HOA Finance Committee Update

Jesse Young, Finance Chair

Corte Bella Country Club Association Finance Committee Board Presentation – January 2022 Summary Article

On January 7, 2022, the Corte Bella Finance Committee, represented by Jesse Young, Chair, made a presentation to the CB Board of Directors to discuss several important topics: • The impact that inflation and continued low interest rates may have on our HOA. • The purpose of each of the three reserve accounts. • Suggest ideas to address the current economic backdrop. The CB Finance Committee and Investment Subcommittee, with a combined 100 plus years of financial experience covering financial advising, financial planning, auditing, and financial reporting, includes Kathy Carmickle, Tom Cerny, Peter Diamond, Bonnie Gentry, Lisa Klein, Jack Serino, Ron Tchorzewski, and Jesse Young. The Finance Committee is further strengthened by the Board Liaison and Board Treasurer, Dave Thomas, and the Board Assistant Treasurer, John Mestermacher. We can all agree that the current macro-economic situation is troubling. The 2021 Consumer Price Index rose a full 7% in 2021, while the 2021 Producer Price Index increased 9.7%. As consumers, we only need to reflect on the pain created by areas of our lives that have experienced above average inflation, such as medical services and college tuition. Others may remember the extremely high inflation period from 1973 to 1982. We can expect inflation to impact most every product or service that our HOA purchases. We are also continuing to see very low investment returns on our reserves that are invested in certificates of deposit (CD) and money market funds. As of this writing, a one-year CD yields only .3% and a two-year CD yields .75%. The return on money market funds is currently earning from .4% to .5%. We hear a lot about the Federal Reserve planning on interest rates hikes this year. It is uncertain whether the rate hikes will occur, and even more uncertain whether we see interest rate returns on CDs and money market funds increase accordingly. The HOA Investment Policy permits up to 15% of our reserves to be invested in a managed account consisting of stock and bond funds. There are further restrictions on the “at risk” portion of our reserves. We currently have approximately 10% in stock and bond funds. This account earned 11% in 2021. We can also invest in market linked CDs, which have protection, though are not advisable for short and mid-term needs.

The current reserve structure was addressed in an article in last month’s CB Times, and we ask that you reference the article or discuss your questions with any CB Board or Finance Committee member. We had a reserve balance of $6,661,615.69 as of 11/30/2021.

We wrapped up our presentation with a set of thoughts on the pathway forward:

• Core to the Finance Committee’s mission, and our job during these challenges – continue to invest short-, mid-, and long-term funds as wisely as possible • Map out expenditures year-by-year for maximum return with predictable risk. • Weigh increasing risk in reserve funds from 15% to 20% for long-term requirements*. • Although counter-intuitive, accelerate spending where it makes sense.

• Optimize communications across HOA committees and our board.

In summary, if we pay attention to the changing financial backdrop, we will:

• Have reasonable HOA assessment increases.

• Continue to maintain and improve the Corte Bella community. • Contribute to a healthy real estate environment. • Continue to be the preferred age-restricted community in the West Valley. *A change to increase the portion of our reserves invested in stock and bond funds from 15% to 20% was approved by the CB Board of Directors during the January 2022 meeting.