Association Draft Operating Budget Presentation - FY 09/10 Final Draft - April 25, 2009

The Process To Date

The Big Picture

Operating Budget Drivers Behind Change Utilities –Water (+12%) –Trash (+3.5%) –Electric (+3%) Landscape Extras (-5%) –Day-to-Day Plantings –Irrigation –Tree Maintenance –Fertilization and Pest Control Landscape Contract (-14.3%) Revenue Laundry Contract Washer Rebate Labor Transfer –G&A Increased Deductibles Increase Premiums – Workers’ Comp. Increase Premiums for Health Insurance Total Salaries Flat

The Districts at a Glance

The Districts in Detail

Cribari Assessment History

Montgomery Assessment History

Heights Assessment History

Hermosa Assessment History

Verano Assessment History

Del Lago Assessment History

Highland Assessment History

Glen Arden Assessment History

Olivas Assessment History

Fairways Assessment History

Sonata Assessment History

Valle Vista Assessment History

The Reserve Fund

From a Consolidated View Spending plan equals $6,051,800 Year ending balance equals $6,099,440 This year’s funding adjustment equals 7.7 percent The ending balance and associated funding adjustment for the next five-year period are as follows:

Five Years at a Glance 2009/ / / / /2014 Spending Plan $6,051,800$4,474,500$3,019,600$2,378,900$3,828,900 Ending Balance $6,099,440$6,187,177$7,906,797$10,539,367$11,855,037 Funding Adjustment 7.7%2.5%1.0%4.2%1.5%

Background and Factors Staff met with all 12 DACs and worked through the reserve funding and work schedules line by line There was a heightened awareness this year to bring the lowest (responsible) assessment to members due to the economic pressure and conditions The expense and interest-income rate factors are 3% Maintain as much a straight line funding level as can be reasonably maintained

The Districts

Cribari

DAC Comments District Operating - DAC requested addition of the landscape maintenance to the North and West Fence line to be included in the Operating Landscape Budget to insure proper upkeep of these areas. –Action Taken: This landscape maintenance work is included in the new landscape contract specifications. There were no additional requests regarding the proposed Operating Budget draft. The DAC wishes to keep the percentage of increase of assessment to the residents at the rate stated in the budget, this would eliminate a spike in assessments at a later date. –Action Taken: Achieved total budget change at 2.8% better than originally expected at 4.7%. District Reserve – After reviewing first draft of the Operating and Reserve Budgets, the DAC requested to put a hold the Second Phase of the Cribari Landscape Restoration Project until the year –Action Taken: Modified 2010 Reserve Plan by reducing Landscape Restoration $30,000 per year starting 2010 for the next three years – the final phase of the landscape restoration plan to be completed in 2013.

Cribari Reserve Fund Notables Next year’s spending plan = $897,000 –Deck coating ($47,500), grounds restoration ($195,500) and building repairs prior to paint ($423,500) Reserve minimum balance target = $720,600 Actual fund balance falls below minimum target in 2011 Funding levels are as follows: –2009/ $827,175 – 19.1% adjustment –2010/ $707,375 – 4.5% adjustment –2011/ $739,075 – 4.5% adjustment –2012/ $1,428,175 – 4.5% adjustment…(4.5 to 5% through 2028)

Montgomery

DAC Comments District Operating - No DAC comments after reviewing the first draft of the proposed Operating Budget. District Reserve – DAC requested to keep assessments from climbing any higher than necessary, proposed that the following items be eliminated or at least spread out over a couple years: No Landscape Restoration projects at this time. –Action Taken: The Board has indicated a fairly strong position with regard to this district moving forward with their landscape restoration program. General comments regarding flat roof and gutter and spout replacement. –Action Taken: Informed DAC that both items are a carryover from FY DAC concerned regarding “over estimated” Building Components. –Action Taken: After meeting with Ken Brady and Rick Casey, the Reserve Fund was adjusted, Montgomery Reserve assumes $1,000,000 of loan payback. DAC request was accomplished without modifying Facility Department personnel recommendations.

Montgomery Reserve Fund Notables Next year’s spending plan = $1,162,200 –Roofs ($300,0000, driveways (TE) and parking ($159,000), landscape and water feature ($207,800), building components ($321,200) Target minimum balance = $722,400 Actual year ending balance and funding adjustments (%) for the next fours years as follows: –2009/ $723,420 – 2.9% adjustment –2010/ $1,118,590 – 3.5% adjustment –2011/ $1,548,560 – 3.5% adjustment –2012/ $1,900,030 – 3.5% adjustment…(3.5% through 2028)

Heights

DAC Comments Operating Fund After reviewing the draft of the FY 2010 Budget the DAC was pleased with the 3.1% proposed increase in the operating budget. –Action Taken: After updating the water rate to the actual cost the proposed 3.1% increase was reduced to a 2.2% change. Reserve Fund The 6.6% increase in the reserve fund presented to the Heights DAC was acceptable – the DAC acknowledges that there might be a chance that the ABOD will not approve a deficit in reserves this year. DAC concerned regarding the funding for Building Components allocation, requested that the painting project scheduled for FY 2010 to be moved to FY –Action Taken: Building Components funding based on Facility Department personnel recommendation and future deck coat project and paint project in 2011 was spread between two years – also the fund balance was reduced to help achieve the objective.

Heights Reserve Fund Notables Next year’s spending plan = $493,200 –Deck coating ($100,000), building components prior to painting ($317,800) Target minimum balance = $197,700 Actual fund balance falls below minimum for three years (including % adjustment) Actual year ending balance and funding adjustments (%) for the next fours years as follows: –2009/ $1,665 – 5.4% adjustment –2010/ $14,065 – 5% adjustment –2011/ $66,365 – 5% adjustment –2012/ $197,965 – 5% adjustment…(5% through next 30 years)

Hermosa

DAC Comments Operating Fund No comments in regard to operating budget. Reserve Fund After reviewing reserve funding plan, the DAC expressed concern regarding the landscape restoration plan – requesting the plan be put on hold for one year. –Action Taken: No change; staff’s recommendation is to keep the funding as originally presented at 8.3% and to keep funding level as predicted last year at this time, even though the end result will produce a negative ending balance in the reserve fund at year’s end – playing catch up will only transfer the burden to future years.

Hermosa Reserve Fund Notables Next year’s spending plan = $1,683,000 –Building components prior to paint ($804,600), deck coating ($300,000), painting – at least half ($325,700), landscape ($75,400) Target minimum balance = $405,700 Actual fund balance falls below minimum for two years Actual year ending balance and funding adjustments (%) for the next fours years as follows: –2009/2010 – ($129,200) – 8.3% adjustment –2010/ $26,200 – 0% adjustment –2011/ $492,800 – 0% adjustment –2012/ $961,400 – 0% adjustment…(22.3% reduction in 2013/2014 then 3% in future years)

Verano

DAC Comments Operating Fund No changes requested by DAC - final draft budget reduced from 7.9% to 7.2% after updating water rate. Once landscape savings were factored in operating assessment was actually reduced to a level less than the prior year. Reserve Fund DAC requested postponement to a number of structure related components expenditures, such as area lighting, retaining walls, building components and other deferrals…expenditures for roofs and concrete - requested one-year loan for $100,000 from the Club to meet those expenses or the expenditures in those categories be deferred. –Action Taken: The originally proposed budget represented a 20% increase in reserve assessments – this was reduced to 11.6% assuming a $100,000 loan from the Club is secured. Further landscape savings were factored into the reserve plan, which reduced the funding to.8%

Verano Reserve Fund Notables Next year’s spending plan = $204,600 –Driveway/TE/parking ($17,600), area lighting ($29,400), building components ($69,100) Target minimum balance = $473,100 Actual fund balance stays below minimum for one more year Actual year ending balance and funding adjustments (%) for the next fours years as follows; –2009/2010 – $16,800 – 0.8% adjustment –2010/ $481,667 – 6.3% adjustment ( reduction) –2011/ $793,717 – 17.2% adjustment (reduction) –2012/ $1,030,017 – 3.5% adjustment…(3.5% in future years)

Del Lago

DAC Comments Operating Fund After presenting the first draft of the Operating Budget, the DAC responded with some concerns, specifically the tree maintenance and pest control categories. –Action Taken: Staff scheduled a meeting with DAC Chairperson and Juan Heredia - after a walkthrough of the area, concerns/questions where addressed and answered satisfactory. Reserve Fund After presenting the first draft of the reserve budget, the DAC presented questions and concerns in regard to the walkway replacement, retaining walls, and building components (particularly pot shelves and rear fences). –Action Taken: Staff scheduled a meeting with two of the area supervisors from the maintenance department and DAC Chairperson on March 4 - after a walkthrough of the area all questions were addressed. –Also, the landscape restoration funding schedule was revised to reflect the DACs accelerated schedule. Note: Operating budget was reduced by 5% due to a water rate adjustment and landscape savings – the reserve fund was originally projected to increase 11% and has been increased to 20.2% as a partial result from landscape savings.

Del Lago Reserve Fund Notables Next year’s spending plan = $225,200 –Landscape ($70,000), retaining walls ($36,000), building components ($44,300), walkway replacement ($15,000) Target minimum balance = $209,300 The fund balances exceed the minimum balance amount until the 2027 when the fund balance dips below for a one-year period Actual year ending balance and funding adjustments (%) for the next fours years as follows; –2009/2010 – $263,375 – 20.2% adjustment –2010/ $347,775 – 9% adjustment –2011/ $425,475 – 9% adjustment –2012/ $539,875 – 9% adjustment (9% in 2014/2015 then 6.5 to 7% for foreseeable future)

Highland

DAC Comments Operating Fund After reviewing the draft of the proposed Operating Budget no concerns were communicated - the DAC is in full support. Reserve Fund The DAC requested its roof reserve funding schedule be accelerated to repair all valleys over a three-year period and to accelerate landscape restoration program, completing it by 2010/2011. –Action Taken: The adjustments were made to the spending plan to meet the DACs objective.

Highland Reserve Fund Notables Next year’s spending plan = $703,300 –Roof repair ($400,000), landscape ($130,500), building components prior to paint ($58,600) Target minimum balance = $281,100 Actual fund balance is strong next year, but dips below minimum balance the next two years and then again in 2015/2016 (including % adjustment): –2009/2010 – $982,400 – 11% adjustment –2010/ $255,300 – 11% adjustment –2011/ $113,300 – 11% adjustment –2012/ $310,600 – 11% adjustment…(11% percent through the 2014/2105 year then lowers to 3.5 for future years)

Glen Arden

DAC Comments Operating and Reserve Fund After reviewing the operating and reserve budget drafts, the DAC approved management’s recommendations.

Glen Arden Reserve Fund Notables Next year’s spending plan = $178,200 –Driveway/TE/parking ($28,000), landscape ($43,900) building components prior to paint ($26,600), area lighting ($35,000) Target minimum balance = $252,700 Actual fund balance exceeds minimum target throughout entire plan (including % adjustment): –2009/2010 – $800,175 – 2.1% adjustment –2010/ $742,375 – 6% adjustment –2011/ $940,175 – 6% adjustment –2012/ $1,161,975 – 6 adjustment…(6-6.5% through 2026 then increase reduces to 5% for remainder of plan)

Olivas

DAC Comments Operating Fund After reviewing the first draft of the operating budget, the DAC requested that landscape extras be reduced to reflect a budget of $64,020, which represented a 14.1% increase rather than the proposed 25.3% increase to that expense line. –Action Taken: The landscape extra line was adjusted. Reserve Fund The DAC requested that the reserve assessment originally proposed at $4.07 be reduced to $0. –Action Taken: the fund balance, which exceeded minimum balance requirements, was adjusted – also, excess landscape savings were added to the fund balance.

Olivas Reserve Fund Notables Next year’s spending plan = $308,500 –Deck coating ($20,000), walkway replacement ($30,600), landscape ($50,000), building components ($151,000) Target minimum balance = $321,100 Actual fund balance exceeds minimum target throughout entire plan (including % adjustment): –2009/2010 – $909,600 – 6.8% adjustment –2010/ $733,600 – 5% adjustment –2011/ $1,018,100 – 5% adjustment –2012/ $1,345,200 – 5% adjustment…(5% through 2036)

Fairways

DAC Comments Operating and Reserve Fund After reviewing the first draft of the operating and reserve budgets, the DAC approved the recommended increase to the overall proposed district budget in the amount of $12.98 At final draft, the total district proposed monthly assessment was increased by $16.20.

Fairways Reserve Fund Notables Next year’s spending plan = $27,300 –Landscape ($10,100), walkway repair/replacement ($3,000), roof repair ($3,000) Target minimum balance = $16,800 Actual fund balance exceeds minimum target throughout entire plan (including % adjustment): –2009/2010 – $25,700 – 12.7% adjustment –2010/ $26,200 – 12.5% adjustment –2011/ $31,500 – 12.8% adjustment –2012/ $24,200 – 12.3% adjustment…(12% range through 2025 when the adjustment reduces to 3% range in future years)

Sonata

DAC Comments Operating and Reserve Fund The Sonata DAC members who attended the budget review meeting agreed that the presented draft of the operating and reserve budgets will be acceptable after small adjustments based on final water and insurance costs are established. –Action Taken: Due to a reduction in water, insurance rates and landscaping, the projected increase of 5.1% in the operating budget was reduced by 2.2%. The reserve assessment increased by 25.2% as a result of landscape related savings.

Sonata Reserve Fund Notables Next year’s spending plan = $76,600 –Landscape ($37,100), building components ($5,500), walkways and patio replacement ($8,800) Target minimum balance = $75,500 Actual fund balance exceeds minimum target throughout entire plan Actual year ending balance and funding adjustments (%) for the next fours years as follows; –2009/2010 – $1,104,300 – 25.2% adjustment –2010/ $1,168,900 –.8% adjustment –2011/ $1,232,300 –.8% adjustment –2012/ $1,179,300 –.8% adjustment…(.8-1% range throughout entire plan)

Valle Vista

DAC Comments Operating Fund After reviewing the first draft of the operating budget and after extensive discussions and site walkthroughs with staff, the DAC approved the 2010 operating budget as proposed. –Action Taken: After a water rate reduction and landscape savings the proposed operating budget of 5.9% was reduced to 2.1%. Reserve Fund The Valle Vista DAC presented the following recommendations/changes to the 30- year reserve forecast: Walkway replacement - After a walkthrough with the maintenance supervisor, the DAC agreed that there were several areas that needed to be replaced, but felt the funding schedule of roughly $15,000 per year over the next four years was in excess of what may be needed. Grounds Restoration - the DAC agreed with the $30,400 budgeted number and acknowledged this is just a rough estimate. Building Components – the DAC agreed with the budgeted amount of $25,500 for 2010 but feels the amount budgeted for 2012 is on the high side, DAC was informed that this amount is mainly intended for wood trim repair and replacement prior to painting in –Action Taken: The building repair line in 2012 was adjusted from $146,000 to $80,000 and the walkway replacement line was reduced from roughly $15,000 to $8,000 to $9,000 per year over the next four years. The fund balance was adjusted to produce a reserve assessment reduction of 12.2% - the overall assessment increase is $0.

Valle Vista Reserve Fund Notables Next year’s spending plan = $92,700 –Walkway replacement ($13,000), landscape ($30,400), building components ($23,500) Target minimum balance = $75,400 Actual fund balance exceeds minimum target throughout entire plan (including % adjustment): –2009/2010 – $574,030 – (12.2%) adjustment –2010/ $565,130 – 2.9% adjustment –2011/ $505,430 – 3.1% adjustment –2012/ $460,630 – 3% adjustment…( % throughout entire plan)

The Final Numbers at a Glance

What’s Next? March 23, 2009 Total operating budget recommendations reviewed with Board of Directors – including any fee changes April 6-10, 2009 Evaluate Montgomery Roof replacement project funding and loan program April 6-10, 2009 Replacement Reserve plan by district reviewed with Board of Directors April 14, 2009 Total Operating budget and Reserve Plan presented to Board of Directors April 28, 2009 Board of Directors formally approves and accepts FY 09/10 budget FOURTH MILESTONE May 1-15, 2009 Pro Forma budgets assembled and printed May 18, 2009 Budgets are distributed to members PROJECT COMPLETION