DRCA Assets Management – Funding Reserves

During the budgeting process each year, I’m often asked about our Capital Reserve Account. Members of the Desert Ridge Community Association (DRCA) review our budget and find that nearly $2,000,000 has been set aside for future repairs and maintenance of our community. They rightfully ask why so much money has been saved and how we determined the level the account should be funded. They understand that if too little is saved for future repairs and improvements, a special assessment will be needed—and no one likes to get an unexpected bill.

The key to correctly funding the reserve account is a tool called the reserve study. Reserve studies are important budget planning and disclosure documents prepared to help the association’s board meet their responsibility to care and protect the assets of the association. They require an evaluation of the current physical assets of the association, and a projection forward of the ongoing useable life and their deterioration. The reserve study also considers how these assets will be funded, so income, contributions, inflation and other expenses are also included.

In its most basic form, the reserve study is simply a form of long-term capital budgeting. Many of the association’s common area assets are so large that the association needs many years to save for those expenses, so the expected amounts needed and their timing becomes critical. Done correctly, the goal of the reserve study is to predict yearly costs and allow time for the funds needed to be set aside, avoiding a special assessment of the membership. This information quickly becomes outdated, and needs to be updated at least annually.

Many states require reserve studies to be updated on a regular basis, with the most common being states that require updates based on a visual site inspection every third year or every fifth year. Many industry experts advocate an annual update or inspection. At Desert Ridge our association has a reserve study prepared every year, with a detailed, on site inspection every third year.

According to industry experts, Reserve Associates, associations who update their reserve study every five years enjoy a 35.1% decrease in special assessments, when they shift to updating their reserve study annually. Associations who update their reserve study every three years enjoy a 28.5% decrease in special assessments when they shift to updating their reserve study annually.

Our DRCA board is proud of our financial track record. Since the association was turned over from developer control in 2003, we have NEVER had an increase in association semi-annual fees. What other expense have you had that hasn’t increased in the last 15 years?

Additionally, we have NEVER had a special assessment of our membership. In fact we’ve had just the opposite! In years where we had additional funds, we’ve rebated them back to our members, totally nearly $250,000. Most importantly, our reserve funds are over $2,000,000 which is currently at 112% of the 100% funding level recommended by the reserve study, ensuring our community is well funded and that the risk for a special assessment is very low.

Desert Ridge is a special community with wonderful neighbors. Our Board works extremely hard to ensure that our community is well maintained and financially sound. We appreciate your continued support and I look forward to seeing you in this wonderful community.

Doug Dickson
President
Desert Ridge Community Association