WHY ARE WE GETTING AN INCREASE IN OUR ASSESSMENTS WHEN WE HAVE MILLIONS OF DOLLARS?
There has been a question of why we are getting this increase when we have "millions of dollars" sitting in the bank. I will try to answer this as clearly as possible.
A reserve study is done every 5 years. This study lists everything that is needed to be done to keep our community in tip-top shape and when it should be done. While the study focuses on the next five years, it actually goes out thirty years. It reflects a savings account for these items so that, when the time comes to replace an item, we have the funds available to replace them.
An example would be a water heater. If a water heater has a lifespan of ten years, and we have just replaced the heater, we would immediately start to save for the next replacement. One tenth of the projected cost of the heater would be deposited into the reserve account each year, so that at the end of ten years we would have the funds to replace it again. If an item needed to be replaced in twenty years, one twentieth of the cost would be deposited each year. It is a cycle of saving and spending so that there is never a fear of having to replace something and not having the funds to do it.
Sound familiar? Think of your home. When your water heater goes out on you, isn't it nice to know that you have money set aside to cover the cost? The reserve account is the savings that assures the community that they will not be asked to pay a special assessment if something happens and we do not have the funds.
In the past, our budgets did not reflect the amounts needed monthly to replenish the reserve account. An amount needed to keep the reserve account funded at the end of the year was usually taken from the Construction Repair fund and any excess operating funds. Unfortunately, the construction repair account has a finite amount of money in it and it has been coming down steadily as we used it to offset the amount not in our regular budget. This year we had the reserve study done and had to add the repair and replacement of fencing in the perimeter walls. This, along with a solid study done from the ground up, caused our account to be severely underfunded But, no worries, we were able to fund the account from the construction repair account, as well as finding $149,000.00 in the capitalization account, that was excess operating funds and should have been in the reserve account. Once the funds are in the reserve account, they can only be used to replace the items listed in the study, They cannot be used for operating costs. This is where most of our community millions are to be found.
When we published our budget for next year, we came up short for operating costs and the proper funding of the reserve account. Our income is primarily from our assessments. Our assessments have never been increased and yet our expenses went up every year. It was like trying to run a household budget on a paycheck from fifteen years ago. Unless you have additional income, or you can cut the expenses, you will come up short.
By getting the reserve account up to the 100% mark for the end of this year (we are actually at 105%), we are able to offset the shortfall with any extra funds we will have at the end of the year. (cutting the expenses) But we were still coming up short by approximately one hundred, twenty-two thousand dollars. To make the budget whole, we would have had to increase the assessments by $6.00 per month. We chose to make the increase $2.00 per month, in order to ease any financial burden that our more senior community members would incur. We are choosing to ease this increase by continuing to offset the potential shortfall by curtailing our spending and supplementing from excess funds and the continued use of construction repair funds.
We will need to continue increasing our assessments until we have the funds to wholly sustain the community without relying on the construction repair account. This is an account that has no funds going into it. When it is gone, it is gone. By having an accurate budget and by spending wisely, we hope to ease into a balance of increases that will not cripple our community members, but will be able to sustain our community and increase the value of our homes, while maintaining the quality of life we experience here.