Misc. Website Items 2013 LLA Reserve Study | Page 21

INTRODUCTION

The following is a projected reserve fund analysis for non-annual items as
discussed in our report. This projection takes into consideration a long
term estimate for inflation, as well as an estimate of return on invested
reserve funds. Keep in mind that these two numbers can greatly affect the
funding levels over the years. Please evaluate our estimates and let us
know of any changes that may be desired.
The intent of this reserve fund projection is to help the Association
develop a reserve fund to provide for anticipated repair or replacements of
various system components during the next thirty years.
The capital items listed are those that are typically the responsibility of the
Association and are derived from our review of the Public Offering
Statements and conversations with members of the Association. The
Association should confirm that the items listed should be financed by the
Association reserve fund.
This projection provides the following:
An input “Worksheet” that defines all the criteria used for the
financial alternat ives, including the assumed inflation rate and rate of
return on deposited reserve funds.
An “Itemized Worksheet” that lists anticipated replacement and/or
repair items complete with estimated remaining life expectancies,
projected costs of replacement and/or repair, a frequency in years of
when these items require replacement and/or repair, and a projection
based on this frequency.
A table and graph that represent end of year balances versus capital
expenditures based on your Current Funding program and reserve
balances, and Alternatives to your current program. The provided
graphs illustrate what effects the funding methods will have over the
presented thirty year period versus the anticipated capital
expenditures. Care should be taken in analyzing the graphs due to
varying graphic scales that occur within each graph and between
graphs.
Based on our developed list of capital items and taking inflation into
account; the current general reserve funding is not adequate.
The Association should bear in mind that unanticipated expenditures can
always arise and maintenance of a significant reserve fund balance can be
viewed as a way to avoid special assessments.
We have included three alternatives to your current general reserve
funding program for general comparison. We recommend that the board
adopt an alternative that best reflects the objectives of the community:
Alternative 1: Increase the current reserve contribution level of
approximately $750,000 per year immediately (Year 2) to $1.5 million
per year. This will provide adequate reserve funding for most of the
period.