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FOUR SEASONS AT TERRA LAGO ROADRUNNER | NOVEMBER 2026 5 By Joe Macera Member, Finance Committee Prudent use of money paid by homeowners in their monthly assessments is an important role of the Finance Committee. The Association's funds need to be managed to ensure every dollar is spent to maintain and improve our community. To that end, the Finance Committee performs monthly analysis of all income and expenses. Variances from our annual budget, positive or negative, are researched and explained. At budget time, the income and expenses for the current year are used to create a new budget for the coming year, taking into account the HOA's plans and priorities, and minimizing the burden on the Homeowners, while still paying our expenses and growing our Reserves. Maximizing all sources of revenue helps increase the funds available to the HOA and reduces the pressure to increase assessments. The HOA has over $2,500,000 in reserves, funds that are essentially a savings account to maintain our common areas and replace assets at the end of their life. This is a valuable source of income since we can invest these funds in guaranteed investment instruments and reap the benefits from the income (usually interest) they generate. Up until 2024, all of the HOA's funds were invested in Certificates of Deposit (CDs). When we had money to invest, our Management Company would work with our banks to purchase CDs. The CDs had a set rate of return (i.e., interest) for the period. For example, if we purchased a CD for $100,000 at 4% interest for 1 year, at the end of the year, we would have $104,000. That worked well, especially when we did not foresee needing the funds for the entire term of the CD (1 year in this example). The $4,000 is taxable income the HOA pays income tax on, but the rest of the interest is available to spend or reinvest. Typically, the term of the CDs would be between 3 and 12 months, and as CDs matured, the funds, excluding interest, would be reinvested into a new CD. Interest rates for CDs change daily and are set at the time the CD is purchased. If interest rates go up, we do not have the option of reinvesting in new CDs at the higher interest rate without paying a penalty for early withdrawal. We still use these instruments for Operational cash that we accumulate through wise budgeting. On the advice of our bank, the Board changed our longer-term investment strategy to Treasury Bonds (bonds). With bonds, we purchase instruments at the current going rate with maturity dates over a three-year period. We have a lot smaller "chunks" of money maturing at different times (usually quarterly) over a three-year period. This allows the HOA to take advantage of interest rates as they fluctuate (hopefully upward) without having to wait out the maturity of a CD. If the Board determines there is a need for reserve funds, the Board would first use the available reserve cash invested in reserve money market funds and, if needed for larger outlays, bonds can be sold on a secondary market without the penalty imposed on a CD. We do take the risk, however, if the interest rate for the bonds we are selling is lower than the current market rate. We could have to discount the bonds to sell them, therefore not realizing the full bond value. A benefit to bonds is that the interest on bonds is not taxable in California. Therefore, if we had the same interest income from a CD and a bond, the bond would benefit the community more since the interest is only taxable at the federal level, not on state taxes; as a result, we realize more net income. Accounting for the income from our investments has changed between the method used by The Management Trust (TMT) and FirstService Residential (FSR). With TMT they would estimate the interest for each CD and bond monthly and show that as income for that month even though the HOA did not receive any funds. This is referred to as Full Accrual Accounting. When the CD or bond matures and the interest income is realized, that income is compared to the accumulated monthly estimate and the financials are adjusted, upward or downward, to match the actual funds received. With FSR, which uses the Modified Accrual accounting method, no interest income is reported until the CD or bond matures. What we see in the financial reports is only income from matured investments. We will see many months of no interest followed by a month with lots of interest. From a budget perspective, the overall projected income from investments for the year will be the same, but it will be reported only when we receive the funds. If you have any questions, please feel free to contact the Finance Committee or the author at joe.macera.fstl@gmail.com. HOA Investment Strategy

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