EDITORIAL: HOW FEE INCREASES AFFECTED REVENUE
I
just thought I’d drop you a note to share some interesting trends I discovered
in reviewing HSV past financial reports.
I was wondering if any of the prior Board members know how something
this obvious got overlooked?
I
realize that many of you on the Board have had real life business
experiences. From your resumes,
however, it is hard to identify but a couple who have had formal business
education. So you may not be as
vigilant as you should be in reviewing reports from the POA. If you passed the opportunity to study
business in an academic environment, then you missed a thorough understanding
of many business principles that provide heightened insight into everyday
economic life, most applicable being: finance, cost accounting principles,
economics and consumer behavior.
The
reality in HSV of having a retired population living on essentially a fixed
income that began at the retirement date is that there is no more money; you
know raises. That retirement income has
to be allocated between required expenditures, and discretionary spending to
purchase leisure items (such as HSV amenities). Over time the purchasing power of the
discretionary portion of income diminishes due to inflation. Fee increases only accelerated the impact of
inflation on discretionary spending.
For
those who want a good review primer on Consumer Choice I refer you to http://www.basiceconomics.info/theory-of-consumer-choice.php
Most
people when they bought in or moved to HSV had expectations of retirement in
HSV as being very good—or they would not have purchased property here in the
first place. They had performed their
own personal economic analysis and decided that with their projected retirement
income/financial status and prevailing HSV amenity fees, coupled with Arkansas
cost of living (given a normal inflation rate over time and no
significant change in Arkansas cost of living), they could look forward to a
good retirement lifestyle in HSV. They
were in error on both counts.
No
one envisioned the Board of Directors would repeatedly increase amenity fees
year over year without looking at the impact.
Fees were increased in the hopes of generating more POA revenue from
residents, particularly golf at multiples of CPI changes, but essentially no
net revenue was generated! And
apparently no one on the Board(s) or the POA or the RASP Committee bothered to
look at the impact and draw responsible conclusions, that raising fees on a
fixed income population only reduces utilization. The following table illustrates the impact on revenue and rounds
played (even though some data is unavailable) for golf and fee revenue over
time as fees for all amenities are increased.
Property
Owner (PO) Daily Green Fees and revenue, plus change in fee based revenue over
time as fees were increased for all amenities.
Year
|
2006
|
2007
|
2008
|
2009
|
2010
|
2011
|
Green
Fee
|
$12.00(1)
|
$12.50(1)
|
$13.10(1)
|
$14.10(1)
|
$15.10(1)
|
$16.85(2)
|
#
PO Daily Fee Rounds
|
198,484
|
185,586
|
171,379
|
160,364
|
(4)
|
(4)
|
Revenue
Golf PO Daily Rnds
|
$2,381,808
|
$2,319,825
|
$2,224,278
|
$2,261,132
|
|
|
POA
Revenue Golf (3)
|
$6,659,923
|
$6,720,083
|
$6,686,800
|
$6,305,800
|
$6,449,200
|
$6,517,331
|
POA
Revenue Golf + Recreation (3)
|
$7,652,121
|
$7,864,525
|
$7,794,111
|
$7,346,030
|
$7,481,930
|
$7,554,787
|
(1)
Includes
$2 surcharge/round for golf course construction
(2)
Surcharge
ended at the end of 2010
(3)
From
year end Financial statements
(4)
Currently
not readily available per Golf Dept
While
golf has experienced the largest percentage increases in fees (68% over 5
years; inflation CPI was 14.6%, compounded), all amenities have experienced
increases, often greater than prevailing CPI with resulting stagnant revenue
due to decreases in utilization. The
only Property Owner outcome has been fee expenses have increased. Is this in the Property Owner’s best
interest?
In
my opinion, past Boards, as well as the POA, have practiced bad business policy
and thereby been less than vigilant in their duties to represent the Property
Owner member’s interest in providing oversight of POA operations, especially in
the area of fee and revenue management.
It is important that the Board ensure a critical review of the impact of
budget (fee) decisions, as is illustrated in the table above, to ensure the
viability and marketability of HSV to current and future residents/owners. A year-end review should be performed to
determine successes and failures, and learn from them by revising operating
policy procedures. This is not being
done!
This
Board with three new Directors has the opportunity to change this trend and
take positive steps to enhance Property Owner members’ interests. A giant step in a positive direction is to
start a slow fee roll back in all fees and adopt a similar golf
fee structure/policy to that proposed in my prior e-mail to you, “Proposed Golf
Fee Increases for 2013”, dated July 15 or just reduce all fees 10-15%. This will:
-
Be
a positive step in representing the Property Owner member’s interests
-
Illustrate
to non-resident Property Owners that the Board of Directors is not on a runaway
train in fee increases and their investment in HSV is a good one
-
Increase
HSV’s competitiveness in the marketplace for the shrinking population of
retirees that are going to relocate
-
Increase
all members’ property values and increase their enjoyment of our common
property amenities
-
Generate
more revenue
-
And
perhaps, most importantly, generate some positive PR with your customer, the
HSV Property Owner.
Larry Frazer
A Concerned Property Owner