Reserve Study Highlights from January 27 Budget Workshop
Nearly 60 residents joined The Landings Association (TLA) at Delegal’s Sunset Pavilion on January 27 to hear the results of the Reserve Study. Others tuned in to watch the event that was live-streamed on Facebook.
As background, in 2019, The Landings Association’s Board authorized the engagement of Community Advisors, led by Charlie Sheppard, to perform the study. Last October, Sheppard visited The Landings and completed an onsite analysis of all components in TLA’s Capital Asset Management Plan (CAMP), including their useful life, condition, and remaining life. After collecting and analyzing the data using different formulas based on best practices, industry standards, and various funding level options, Sheppard submitted to TLA a comprehensive study of his findings.
Although the report offers several different methods of funding the Capital Reserves Fund with illustrated examples of each, the primary finding of the study is that The Landings Association is not allocating enough money to the Reserves Fund, and the level in the Fund is not sustainable over time, placing the community in danger of resorting to bank loans or Special Assessments. Shown below are some of the charts that Sheppard shared at the meeting to support his findings.
“Based on The Landings Association’s Board Policy for Reserves, the funding goal is to maintain annual balances above $5 million in the Capital Reserves Fund,” Sheppard said. “From the current projections showing a flat assessment, this option is not sustainable. With the flat assessment amount, there is a decrease in the allocation to the Capital Reserves Fund to fund continuing operations.”
Because The Landings is approaching its 50th Birthday, a community discussion on how best to fund the Reserves is one that must take place sooner rather than later. However, to have an effective conversation, everyone must understand the role of the Capital Reserves Fund. This is a restricted fund for the use of the repair and replacement of common property assets. Having a healthy Reserves Fund spreads the cost over the entire life of the asset, so that current owners contribute only to the fraction of cost from which they benefit. Additionally, if the Reserves Fund is not properly funded, future buyers may be deterred from purchasing a property in The Landings for fear they will be hit with Special Assessments or deteriorating infrastructure and capital assets.
“There are several factors to consider when determining reserve funding levels that include maintaining the quality and value of the community and the ability of the Association to respond to unpredictable component failures while maintaining an acceptable level of risk,” Sheppard said. “Full funding provides the lowest risk of deferred maintenance or Special Assessment but requires large contributions. The Threshold Funding Plan, which keeps reserve balances above 30% fully funded, provides a moderate risk level, and we recommend this plan assuming annual updates are conducted. National Reserve Standards indicate funding plans that maintain a 30% to 70% fully funded reserve provide an adequate or fair level of funding.”
According to The Landings Association’s Assistant General Manager Karl Stephens, now that the report has been received from Community Advisors, there is more work to be done before the final numbers to fund The Capital Reserves Fund is decided.
“We just received this report in mid-January,” he said. “Our Reserves Subcommittee, Finance Committee, and Board of Directors need time to review the final report and analyze the impact on current reserve funding projections and board policy. This is a two-way conversation with the entire community, and we will be holding workshops, focus groups, and drop-in sessions focusing on reserve levels and potential Assessment amounts. We then will determine the appropriate timing and amount for an Assessment vote.”
After the presentation, the floor was opened for questions. Following are some of the questions raised at the meeting.
Q. Is the current amount going into Reserves adequate?
A. No. The amount going to the Capital Reserves Fund now is not sustainable over time.
Q. Can you clarify what the current funding strategy is?
A. With the failed Assessment, the Association reduced service levels that we believed had the least impact on residents. All excess money is then allocated to reserves.
Q. I feel the Association has done well getting us a good return on reserves. What assurances do we have that you won’t decide to have a big party with our money?
A. The Capital Reserve Fund is a restricted fund. Once funds are deposited, they can be used only for the repair and replacement of assets and not for operational expenses.
Q. You mentioned before that our Reserves Funds are invested in Money Market Accounts and Certificates of Deposit. Is there an investment policy in place?
A. Yes. The Landings Association has an Investment Committee that meets quarterly to review investments and decide if changes are necessary.
You can view the entire report from Community Advisors as well as the PowerPoint from the meeting on The Landings Association’s website (www.landings.org/resources > Budget Workshops). To view a video of the presentation, which includes the entire question-and-answer session, please visit The Landings Associations Facebook Group Page or our YouTube page (www.youtube.com/watch?v=5A1HfQWZyvc&t=3s).
This article was originally published by The Landings Association on their website. Visit landings.org to read the original article. https://landings.org/news/2020/01/29/reserve-study-highlights-january-27-budget-workshop