As a Master Homeowners Association, SAMLARC is classified as a not for profit corporation, governed by Governing Documents (Articles of Incorporation, CC&Rs, bylaws, and rules adopted by the Board of Directors). These documents create legal duties and obligations for the Association to preserve the value, desirability, and attractiveness of the property that SAMLARC owns and holds a responsibility to maintain. To meet these duties and obligations, the Board adopts an annual budget with expenses that are determined in large measure as non-discretionary costs. The budget also takes into consideration the measures of Civil Code Section 5600 (a), which states that the Board must levy regular and special assessments sufficient to perform its obligations under the governing documents.
Annually, each Committee under the direction of the Board provides input and guidance into the preparation of the upcoming year’s budget. A Budget Workshop is held annually, open to the Membership, for the Board of Directors to consider, discuss and approve the upcoming fiscal year budget effective January 1. The Board held the 2021 Budget Workshop on October 6, 2020 and following much deliberation the Board approved the 2021 fiscal year budget for SAMLARC.
In order to maintain existing service levels, accommodate the rise in non-discretionary costs, avoid the potential burden of large increases, and protect the Corporation’s financial health, the Board approved an increase of $4.76 to monthly assessments beginning January 1, 2021. Key drivers of this increase include service contract increases, anticipated rate increases from Santa Margarita Water District, continued fire prevention Defensible Space work as directed by the Orange County Fire Authority, and necessary landscape maintenance. These drivers are briefly outlined in this article and will be further explored in forthcoming updates.
Service Contract Increases
SAMLARC’s service providers execute the operations of the Corporation, including insurance coverage, professional management, maintenance, repair and replacement of assets and amenities. Each vendor is anticipated to increase its contract rates in 2021 due to the effects of California minimum wage mandates as well as COVID-19 hardships. These businesses must increase their contract rates in order to accommodate wage increases and wage compression, while compensating for COVID-19 related hardship such as supply chain disruptions, payroll challenges, and operations modifications. SAMLARC must accommodate these increases in order to ensure that all assets are appropriately maintained.
Santa Margarita Water District
Santa Margarita Water District (SMWD) anticipates that a rate increase will be implemented sometime in 2021. 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. The SMWD Board of Directors will formally consider the water rate increase in early 2021; however, SAMLARC must prepare to accommodate the proposed increase in the 2021 Budget.
Fire Prevention Defensible Space
The Orange County Fire Authority (OCFA) continues to enforce stringent Defensible Space guidelines in Associations adjacent to wilderness areas. SAMLARC has completed all required vegetation removal in the areas identified by OCFA and developed a Perimeter Defensible Space Master Plan to proactively address perimeter areas that may be required to comply with the standards. The continued execution of this plan is folded into the budget so that the Corporation is able to guard against potential OCFA citations, loss of insurance coverage, and fire damage.
Thanks to renewed landscape efforts in 2020, SAMLARC’s landscape is recuperating from years of compromised maintenance. Additional funding is required to support the range of services necessary for restoring the landscape to full health. This expansion will allow SAMLARC to maintain existing landscape staffing levels, provide for adequate tree maintenance, and preserve safety as the landscape ages. Restoring the landscape is a long-term initiative which will require dedication in 2021 and future years.
COVID-19 Impacts on 2020 and Beyond
COVID-19 brought unprecedented disruptions to all facets of community living, including SAMLARC’s operations. While the Corporation saw a minor savings due to government-mandated closures or modifications to operations, additional costs were incurred related to compliance and enforcement of the government requirements. The savings balance in the 2020 Budget was passed through to the 2021 Budget in order to reduce the amount of the assessment increase. As the State of California continues to develop and renegotiate its reopening procedures, SAMLARC will adjust its operations to comply with government requirements and support the health of the community.
The Board’s fiduciary responsibility to the Corporation requires a realistic examination of assessment levels each year. While opportunities to defer assessment increases appear attractive, the current Board recognizes that incremental increases over time provide greater long-term benefit to the Corporation and homeowners. Annual evaluation of assessments ensures that SAMLARC protects its assets now and in the future. It also permits homeowners to create realistic budgets each year rather than trying to accommodate a substantial increase after several years of no increase. The Board is committed to its duty to the Corporation and at the same time create as little impact as possible to the Membership.
The Board of Directors understands its role in 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. If the Board had not approved an increase, service level reductions would have been required. An assessment increase would have been necessary in 2022 at a much higher level, and service levels still would not have been restored. The Board of Directors is committed to fulfilling SAMLARC’s purpose without compromising the quality of life that makes SAMLARC a premier community. Additional information and updates on these impacts will be available at SAMLARC.org/impacts.