General Manager’s Report
I want to thank the Board for allowing me the opportunity to serve you and the first R-Ranch in California. Years ago, when I started at Sequoias, I called a couple other R-Ranches and Dave was the first manager I spoke with and he helped me wrap my brain around the R-Ranch phenomenon. I also spoke with Pat and between she and Dave, I gained insight into what I had signed up for.
Like most associations including properties like yours and in homeowner associations, there is a tendency to do everything possible in keeping costs down and assessments low. Most hit a thirty-year critical point where the infrastructure of the common property has aged to the end of its useful life and there are not enough reserves to properly repair it. The benefit an HOA has is that all the homes (units/shares) are filled and if an owner doesn’t pay assessments, the collection and foreclosure process is very clear cut. In the R-Ranch design, each share is ownership of the entire property and a paper deed. Selling that unused deed is a top priority to keep funds flowing and your support team functioning but the cost of life keeps growing and more active owners means more amenity services and staff.
This next year the minimum wage will be increasing again by a dollar an hour and the employees will need to get an increase that steps with that. The cost of living in California has jumped dramatically and the cost-of-living index used for reference with social security and other inflation measures doesn’t look to account for the 7-8% increase in the minimum wage and resulting increase of goods and services. With 13 full time employees (minimal permanent staffing) and 6 seasonal employees, this will be approximately a payroll increase of $40,000 in 2022. That alone will be an increase of $35 on each of 1,150 shares with no other changes in an already bare bones budget. All organizations with buildings, water systems, grounds to groom and improve, need to keep step with inflation and commit to building the reserves with dedicated purposes to every dollar. As Dave Ramsay says, every dollar should be assigned a name and committed to that purpose.
One of the many tasks I plan on getting rolling is a valuation of the facilities of the R-Ranch and current replacement costs. Roofs, roads, fences, plumbing, horses, equipment, power tools, all have a useful life and many of those items have reached and, in some cases, surpassed what is safe. If a roof has a 30-year life and is 10 years old, then in 20 years it will need to be replaced. The appropriate way to manage this is by getting the replacement cost in todays dollars and extrapolate with cost-of-living increases to know what that will cost in 20 years. Here is an example; If the office roof is $25,000 to replace today, then it will be around $41,964 in 20 years with a 2.5% increase every year. The association would need to set aside $2,098 a year for 20 years just for this purpose. Investments will of course speed up this process, but it is a commitment that needs to be made by all boards for the continuation and health of the organization.
The fire was a big hit to the ownership and association but it was also a wakeup call for the future. Insurance is expensive and should be reviewed annually in comparison to replacement costs. The best way to lower insurance is to get a very healthy and robust reserve in the bank and then not only will that gain interest, but then a property can consider self-insuring some facilities and reduce insurance, placing what would be insurance premiums into additional reserve investments.
In closing, there are many tools and pieces of equipment that have been used for years and need replacing for safety’s sake. Most of the ride on mowers were bought used over 15 years ago and are becoming safety liabilities. The backhoe is not operational and would not pass an inspection along with some other issues we are addressing. The safety and mitigation of liability to the association is my first responsibility and the best place to start is with the safety and liability mitigation of the association’s employees. If you wish to discuss concerns or questions, I will be available at the HQ on Saturday mornings around 10AM except for board meeting weekends. I look forward to meeting you and hearing your thoughts on the future.
Kelley Kemp, ccam
R-Ranch Association General Manager