Future Fiscal Impacts

In the face of ever-changing state, regional, and environmental requirements, the SAMLARC Board of Directors is actively working to manage and address the impacts of changes such as:

  • California minimum wage increases

  • Orange County Fire Authority Defensible Space Regulations

  • Santa Margarita Water District rate increases

  • Landscape revitalization

 

These state, regional, and environmental impacts are not unique to the SAMLARC community: master-planned communities, business and homeowners throughout California are grappling with these challenges and their cost implications.

California Minimum Wage Increases


SAMLARC’s professional service providers are crucial to maintaining an attractive and safe community. The functions fulfilled by these companies include: landscape, pools, Lake and Lagoon maintenance; athletic fields, parks, and facility maintenance; janitorial and security services; and utility (gas, water, electricity) provision. Many of these service providers employ a labor force of hourly workers.

SAMLARC’s professional service providers are crucial to maintaining an attractive and safe community. The functions fulfilled by these providers range from landscape and pool maintenance, to athletic fields, parks, and facilities services, janitorial and security services, and more. California’s minimum wage schedule affects all industries, from retail to food service to your homeowners association.

SAMLARC’s professional service providers are crucial to maintaining an attractive and safe community. The functions fulfilled by these companies include: landscape, pools, Lake and Lagoon maintenance; athletic fields, parks, and facility maintenance; janitorial and security services; and utility (gas, water, electricity) provision. Many of these service providers employ a labor force of hourly workers.

In 2016, the state of California implemented a law to raise California’s minimum wage. Historically, State wages have risen from 1% to 3% annually. However, the recent wage increases mark a 50% increase over the span of six years – an unprecedented increase. The new Wage Schedule will bring wages up from $10 per hour in 2016 to $15 per hour in 2022. Roughly one-third of California employees are compensated at minimum wage, and the increases are affecting all industries, from retail to food service to your homeowners association.

This state mandated law directly affects businesses’ ability to compensate their employees. First, the increase creates pay compression: the tension caused when employees are compensated at different rates due to external forces, regardless of skill or tenure. Not only is the employer required to increase their minimum wage workers’ pay, but the compensation of tenured employees may also need to be readjusted to create a more equitable pay scale. Readjusting the pay scale may affects the company’s operating budget, which in turn necessitates an increase in contract pricing. Those increased costs are therefore passed on to your homeowners association.

These changes will bring new challenges to SAMLARC; however, the Board of Directors is working to ensure that SAMLARC is well-prepared to adapt to these increased costs over the coming years and uphold SAMLARC’s primary purpose: to manage and maintain SAMLARC property and preserve its value, desirability, and attractiveness.

For more information regarding the impact of minimum wage increases on SAMLARC, please contact Candice Fullenkamp, Community Executive Officer, at 949-709-0010 or candice.fullenkamp@fsresidential.com.

This article is part of a series on anticipated external impacts that will affect SAMLARC in 2019 and beyond. Additional information on these impacts may be found at SAMLARC.org/impacts




Orange County Fire Authority Defensible Space Requirements


California’s climate includes dry, windy, and hot weather conditions that can exacerbate wildfires. As wildfires become more frequent in California, local and state fire protection agencies are reexamining their fire prevention codes in an effort to prevent the spread of wildfires throughout communities.

In 2018, the Orange County Fire Authority began enforcing more stringent Defensible Space guidelines in communities adjacent to wildland areas. These guidelines were adapted from residential and forest fire prevention guidelines, and include a combination of vegetation management and fuel modification requirements. Compliance with the guidelines is not optional; an Association’s failure to bring property into alignment with the standards will be fined and could be required to appear before the District Attorney. However, many master-planned communities have struggled to implement the ambiguous guidelines within their Associations’ approved budgets and OCFA’s mandated deadlines.

In late 2018, OCFA notified SAMLARC of seven (7) zones required to comply with Defensible Space guidelines. Over the course of 2019, SAMLARC has worked to align these zones with the guidelines by removing, rehabilitating, and pruning the landscape. While SAMLARC is on schedule to complete clearing work in these zones by the end of 2019, the unanticipated cost of the work is estimated at $659,000. This amount was able to be absorbed into the 2019 Budget. However, it is anticipated that OCFA will continue to expand its inspection efforts in 2020 and future years, issuing additional compliance mandates with short timelines and unknown costs.

The Community Associations of Rancho (CAR) is working alongside OCFA to establish a comprehensive program that addresses the impacts of Defensible Space compliance on Homeowners Associations. CAR is an advisory group comprised of representatives from the seven master-planned communities in Rancho Santa Margarita, including SAMLARC, Dove Canyon, Trabuco Highlands, Rancho Cielo, Walden, and SAMCORP. As a member of CAR, SAMLARC is leading several working groups for this program. SAMLARC Management and Mosaic Landscape Consulting are reviewing the guidelines with OCFA to establish clear and consistent criteria for HOA compliance. SAMLARC Management and FirstService Residential are working with insurance professionals to prevent or respond to the potential of a non-renewal. Additionally, SAMLARC Vice President Marty Groh is working with CAR’s legal counsel, Dan Nordberg, to establish a non-profit, 501(c)(3) Fire Safe Council to create opportunities for grant funding. The success of these initiatives will help SAMLARC to protect the Association’s assets.

Though OCFA has been receptive to CAR’s efforts, SAMLARC is preparing for additional Defensible Space inspections. SAMLARC has developed a Perimeter Defensible Space Master Plan to proactively address zones within SAMLARC’s borders that may require compliance with the guidelines. Implementation of the Plan is estimated to cost approximately $565,000 over the course of two (2) years, with $282,500 to be earmarked in the 2020 Budget. The SAMLARC Board of Directors approved the Plan at the August 27, 2019 Board Meeting.

As a Master Homeowners Association, protecting SAMLARC’s community and physical assets is at the core of SAMLARC’s purpose. Though wildfires have become a regular feature of California’s climate, the Board of Directors is committed to proactively aligning SAMLARC’s property with Defensible Space guidelines, helping to keep SAMLARC’s community safe.

SAMLARC’s specific and primary purpose is to provide community services and facilities for the benefit of homeowners within the community and preserve the value, desirability, and attractiveness of all properties within SAMLARC. The Board of Directors is committed to upholding this purpose and appropriately balancing the Association’s needs and resources. This article is part of a series on anticipated external impacts that will affect SAMLARC in 2019 and beyond. Additional information and updates on these impacts is available at SAMLARC.org/impacts




Santa Margarita Water District Rate Increases


As part of SAMLARC’s commitment to maintaining a safe and attractive community, SAMLARC budgets water usage for its both landscaping and amenities. Each year’s budget is projected using historical data and anticipated impacts wherever possible to ensure that irrigation and domestic water is available year-round. SAMLARC is dependent on the services of Santa Margarita Water District (SMWD) to provide water for the property and works closely with SMWD to identify opportunities for cost savings and potential fiscal impacts. SMWD is the second largest water retail agency in Orange County, serving approximately 165,000 residents. SMWD faces unique challenges in providing water to its constituents – in particular the lack of a local water supply. Unlike north and central Orange County, south Orange County does not have access to local underground water. SMWD must therefore purchase and import water from the Metropolitan Water District of Southern California. SMWD is in the process of developing sources of local water, such as the Trampas Canyon Reservoir Project, that will reduce dependence on imported water. SMWD is also financing its $90 million, 5-Year Capital improvement Plan to maintain, repair, and replace the District’s infrastructure; ensuring that services can be provided efficiently and consistently. Furthermore, inflation and increased energy costs have impacted SMWD’s operating budget. In consideration of all of these factors, SMWD has proposed a rate increase for implementation in 2020 which will substantially impact SAMLARC’s water usage budget. SAMLARC endeavors to use its water wisely and accurately project the next year’s usage. The 2020 usage projections were developed based on the 2018 usage pattern, as 2017 was considered a drought year and 2019 experienced extensive rainfall. SMWD’s Board of Directors will formally consider the proposed rate increase in late 2019. Based on projected water usage figures and SMWD’s increased rates, SAMLARC’s water costs are projected to increase by $656,342 in 2020. Currently, there is no recycled water in SAMLARC, so SAMLARC is forced to use potable water which is more expensive and may not be sustainable with the next drought. The SAMLARC Board of Directors and management team will continue to work with SMWD in exploring potential recycled water initiatives and associated grants and programs to assist in offsetting costs in the coming years. SAMLARC’s specific and primary purpose is to provide community services and facilities for the benefit of homeowners within the community and preserve the value, desirability, and attractiveness of all properties within SAMLARC. The Board of Directors is committed to upholding this purpose and appropriately balancing the Association’s needs and resources. This article is part of a series on anticipated external impacts that will affect SAMLARC in 2019 and beyond. Additional information and updates on these impacts is available at SAMLARC.org/impacts




Landscape Services


When drafting his plans for the Rancho Santa Margarita area in the early 1980s, Master Planner Richard Reese envisioned a community that would showcase both Mediterranean design and natural beauty. The Association’s parks, greenbelts, medians, and parkways span more than three hundred sixteen (316) acres; much of which is original plant material. With plants ranging from dainty carpet roses to stately sycamore trees, SAMLARC’s plant palette is designed to create a sense of timelessness.
Professional landscape service providers are critical to maintaining the appearance and health of SAMLARC’s landscape. However, recent industry strains have disrupted the efficiency and quality of landscape services. Labor shortages, as well as wage increase and compaction, have impacted the quality of service provided to SAMLARC’s landscape needs.
In 2000, SAMLARC’s landscape service providers retained a crew of fifty-one (51) employees. This crew performed softscape services, irrigation repairs, tree trimming, and other crucial landscaping tasks – maintaining standards of excellence throughout SAMLARC’s landscape. Over the next ten years, the crew was cut back to reduce financial burden and, today, is staffed at thirty (30) crew members. As the landscape continues to age and exceed its verdant life, it will require more intensive maintenance to meet SAMLARC’s expected landscaping standards. However, the reduced number of workers has directly impacted the vendors’ ability to uphold SAMLARC’s standards of landscaping, from routine pruning to full tree removal.
Within the landscape industry itself, labor and wage fluctuations changes are directly impacting service providers. As unemployment rates have declined and minimum wage has increased fewer individuals have chosen work in the landscape industry, leading to a labor shortage. The fundamental shortage in workers then creates a hyper-competitive market for employers. In order to attract and retain a consistent pool of workers, a company must offer better wages and incentives than their competitors (simultaneously raising wages for existing employees to maintain morale). The increased costs associated with this industry tension are then passed on to the company’s clients, such as SAMLARC.
Over time, the cumulative effects of the labor shortage, industry tension, and the age of the landscape itself has created an environment that will require substantial effort to re-align the landscape with the standards. At this time, the landscape does not meet standards of health and appearance. As the first step in restoring the community’s landscape, the Board of Directors moved to re-evaluate the methods of contracting and executing landscape services, creating a Landscape Contract Ad Hoc Committee in May of 2019. The Ad Hoc Committee worked closely with SAMLARC’s landscape consultant firm to revise the landscape service specifications. Rather than dividing the Association’s property by region, the new system divides the property into service areas (such as parks, streetscapes, irrigation, and trees). The revision allows the Association to partner with service providers who specialize in these areas. The Committee then contacted eighteen (18) landscape service providers specializing in large homeowners associations in order to understand the levels of labor and funding that would be required to restore the landscape. The proposals confirmed the Committee’s understanding that proper stewardship of the Association’s landscape assets requires a larger landscape services budget.
In 2020, the Board of Directors anticipates that landscape service will increase by $887,285. This amount is necessary to restore the landscape’s alignment with and maintain the expected standards, as well as investing in the ongoing health of the landscape. This amount also enables SAMLARC’s landscapers to conduct proactive landscape services including tree trimming and preventative maintenance on irrigation systems, which will reduce costs over time. Overall, the expanded allowance for landscaping reflects the Board’s belief that actively investing in the aesthetics of the community also protects and enhances SAMLARC’s property values.
SAMLARC and service providers will begin planning the 2020 landscape service plan in fall of this year, with milestones to be achieved in each quarter. The Board of Directors looks forward to renewing the health of the SAMLARC’s landscape, preserving the beauty of this unique community.
SAMLARC’s specific and primary purpose is to provide community services and facilities for the benefit of homeowners within the community and preserve the value, desirability, and attractiveness of all properties within SAMLARC. The Board of Directors is committed to upholding this purpose and appropriately balancing the Association’s needs and resources. This article is part of a series on anticipated external impacts that will affect SAMLARC in 2019 and beyond. Additional information and updates on these impacts is available at SAMLARC.org/impacts




Overview of Fiscal Impacts to SAMLARC


SAMLARC’s specific and primary purpose is to provide community services and facilities for the benefit of homeowners within the community and preserve the value, desirability, and attractiveness of all properties within SAMLARC. Over the course of 2018 and 2019, several regulatory and industry changes impacted Homeowners Associations throughout the state. These impacts include California minimum wage increases, Defensible Space standards enforced by the Orange County Fire Authority, water rate increases from Santa Margarita Water District, and landscape industry strain. The Board of Directors is committed to preserving SAMLARC’s quality of life, safety, and values; however, these challenges impacted SAMLARC’s 2019 Budget and will continue to impact the SAMLARC Budget in the coming years. This article the first in a series exploring the effects of these impacts on the Association. Minimum Wage California’s minimum wage schedule was enacted in 2016 and will carry through 2022. By that time, the minimum wage will be $15 per hour – a full 50% increase from the starting wage of $10.50. This impacts not only minimum wage workers in retail and manual labor forces, but also the vendors with whom Homeowners Associations contract. These professional service providers are forced to increase their contract rates to counter the effects of minimum wage and associated wage compression in order to comply with expected service levels, and the costs are passed on to clients such as SAMLARC. Defensible Space Standards of OCFA The Orange County Fire Authority (OCFA) is enforcing more stringent Defensible Space guidelines in Associations adjacent to wilderness areas. In late 2018, OCFA notified SAMLARC of seven (7) zones required to comply with these requirements. SAMLARC is on schedule to complete work in all of the zones by late 2019. While the unanticipated cost of the work was able to be absorbed in the 2019 Budget, it is anticipated that OCFA will continue its inspection efforts in 2020 and beyond, at considerable cost. SAMLARC has developed a Perimeter Defensible Space Master Plan to proactively address perimeter areas that may be required to comply with the standards, and working with representatives from master-planned communities to clarify and formalize the standards and approval processes. Water Rate Increases of SMWD Santa Margarita Water District (SMWD) anticipates that a rate increase will be implemented in January 2020. The increase is attributed to a combination of factors, including higher water costs from the Metropolitan Water District of Southern California, investment in developing local supply, SMWD Capital Projects, and general inflation. In spring of 2019, SMWD approved the implementation of previously-authorized, wholesale water pass-through and power surcharges. The SMWD Board of Directors will formally consider the water rate increase in late 2019; however, SAMLARC is preparing to accommodate the proposed increase in the 2020 Budget. Landscape Industry SAMLARC’s property includes more than one hundred (100) acres of parks, trails, medians, and greenbelts. SAMLARC partners with professional landscape service providers to maintain the landscape. However, the combination of the community’s age and industry labor shortages have interrupted the efficiency and quality of landscape services. Many of the plants throughout SAMLARC were planted over thirty (30) years ago and require supplementary care, yet tensions in the landscape industry (created by minimum wage and wage compression) have led to a shortage of workers willing to perform the labor. As a result, the costs of landscape service providers and plant material replacement have substantially increased. A 15 Year Landscape Revitalization Plan is in development, with implementation deferred to a future year. Looking Forward The combination of these external impacts are outside of SAMLARC’s control, and will continue to affect the Association in 2020 and beyond. The Board of Directors is committed to fulfilling SAMLARC’s purpose without compromising the quality of services that Members expect. This article is part of a series on anticipated external impacts and associated cost increases that will affect SAMLARC in 2019, 2020, and beyond. Additional information and updates on these impacts will be made available at SAMLARC.org/impacts as they develop.




Professional Service Provider Contract Increases


The SAMLARC community includes thirteen (13) parks, four (4) Junior Olympic sized pools, the 33 million gallon Lago Santa Margarita, and the Lago Santa Margarita Beach Club. Additionally, SAMLARC owns and maintains more than three hundred sixteen (316) acres of community landscaping, which includes medians, parkways, greenbelts, and parks. The parks have features such as picnic shelters, restrooms, barbecues, athletic courts, and sports fields. SAMLARC was designed with community relationships in mind, and these important spaces offer families and friends the opportunity to gather together.

To ensure that SAMLARC’s amenities and landscape meets community standards and expectations, SAMLARC contracts with professional service providers. These vendors perform services year-round, such as janitorial and security services, as well as landscape, sports field, and pool maintenance. However, minimum wage increases and rising costs of business have impacted these providers’ ability to operate at current contract rates.

Many professional service providers employ a labor force of hourly, minimum wage workers. In 2016, the state of California implemented a law to raise minimum wage. Historically, wages have risen from 1% to 3% annually. However, the recent wage increase schedule will create a 50% increase over the span of six years – an unprecedented increase. The Wage Schedule will bring wages up from $10 per hour in 2016 to $15 per hour in 2022. Roughly one-third of California employees are compensated at minimum wage, and the increases are affecting all industries, from retail to food service to homeowners associations.

Minimum wage increases directly affect businesses’ ability to retain and fairly compensate a consistent pool of workers. First, as national unemployment rates decline, fewer individuals elect to fill minimum-wage jobs in labor-intensive fields. Companies are then forced to compete for a diminishing pool of workers, offering higher rates of pay than mandated by the state. That tension contributes to wage compression, caused when employees are compensated at different rates due to external forces, regardless of skill or tenure. Not only is the employer required to increase their minimum wage workers’ pay, but the compensation of tenured employees may also need to be readjusted to create a more equitable pay scale. Readjusting the pay scale affects the company’s operating budget, which in turn necessitates an increase in contract pricing. Those increased costs are then passed on to clients such as SAMLARC.

Though SAMLARC’s professional service providers strive to perform efficiently, they are not able to sustain expected service levels when factoring in the impacts of minimum wage, rise in business costs, and existing budget constraints. As long as possible, vendors endeavor to forestall the impact of wage/industry costs on their relationships with clients. However, after weathering three out of the six consecutive years of wage increases, contract increases have become unavoidable for most of these companies.

As part of SAMLARC’s annual budgeting process, the Board of Directors prepares for potential contract increases wherever possible. Exclusive of landscape services, the Board anticipates that in 2020, the anticipated total contract increases to be $144,406. This amount is not only necessary to sustain essential services, but to realign service levels with the expectations of the Board and SAMLARC community. By maintaining successful relationships with professional service providers, the Board seeks to uphold SAMLARC’s commitment to providing Members with a safe and beautiful community.

SAMLARC’s specific and primary purpose is to provide community services and facilities for the benefit of homeowners within the community and preserve the value, desirability, and attractiveness of all properties within SAMLARC. The Board of Directors is committed to upholding this purpose and appropriately balancing the Association’s needs and resources. This article is part of a series on anticipated external impacts that will affect SAMLARC in 2019 and beyond. Additional information and updates on these impacts is available at SAMLARC.org/impacts





The SAMLARC Board of Directors continually works to fulfill SAMLARC’s primary purpose:

The management and maintenance of SAMLARC property and the preservation of the value,

desirability and attractiveness thereof.

22342A Avenida Empresa, Suite 102A, Rancho Santa Margarita, CA 92688

(949) 709-0010

© 2018 Santa Margarita Landscape and Recreation Corporation