sewer, electricity, gas, phone) in 2005 were $985 thousand.

Golf income -- Golf income dollars (excluding pro shop, lessons, cart rental, and range fees) were divided as follows: 47% = annual pass; 30% = punch cards; 11% = resident pay-as-you-go; 7% = non-resident; and 5% = tournaments.

Golf rounds -- Golf rounds played (excluding free-comps) were: 58% = annual pass; 23% = punch card; 7% resident pay-as-you-go; 9% = non-resident; and 3% = tournaments. Some 100,601 rounds of golf (including free-comps) were played on the two courses in 2005. This is 6.2% more rounds than were played in 2004. (The number of average homes increased by 14.7% from 2004 to 2005.)

Overall gain/loss -- For 2005, the CA had a net gain of $374 thousand; however, there were several extraordinary items included. Without the extraordinary items, the CA had a loss of $279 thousand. For 2004, the CA loss was $505 thousand; for 2003 the loss was $482 thousand.
Allocation of costs -- For 2005, excluding the extraordinary items, the Developer paid 7% of the CA net operational costs; the resident assessments paid 93%.

Restaurants/Golf -- During 2005, our two CA restaurants lost $345 thousand or $.21 per dollar of revenue. The golf course operations lost $192 thousand or $.07 per dollar of revenue.
Assets -- As of 2005 year-end, the CA had financial assets of $19.6 million. Those assets were comprised of (a) $12.2 million in land, buildings, and equipment, (b) $5.3 million in cash and investments, and (c) $2.1 in other assets. The former category includes the golf courses, the buildings, and the common area land.

Investments -- As of 2005 year-end, the cash and investments included (a) $224 thousand in charter club cash, (b) $3.7 million in operating funds, and (c) $1.4 million in reserve funds.
Returns on investments -- The average annual return on the $3.7 million in operating funds was 2.7%. The average annual return on the $1.4 million in reserve funds was 3.4% annually. (Note: Until August 2005, the balance of more than $1 million in operating funds was invested to earn approximately 1.3% in a money market fund at a bank where Gary Newman is on the Board. More than $500 thousand, earning 1.7% at 2005 year-end, is still at that bank; even though all deposits are guaranteed only up to $100 thousand. The CA does receive free checking for multiple accounts and other services at this bank.) For comparison purposes, the 3-month Federal government Treasury Bill (which everyone can invest in) currently pays 4.5%.

Reserves -- Rules require the CA to set aside money in reserve accounts to pay for the future costs of replacing our major assets like parking lots, swimming pools, golf irrigation systems, etc. As of 2005 year-end, the golf reserve was funded at 73% of its fully-funded balance. (Most homeowner associations consider 70% or more to be the proper level of reserve funding. Some homeowner associations fund at 100%.) As of 2005 year-end, the HOA (Homeowner association; which means everything but golf) reserve was funded at 44% of the fully-funded balance. Of course, $416 thousand was just placed in that account on December 28, 2005 -- related to the famous $1.8 million "just-found" miscalculation of ten years of Developer subsidy. Without that $416 thousand dollar infusion, the HOA reserve balance would have been at 26% at year-end. It is good that our HOA reserve balance is growing; however, it is unfortunate that it had to be with our own money -- when the Developer agreed to pay up to the 70% level in 2007. Substantial reserve balances are needed so that we do not have large, unexpected special assessments in the coming years.

Conclusions: Sun City/TX finances are in better shape than a few years ago, primarily due to the growth in our community -- more homes to pay the annual assessments. However, one can easily see that there are many opportunities for improvements in both operational and financial management. Hopefully, the future will bring us those improvements.
Full Information Leads to Better DecisionsByron Raynie
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Full Information Leads to Better Decisions
Byron Raynie