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Crown Harbor Homeowner Association

Reserve Study from 2017

The reserve study update from 2017 will be used to set the dues for 2018.

reserve study
Reserve
Study
Update
of
2017

Findings from the Reserve Study Review

The Reserve Study Committee started with a report that depicts income, expenses, and their effects on the reserve account.
  • For 2017, the amount transferred from the operating account to the reserve account is $166,914 ($13,909.50 per month for 12 months).

  • Based on this reserve study update, for 2018, the revision 1 of the reserve study recommends that the amount transferred from the operating account to the reserve account be increased to $183,605 ($15,300.42 per month for 12 months). This is a 10% increase.

  • The annual dues are set based on funding the operating account and replenishing the reserve account. So the new dues amount cannot be known until the 2018 budget is approved; however, increasing the contribution to the reserve account from $166,914 to $183,605 (as recommended by the reserve study from Associa) has the following impact on dues:

    Unit
    Type
    FIXED
    Portion
    Change
    VARIABLE
    Portion
    Change
    Net
    Increase
    A+$8.84+$6.78+$15.62
    B+$8.84+$10.36+$19.20
    C+$8.84+$10.88+$19.72
    D+$8.84+$10.92+$19.76
    E+$8.84+$6.67+$15.51

    This is a work in progress. The dues increases were computed by keeping the operating budget for 2018 the same as 2017 and only changing the reserve amounts. This had the effect of changing the annual contribution from the operating account to the reserve account and the ratio of money that is FIXED (same amount for all units) and VARIABLE (based on unit type).

    • From the 2016 reserve study update, the total funds to replace everything was estimated at $2,890,928. Of that cost, $1,401,100 (48.47%) was for items where the costs are shared equally among all 76 units. The remaining $1,489,828 (51.53%) was for items where the costs vary by unit type with larger units paying more than smaller units.

    • From the 2017 reserve study update, the total funds to replace everything was estimated at $3,133,312. This is an increase of $242,384 (8.38%). Of that cost, $1,518,118 (48.45%) was for items where the costs are shared equally among all 76 units. The remaining $1,615,194 (51.55%) was for items where the costs vary by unit type with larger units paying more than smaller units.

    These percentages impact how the dues to fund the monthly transfer from operating to reserve are calculated. This is captured in reserve_study_analysis2017v3.xlsx.

  • The balance in the special assessment reserve account ($356,562.83) was collected specifically for roofing. As such, 100% of the money was collected using the VARIABLE formula where Owners contributed based on unit type. If the Association wanted to convert this money to a general fund (48.45% FIXED, 51.55% VARIABLE), it could do so by adjusting the dues for one year.

    Unit
    Type
    FIXED
    Portion
    Change
    VARIABLE
    Portion
    Change
    Net
    Change
    A+$211.73-$138.50+$73.23
    B+$211.73-$211.75-$0.02
    C+$211.73-$222.51-$10.78
    D+$211.73-$223.31-$11.58
    E+$211.73-$136.40+$75.33

    This is equivalent to counting the special assessment payments as dues payments to the VARIABLE portion of the operating account. In other words, the Owners of larger units pay less than normal because they already contributed more to create the special assessment funds.

balance

How much to fund?

  • This latest reverse study forecasts 30 years of expenses.

  • This reserve study calculates that the reserve account is only 40% funded.

  • If a reserve account if 100% funded, there would never be a future need for a special assessment because all of the necessary money is collected over the years.

  • Banks look at reserve account balances. If a reserve account is too under-funded, they turn down loan applicants because they fear the applicant will be hit with a large special assessment and not be able to pay both the special assessment and the loan payment. This can affect property values.

  • Even though banks look at reserve account balances, potential buyers rarely do. Instead, potential buyers look at how much the dues are. So the goal is to set the dues high enough to collect enough money to fund the reserve account to satisfy banks, yet not so high that potential buyers are scared off by overly high monthly dues. The task is to find the right balance. Funding the reserve account sufficiently minimizes the sizes of special assessments for all Owners.

  • The current plan increases the funding level to a peak of 63% by 2043. It is not a drastic plan to make the account 100% funded.

questions

Questions and Answers

Here are some questions that arose during the evaluation of reserve study. The answers were provided by John E. Ceragioli, Director of Community Solutions, Associa Reserve Studies.
  • Q: Does the Reserve Fund Cash Balance on page 7 include the amounts from the "regular reserve" and the "special roofing assessment reserve" accounts?

    A: It only accounts for the monies in the regular reserves. If this is in error, please let me know and I will revise the study.

    Sheri Carmichael noted that the first draft of the reserve study already included the additional reserve account that has at least $356,562.83. The current total for all reserve accounts is $476,584.22.

  • Q: What is the basis for line item 12 (the second one), Asphalt Replacement for PATHS, increasing by $41,456 (a 28.57% increase)?

    A: We have seen big increases across the board on asphalt work this year, hence the projected cost increases in the reserve study.

  • Q: Our project to replace our irrigation with drip and drought resistant plants, line items 57-59, have all been increased to $116,438. Is that how much we spent on the project in 2017?

    A: Yes, that is how much you actually spent in 2017.

  • Q: The 2016 study had one trash receptacle line item for $1,050. Line items 62-63 now have 2 trash receptacles at $4,174 each. I know Crown Harbor has 2 cans, but can a trash can really cost that much? Though this does not impact the contribution to the reserve account, this excessive amount affects how fully funded we are.

    A: That is how much you spent to replace one receptacle in 2017.

  • Q: What is the basis for line item 73, Composite Shingle (Sloped) Roof, increasing by $77,144 (a 12.74% increase)?

    A: We have seen big increases across the board in the cost of roofing this year, hence the projected cost increases in the reserve study.

  • Q: Line item 82, Balcony Repair Allowance, was $5,250. Now it's $17,430. That's an increase of $12,180 (a whopping 232% increase). Is this correct?

    A: This is based on the costs you incurred on the repair of one balcony in 2017. It is a reasonable assumption that the remainder are going to cost similar amounts.

  • Q: What is the basis for line item 92, Painting Wood Siding/Trim, increasing by $61,735 (a 35.29% increase)?

    A: We have seen big increases across the board in the cost of painting this year, hence the projected cost increases in the study. It appears as if the big increases in asphalt, painting and roofing are being caused by a few factors. Certainly material costs have gone up, but so too have labor costs. I would assume that since the minimum wage increases in the area went into effect, this is one factor, and also I would assume that the current political climate against immigrant workers has lessened the employment pool, causing wages to go up.

  • Q: From the 2016 reserve study update, the total funds to replace everything was estimated at $2,890,928. From the 2017 reserve study update, the total funds to replace everything was estimated at $3,133,312. This is an increase of $242,384 (8.38%). If the grand total to cover everything increased by 8.38%, shouldn't we have a reserve contribution increase of 8.38% instead of the recommended 10%?

    A: There is no correlation between the total value of the components and the recommended reserve contribution. Even with the 10% increase, Crown Harbor's percent funded calculation is barely adequate throughout the 30 years, without the 10% increase, the percent funded calculation drops to 12% in year 27, which is not acceptable.

  • Q: Is cost of next roof replacement for a total tear off or just an overlay? We only need an overlay on the shingles/slanted roof.

    A: On the flat roofs, they cannot be overlaid, only replaced and/or repaired. On the sloped roofs, the cost advantage for overlay is minimal.

  • Q: Is there any allowance or line item for the required sewer lateral testing? We'll need it.

    A: We do not have the sewer lateral testing in the reserve study. However, there is enough of a "factor of safety" built into the study that the association should be able to pressure and camera test the laterals next year without any adverse financial effects. However, if the association needs to replace their laterals (as my HOA is being required to do), a Special Assessment may/will be necessary.

  • Q: Our latest Crown Harbor study shows the useful life of exterior paint as 6 years. This means that we paint the complex 5 times over a 30-year period. We were expecting paint to last 10 years so that we would only have to paint 3 times. Hasn't paint technology improved over the years and now lasts longer than 6 years?

    A: Painting on wood surfaces needs to be every 6 years maximum. The State of California says the "standard of care" is 6 years, so this is the number Associa has to use in the reserve study. Also, based on the seminars Associa has attended this year on Painting, 6 years may actually be too long.

  • Q: The board has decided not to find the 2nd and 3rd phases of the conversion from irrigation to drip. If we remove these two items from our study, what would be the impact on our monthly contribution from operating to reserve?

    A: I have created a reserve study that removes the funding for the front yard irrigation improvements. The removal of those two components made no difference in the future funding (nor the funding increase for this year). I think the board is making a mistake not funding this vital improvement. First, it is going to save the association money in water costs over time and secondly, it is likely going to be mandated by the State of California as part of the Water Efficient Landscape Ordinance.

    Reply: For our immediate purposes, at least we know that our 2018 reserve fund contribution stays the same. What the former Treasurer liked about the plan is that we did the conversion now and then all paid about $10 a month to cover it over the next 30 years. Enjoy now. Pay later. This is the exact opposite of what we did with the roofs. Pay now. Roofs good for 25 years.


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