Capital reserves

As discussed at the annual meeting in August, the HOA recently completed a reserve study. As the property ages, there will be required expenses for things like roofs, parking lots, etc. While we do accrue money into a capital reserve fund, this fund may not be adequate for all the expenses we might expect over the next several years. As such, there are many ways to handle capital expenses. The capital reserve committee has studied the issue and has provided recommendations on how to handle future capital expenses for all members of the HOA to consider. A community-wide vote on the issue will be conducted soon, likely in March. The committee’s report is posted below.

Committee recommendations:

The committee has the following recommendations for the BOD to consider regarding increasing our capital reserve funding over the next five fiscal years:

OPTION ONE: increase the Capital Reserve contribution rate (3% each fiscal year) as recommended by the reserve study with no special assessment. This achieves the goal of increasing the Capital Reserve fund over the next five years. It also allows for special assessments per building if needed at a future date. In our meeting, we agreed that a Capital Reserve balance of $500,000 seems to be more than sufficient. It should be noted that the majority of the committee (five of who responded) favored this option.

OPTION TWO: increase the annual Capital Reserve contribution rate at 2% with a minimal special assessment to achieve the capital reserve balance of $500,000 over five years. Some committee members were concerned about a 3% annual increase in HOA fees that may not end once we reach the five year goal of $500,000. In this option a special assessment of $30,000 could be billed over four quarters.

OPTION THREE: increase the Capital Reserve contribution rate as recommended by the reserve study with the $1,725,000 special assessment. This was met with the most resistance by the committee as we felt that creating a Capital Reserve balance in the millions seems excessive and would be met with the most consternation by owners.

OPTION FOUR: increase the Capital Reserve contribution rate (3% each fiscal year) at an amount lower than that recommended by the reserve study (starting at $277,000 instead of the reserve study recommendation of $352,000) with a special assessment of $400,000 spread over twenty quarters (five years). This achieves the goal of creating a Capital Reserve balance of $500,000 and maintaining the Capital Reserve fund balance over the next five years. This option would also likely to be very unpopular with owners. 

We would also recommend that an annual increase in capital reserve funding for the garages should be a separate line item in the garage capital reserve and maintenance expense report. This way garage owners can confirm that the approved increase is going directly to the garage reserve fund rather than to the general maintenance fund.