Crown Harbor Homeowner Association
Reserve Study Committee
The monthly dues are divided between two types of expenditures.
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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
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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.
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Reserve Study
Every 3 years Crown Harbor commissions an independent company to complete a reserve study for the association.
The study is updated each year that a new one is not created.
- A reserve study includes an assessment of the condition of the existing assets (e.g. roofing, siding, street surface) and the expected remaining life of those assets.
- Based on the remaining life of each asset, a projected date as to when it needs to be replaced is determined.
- Based on a projected date of replacement, an estimated cost for replacing it (at that time) is computed.
- Based on the costs for when the various assets needs to be replaced, a profile of how much money the association will spend in future years is derived.
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The numbers in the reserve study are debatable.
Some may be too low.
Some may be too high.
The time to question these numbers is when the reserve study is received, before payment is made to the company providing the study, not in subsequent years when the reserve study is being used to craft an annual budget.
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It is not appropriate for the Board to ignore the advice of experts who craft the reserve study and substitute its own numbers.
Most associations adopt the recommendations in the reserve study itself rather than analyzing the data and forming their own plan.
For years that are between new reserve studies, the Board can substitute an estimated value for asset replacement for a known value when there is a proposal to replace the asset from a professional on hand.
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Reserve Study Review
The Reserve Study Committee takes the most recent reserve study and analyzes it for the coming year.
The goal is to make sure that the dues and assessment for the coming year are in alignment for what is recommended in the reserve study.
- The purpose of the Reserve Study Review is to have a second set of eyes look at the reserve study and make a recommendation to the Treasurer.
- The Treasurer then takes the recommendation into account when proposing a budget for the following year.
- The recommendation in the review is not automatically adopted simply based on submission to the Treasurer.
The past reviews conducted by the Reserve Study Commitee can be found on the Reserve Study Reviews page.
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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 | $1.10 | 70 |
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 | $0.29 | 360 |
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 | Rate | Per
Month | Number
of
Months |
|---|
| A | 16 | 0.009422 | $58.78 | 360 |
| B | 18 | 0.014405 | $89.96 | 360 |
| C | 12 | 0.015137 | $94.37 | 360 |
| D | 22 | 0.015191 | $94.77 | 360 |
| E | 8 | 0.009279 | $57.88 | 360 |
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.
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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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