Budget Box: Reserve Study

By Shari Haldeman - sharih@landings.org
General Manager/COO, The Landings Association

The Landings Association owns and manages an extensive and diverse set of capital assets with an estimated replacement value of $76M, maintained and replaced through the Capital Reserve Fund. One of the most important responsibilities for the Association is to ensure that the existing community infrastructure can be supported by the Capital Reserve Fund when replacements are necessary. Our capital reserves are restricted monies, set aside in advance to help pay for major capital repairs and replacements, such as roads, community paths, bridges, lagoon structures and storm drains, buildings (including gatehouses), two Marinas, as well as large equipment such as street sweepers, jetter vacuum trucks, and backhoes.

A crucial aspect of an association’s financial health is the development of an adequate long-term capital replacement reserve plan. To maintain the association’s assets, an appropriate level of annual assessment revenue is segregated into the capital reserve fund to offset the repair or replacement of assets as they wear out during the life of the community. The community association profession refers to such a plan as a Reserve Study.

A reserve study is made up of two parts -- the physical analysis and the financial analysis. The physical analysis includes the asset inventory, condition assessment, and life and valuation estimates. The component inventory should be relatively stable from year-to-year, while the condition assessment and life and valuation estimate change from year-to-year. The financial analysis is made up of an analysis of the association’s current reserve fund status (measured in cash or as percent funded) and a recommendation for an appropriate reserve contribution rate (a funding plan).

The Landings Association’s Board authorized the engagement of Community Advisors to perform the Reserve Study. Community Advisors performs capital reserve analysis, consulting services, commercial inspections, and project management for community associations, private clubs, churches, schools, and other entities. Starting in October, these Reserve Specialists will complete an onsite analysis of all components included in the Capital Asset Management Plan (CAMP), including their useful life, condition, and remaining life. Once this analysis is completed, a full report will be provided which will include an Executive Summary, 40-year Funding Plan, Graphic Illustrations, Cash Flow Sheets, Projected Expenditures by Year, Component Inventory, Component Detail with Photographs, and Disclosures. Once the final report is received from Community Advisors, the results will be shared with the Landings community during the December Budget Workshop at Delegal’s Sunset Pavilion.

This study is funded through the Operating Contingency line item at a cost of $21,700 and will provide assurance of an appropriate reserve funding plan for The Landings Association.