Our Reserve Contributions Are The Best Tool We Have For Avoiding Special Assessments

Date: September 08, 2023
Subject: Our Reserve Contributions Are The Best Tool We Have For Avoiding Special Assessments

The Board recently sent out a multipart overview of the upcoming budget proposals for 2024 and one of them touched on adding to the Reserves.  We thought the topic of the Reserves account was worthy of an email of its own.

First, what are Reserves?  To put it simply, this is the sum of money, we as an association, set aside every year for a) unplanned catastrophe destroying the property, and b) planned, long-term projects like asphalt resurfacing, replacing doors and windows, tennis courts, etc.

Second, how do we decide how much money we need to put away in reserves based on the above?

Unplanned Catastrophes – By calculating the 2023 value of our property, which is $82 million, and taking the 1% insurance deductible we come to $820k.  The recommendation is to have that amount as the baseline which we currently do not have.  So, a catastrophic event would result in a special assessment to cover the deductible.

Planned, Long-Term Projects – The other tool for deciding how much money to put into savings is through a “Reserve Study” and this is mandated by state law.   A company specializing in this process is hired by QL to come onsite with their engineers, architects, and other specialists to look at all of the components in the community and provide an estimate on how much life the components have left, whether it’s the buildings, amenities such as tennis courts, pool deck, etc or infrastructure.  With this report we can properly schedule and plan for these upcoming expenses.

Our last Reserve Study was in 2019 and by law our next one will happen in 2024.

At the current time, $400k from our dues is allocated to the Reserves.  So far for 2023 we have the asphalt patching that was $170K;  Door and window replacements $232k; and, asphalt rejuvenation at $70k.   As you can see, we are already at $472K and we have not even done the exterior siding work that must be completed for this year which is budgeted at $115K.  So, that is a total of $587K.

You might say to yourself, do we have to do these things every year like the Reserve Study says?  Well, the building exteriors were not maintained for many years here in Queen’s Landing and they deteriorated to the point where the exterior siding had to be replaced.   The “restoration” came to $15.3 million dollars.  So, the 349 units had to come up with about $48k each to pay for it.

With no real change in dues we would continue to put away only $400k in Reserves in 2024.

Why propose increasing how much to put into Reserves in 2024, especially if we will have another Reserve Study in 2024 that may change the number for 2025?

Well, it is unlikely that the Reserve Study of 2025 is going to suggest lowering our minimum contributions.   The cost of everything has surged this year.  Not only that, but we know some things in the community are deteriorating more quickly than predicted by the 2019 study.  For example, various elements of the pool deck that we have scheduled to be replaced in 2031 and 2036 are failing earlier than predicted.  This forces us to shift those costs forward while shifting other items back.  This brings us back to the delicate financial balancing act and the ill-advised practice of pushing off maintenance until there is a failure which will result in a special assessment for the repair or replacement.
As you can see, properly and aggressively funding our reserves is the best tool we have for avoiding special assessments.
If you have any questions, please contact Mike at [email protected].

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