Treasurer Sean McDonald provided the following comments in response to a Letter to the Editor by member Tim Brown (January 20, “Say no to dues increases”).

Thank you for your letter in The Friday Flyer. I also support the type of candidate that you want and the good news is you will not have to wait until they are elected to get what you advocate. General Manager Jeremy Wilson, along with the Board, has made approximately $800,000 in reductions since Jeremy was hired. No one has been more aggressive about cutting expense than this new Board. As promised, we no longer have any employees making over $120,000 per year. We are going to be hiring a new Operation Manager for around 55 percent of what that position paid just last week.

Some items like water and electricity cannot be reduced unless we use less water or electricity. We are exploring cutting back on water consumption by putting in synthetic greens and fairways as the Golf Course needs vast quantities of water. The synthetic turf will have to be tested by the golfers for both usability and cost effectiveness before we would make this change.

We are currently spending approximately 1.5 million dollars a year for water and for maintaining the Golf Course. We are studying this idea to reduce the cost of operating the Golf Course. Our current path is not sustainable for the Golf Course long term. It we do not change the path we are on, annual dues for golf will continue to go up.

We (the GM, CFO and myself) are also looking into a new technology from a company called Bloom Energy to help us long term to reduce our cost of electricity at the POA Building, Country Club and Lighthouse. (See www.bloomenergy.com.) Bloom Energy is a company that produces constant, clean and reliable power more affordable than the utility grid, using a fuel cell technology first developed for NASA's Mars program.

Companies such as Fedex, Staples, AT&T, Bank of America and Wal-Mart chose Bloom because they were able to not only save a significant amount of money but Bloom's technology provides power 24/7 with a performance guarantee for the life of the project (up to 20 years). Many of these companies have also chosen the option of having predictable energy prices for extended periods with the purchase of gas contracts.

In California, Bloom's technology can produce power for $0.09/kWh when you take into account fuel costs, hardware, service, incentives, etc. A typical project generates returns of 20 to 25 percent and a simple payback of 3.5 to 5.5 years. The POA can choose to purchase the system outright or lease it.

We have a fiduciary obligation to all the homeowners in Canyon Lake. While we abhor the idea of raising the assessments, we are obligated, as the elected governing body, by the Civil Code and our own guidelines to produce a balanced budget. The new Directors elected this May will also be obligated to fund reserves and balance the budget, and no petition will stop that from happening.

We are currently not receiving dues from approximately 13 percent of our homeowners, which represents a 1.5 million dollar shortfall in revenue. We will account for any anticipated shortfalls in revenue in our new budget, which is currently under review by the myself, CFO, GM and Finance Committee.

Some people are naive enough to think we can simply borrow this money from our reserves and then pay it back after these delinquent homeowners pay us. We are in the process of handing over to a collection company $1.8 million worth of assessments, fines and legal fees owed by homeowners who failed to pay the Association.

Why are we in this situation?

It is important to examine why we find ourselves in this situation:

1. We lost between $5 and $8 per person on most club events for years.

Solution: New menu reflects true cost so we will at least break even from now on.

1. Meals and drinks were being comped by employees to themselves and friends.

Solution: Employees terminated, cameras installed.

1. Theft of cash and goods.

Solution: New POS System and cameras installed, inventory control.

1. Water cost continues to escalate each year.

Solution: Reduce amount of water used.

1. Electricity continues to escalate each year.

Solution: Use less electricity and explore less expensive alternatives.

1. Lake Lease goes up each year.

Solution: Our Lake lease does not cover EVMWD costs to maintain Lake.

1. New Reserve Study added $2,250,000 for items not identified in previous study.

Solution: Introduce new rule limiting amount that any new item can get funded.

1. Management gave themselves six percent annual raise every year.

Solution: Enforce Board approval for all annual raises per the new Employee Handbook

1. Management gave themselves 10 to 12 percent “spot” bonuses with no Board approval since 2003.

Solution: Enforce Board approval for all raises based on merit per the new Employee Handbook.

1. Management gave Christmas bonuses to employees with no Board approval since 2003

Solution: Enforce Board approval for all bonuses based on merit per the new Employee Handbook.

1. Reimbursement for credit card expenses did not follow established POA policy.

Solution: Enforce credit card policy for reimbursement; expenses are reviewed by Director per the new Employee Handbook.

1. Reimbursement for gas expenditures did not follow POA policy.

Solution: Enforce policy regarding reimbursement for expense; expenses are now reviewed by Directors per the new Employee Handbook.

1. Dredge expenses were out of control and many serious mistakes were made.

Solution: Learn from mistakes made and stay out of business of dredging the Lake.

1. Money was borrowed from our Reserves and Community Facilities Development Fund to make up deficit by prior Boards.

Solution: Currently being investigated by CFO; report should be ready by next POA Board meeting.

1. Loose oversight of legal expenses by any Board.

Solution: All previous legal expenses are being investigated by Board and Legal Counsel. Current legal expenses are being strictly scrutinized.

1. Exorbitant fines caused homeowners to not pay assessments.

Solution: Fines are being reviewed by Committee and Board; Fine Revenue down $113,000.

1. Homeowners with properties in foreclosure (13 percent) are not paying dues.

Solution: Offer help to homeowners in trouble and get them back paying assessments.

1. Loose oversight of Golf Finances by any Board.

Solution: Under investigation by Forensic Audit Committee and Board.

1. Paid Time Off (PTO) was abused by some employees.

Solution: PTO System has been replaced by new system per the new Employee Handbook.

1. We have 1.8 million in bad debt not collected (goes back almost 10 years).

Solution: We are hiring a collection company for older debts. We also have started the collection process earlier and we are using small claims court to reduce our costs.

1. ACC and Community Patrol income down by $237,000 compared to budget projection.

Solution: Under investigation; maybe homeowners are just taking better care of property and are getting fewer tickets.

Board commitment

The current Board is committed to the members and their interests. We believe assessments should pay the Association's bills, and should not be used to satisfy the interests of an individual Director or member. Accordingly, we have been improving, and continue to improve, the standards of the Association's management and operations, applying strict financial standards and close supervision over the Association's spending.

With the current Board's lead, Canyon Lake is being run like a real business with financials that can be understood by all. We are filling recently vacated positions by highly experienced personnel who have the credentials for the job they are being hired to do. I believe these well-educated and experienced professionals will help us turn Canyon Lake around. I hope my response provided some insight into the issues any new Director will face in May.