Aging Communities

PROPER BUDGETING AND PLANNING

BEING IN THE BUSINESS for a good number of years leads one to develop experiences that can be brought to the table when working with aging communities. Those communities that were new or newer when I fi rst entered the fi eld are no longer on the far side of capital projects but very near to quite a few. The original budgets – designed to lure prospective buyers with the promise of low monthly fees and no responsibility for maintaining a yard or house – are no longer adequate. And, why not? Roofs last 30 years, siding can last “forever,” gutters never wear out, and roads need some crack sealing every couple of years, right? Well, not exactly.

THE DOWNSIDE OF KEEPING COSTS LOW

The boards who took over from the developer and maintained the “a ordable” nature of the budgets from year to year did no one any favors. Increasing fees to keep pace with infl ation at a 2% or 3% association fee increase only kept communities falling farther and farther behind. The basic 10% of those fees allocated to reserves (funds for replacing capital assets required to be replaced by the associations per their governing documents) on an inadequate budget that was an industry standard from a mortgage requirement just did not make the grade either. Some associations collected (and still do) a working capital fee for each sale that equaled two months of association fees for the units sold to go right into the capital asset reserve account. That helped. However, boards did not know what they didn’t know. Many found themselves reacting to roof leaks, failed drainage systems in the roadways and parking lots, gutters that were undersized to deal with rain runo from large, severely sloped roofs, or issues with shared HVAC systems that prematurely failed. Big increases in monthly fees and large supplemental assessments (some over $20,000 per unit) had to be implemented to meet the need.

RESERVE STUDY BENEFITS

Reserve studies give boards the information they need to make smart fi scal decisions. All capital assets are assigned a standard useful life; age of the current asset and remaining useful life of that asset are also taken into consideration to tell you when they need to be replaced, year by year, out to 30 years. The current replacement expense is documented, and an infl ation factor is assigned. In conjunction with your existing funding for reserves and balances in your reserve accounts, a savings interest rate is utilized as well to add to your funding for those expenses. The study tells you where you are now and where you need to be as each capital asset’s useful remaining life expires. You can get options for a fully funded reserve study (whereby the association is assured of having the funds they need when every asset reaches the end of its useful life), or you can get options for partially funding the replacement costs if you plan to augment the funding with special assessments or supplemental association fees. Boards can take the proper steps to be prepared for eventual expenses by aggressively funding their reserves and doing their capital asset replacements on a scheduled basis.

MANAGER ROLE AND BOARD RESPONSIBILITY Managers can utilize cyclical inspections to point out deficiencies in maintenance items (both routine operating expenses as well as capital asset costs) to team up with boards to address their fiduciary responsibilities. During manager/board “walkabouts,” point out maintenance deficiencies and prepare a follow-up on itemized inspection points that includes what the replacement of the observed deficiencies would cost, available warranties on the capital items, and whether they are still in effect or expired. To address the ongoing need for maintenance and capital repairs and replacements: l Invite a reserve specialist to discuss the value of a reserve study. l Show the board a copy of a mortgage questionnaire exhibiting the need for a reserve or “engineer” study, adequate funding for such, and how the lack of compliance can affect the sales of units and, in turn, the value of their homes. As I know all too well, when we age and our communities age, we need to replace those things that need replacing when they need to be replaced – knees, hips, and shoulders, and roofs, roads, and parking lots. Get a reserve study, stay ahead of your issues, increase your fees to a responsible level, and prepare to meet your immediate and future demands in a trustworthy fashion.