Community Insider Summer 2017 - Page 16

Test #3 rules out any unpredictable or random line items. A future expenditure needs to be reasonably anticipated in order to be defined and incorporated into a plan. What Components Really Belong in a Reserve Study? Test #4 rules out projects below a minimum threshold cost. It is inappropriate to clutter the Reserve budget with insignificant By Matthew Swain, RS A Reserve Study’s Component List T he Reserve Component List forms the foundation of every Reserve Study, detailing the scope and schedule of all anticipated Reserve projects. Reserve Fund Strength (also known as Percent Funded) and the Reserve Funding Plan are both calculated based on the Reserve Component List. So, it is crucial that the Component List is complete, accurate, and stable. Fortunately, what should (or should not) qualify as a Reserve budget line item is not dependent on personal preference, secret or proprietary boilerplates or some vague or unknown methodology. Rather, Reserve Component List decisions rely on a four-part test defined in National Reserve Study Standards, detailed below. expenses that are more appropriately handled in the ongoing operating budget. This threshold is normally related to the signature authority of a manager or board member (i.e., maximum dollar amount they are authorized to spend without board approval) or in the range of .5% to 1% of the Association’s annual budget. Finally, make sure your Reserve planning partner is a credentialed expert. The RS credential ensures that your Reserve professional relies on the four- part test to develop your Reserve Component List. This will ensure that the list is complete, accurate, and stable with a low probability of any overlooked components that need to be added in future years. Your Reserve Component List should include only common area expenses, with limited Useful Lives and predictable Remaining Useful Lives, with a scope of work that Matthew Swain, RS, is President of Association is above a Reserves – San Diego, LLC, minimum one of thirteen offices of the Association Reserves threshold network comprising the largest Reserve Study firm cost. in the United States. Building the Component List: National Reserve Study Standards To qualify for reserve budget funding, a component needs to pass all four of the following four tests: • Test #1: The component must be a common area maintenance responsibility • Test #2: The component must have a limited Useful Life (UL). • Test #3: The component must have a predictable Remaining Useful Life (RUL). • Test #4: The scope of work must be above a minimum threshold cost. So, what does all this mean? Component List Tests Explained Test #1 ensures that your Reserve components are not derived from a generic master checklist. Reserve line items should be established based on a thorough understanding of the Association’s common area assets and maintenance responsibilities, as defined in the association’s governing documents or a well- established Association precedent. Test #2 excludes components with “very extended lives” (i.e., life of the property) or components that can function indefinitely with only minor ongoing maintenance or repair. At Associa, COMMUNITY always comes first! Investing in a home is one of the most important decisions you can make and so is choosing a partner to help you protect your investment. Associa is the world’s largest community association management firm, serving its clients with local knowledge, national resources and comprehensive expertise. Our best-in-class technology, products and services are designed to add value to your community. From accounting services to full-scale, fully staffed management, including on-site personnel and facilities maintenance, we can help you achieve your community’s goals. Secure your community’s future by partnering with a management company that will put your community first. Contact Associa today! N.N. Jaeschke, Inc. 9610 Waples Street San Diego, CA 92121 858.550.7900 www.nnj.com The Prescott Companies 5950 La Place Court, Suite 200 Carlsbad, CA 92008 760.634.4700 www.prescottmgt.com Delivering unsurpassed management and lifestyle services to communities worldwide. 16 | SAN DIEGO COMMUNITY INSIDER | SUMMER 2017 WWW.CAI-SD.ORG