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Crown Harbor Homeowner Association

Reserve Study Committee

The monthly dues are divided between two types of expenditures.

operating

Operating Account

The operating account covers monthly expenses of the association. This includes items such as:
  • Property and earthquake insurance
  • Landscaping contract
  • Plantings and tree trimming
  • Utilities such as electrical, water, and trash disposal
  • Management fees
reserve

Reserve Account

The reserve account covers long term expenses of the association. The reserve account is used to fund the maintenance and repair of all items that do not come out of the operating budget. This includes items such as:
  • Roof replacement
  • Siding replacement
  • Plumbing/sewer repair
  • Pest/termite repair
The reserve account is funded by making a monthly transfer from the operating account to the reserve account. The amount of that transfer is computed based on a reserve study. The reserve study is reviewed by the Reserve Study Committee each year.
nuts and bolts

Nuts and Bolts of Monies Collected

The strategy behind the reserve account is to collect for the replacement of an item over the life of the item. For example, if a sprinkler system costs $5,000 to replace and should last 5 years, the association should collect $1,000 per year for 5 years. The $1,000 per year would be collected as $1.10 per month  ($1,000 divided by 76 units with 12 payments per year).

Number
of
Units
Per
Month
Number
of
Months
76$1.1070


Each month collected money is transferred to the Reserve Account. At the time the sprinkler system is replaced, money is pulled from the Reserve Account to cover the cost.

Here's another example. Take the new landscaping at 556 / 548 Kings. The cost was $8,049. How could the association pay for that?
  • One way would be to just divide the cost by 76 and have each owner write a check for $105.91 and be done.
  • Another way would be to spread out the cost by dividing it by 12 and increase the monthly dues by $8.83 for the next year.
  • The fairest option is to cover the cost from the reserve account and replenish the reserve account by raising the dues $0.29 (29 cents) per month for the next 30 years — the expected life of the new landscaping.

Number
of
Units
Per
Month
Number
of
Months
76$0.29360


In the cases of the sprinkler system and the landscaping, the costs are evenly distributed across all of the units. Per the CC&Rs (page 21), the items that are funded according to the variable per-unit-type ratios include Insurance, Exterior Painting/Maintenance, and Roof Repair/Replacement. Hence, the cost for some items, such as siding, varies by unit type based on the rates defined in the CC&Rs. As an example, replacing all of the siding is projected to cost $2,245,770. This cost would be collected per month over a 30 year period per those rates.

Unit
Type
Number
of
Units
RatePer
Month
Number
of
Months
A160.009422$58.78360
B180.014405$89.96360
C120.015137$94.37360
D220.015191$94.77360
E80.009279$57.88360


Whereas the sprinkler system is a fixed cost per unit, the siding is a variable cost item based on unit type. For siding, owners pay different amounts based on Unit Type. Whereas all owners benefit from sprinkler systems equally and pay equally, owners with larger units pay more because they have more siding. The per-unit-type ratios only apply to: Insurance, Exterior Painting/Maintenance, and Roof Repair/Replacement.
pieces

One Monthly Dues Payment applies to Both Accounts

Simply put, the dues collected each month vary by unit type because these ratios are applied to a portion of what is collected. The dues are a single payment that reflects each unit's contribution to the fixed and variable portions of both the operating and reserve accounts. The ratios are applied when the money is collected based on the practice that when it is spent, the costs will be in line with those ratios.

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