Trees - Operating expense OR Reserve component?

Everything I researched states that the Reserve account is designed to cover non-annual maintenance and repair and replacements.

We just had a new study done and, for the first time, this item shows up as a reserve component. Our current budget (and all previous ones) has a line item for tree maintenance.

I would appreciate knowing how other HOAs handle these kind of items?

From what I've seen, HOAs tend to add tree replacement to their reserves schedule as their HOA's trees age. So, when the HOA is new, trees are expected to last 30 yearsand don't meet the "30 year test" for inclusion in the reserves study. But after 10 or so years, the HOA may want to add them.

Maintenance--skirting, lacing, fertilization--would stay in the HOA's operating budget.

Linda,

Trees can go into either category.
The choice is the Boards.

However, I would not try to remove the trees from the Reserves once placed in there.

We have ours in the operating fund.
However, we also have a storm water management line item within the Reserves which the Board sees (if applicable) as being able to perform some tree work from (pruning to allow sunlight onto swales as an example).

As I wrote above, many HOAs put tree replacement in reserves once their HOA reaches a certain age. I'd say major tree removal could be either in reserves or the operating budget. Looks like your analyst put each in reserves.

Regular tree maintenance as listed above, imo, should be in the operating budget. But there's no hard & fast rule. In general though comp nets should be '15-1% of your annual budget to be in the reserves study.

Look, you have a reserves account (or two in your case) and an operating budget account. If your reserves specialist suggests there should be a tree replacement reserve component, no problem. I do wonder why you need $15k/yr. starting in '17 to replace trees. That would mean you have $450,000 worth of trees, right?

Most reserves studies would have a reserves component for fence replacement and major repairs. The operating budget would have a line item for minor fence repairs.

Your beef, as you mentioned many times now, is that your Board spends money on items from the wrong accounts. As advise before, try to get other owners unified to get rid of the Board via recall a or at your annual elections. Complaining here won't fix your problem board.

We didn't include trees on our study, but have a line item for tree and shrub maintenance, which would include planting new trees if we had to replace them. Since we've had lots and lots of problems with tree root disruption of sewer lines and expect more because our trees are coming to the end of their 40 year lifespan, we added a reserve line item for sewer line replacement.

When the trees cause other damage like roof repair or sidewalk uprooting, those repairs are covered under our common ground/common building maintenance line items on our operating budget, although we do have roof and sidewalk replacement in reserves (we're a townhouse community)

I forgot to mention that another reason I wouldn't put trees in reserves is because replacement is ever more unpredictable than, say, a roof. A tree may have a 30 year lifespan, but that could be lengthened or shortened by disease, insect infestation (emerald ash borer, anyone?), be blown down by a tornado, etc. Roofs may also fail early, but the odds of that happening are a little easier to control - not the weather, of course, but you can do regular inspections to fix small problems, such as missing shingles (failure to do so can lead to bigger and more expensive repairs down the road)

I would say, from experience, 90% of board members don't fully understand the real concept of reserves and how to read and implement a reserve study.

There are managers that will work closely with reserve analysts and some that have no involvement at all except for providing reserve funding and reserve expenses for the year. I have seen associations spent the $1500-$2000 for a comprehensive report and refuse to implement their recommendations.

As far as trees, it depends on the association and the complexity of the issue. Some have a few trees costing a couple of hundred dollars a year to maintain. There may be others that have hundreds and hundreds, some of historical values or are protected by city ordinances, such as oak trees. Because of the large expense they may place the annual trimming in a money market reserve account (readily available without penalty). The monthly maintenance goes into the operating account as a sub category under Landscaping. I might also keep annual service fee for irrigation software in the same reserve account, only to make as much interest as possible.

At the end of the day, much is just splitting hairs. I would be more concerned about board members and homeowners actually understanding how reserves and reserve studies actually work.

Have you spoken to the reserve specialist about any of this? When I was on the board, we had our specialist attend a meeting and explain how the study was done, certain things that were included (or not), what the numbers were based on, etc. Perhaps your board needs to have a special meeting (or two) where people could ask their questions.

See:

Straight Line [aka component] vs. Cash Flow Reserve Funding

Cutting Through the Fog Cash Flow vs Component
Understanding Different Methodologies


Financially, it may be easier for the wallet to replace sections of a fence over time, vs. replacing the whole fence at once.
This appears to be what your Board and Reserve specialist agreed to. This may also be required due to past history showing some sections of fence deteriorating quicker then others due to environmental conditions in that area (more shade then sun, wet ground vs dry ground, etc.).

Different opinions don't make one method right and the other wrong. It's simply a different way of looking at the issue and how to resolve it.

For example, we own our roads. We could have divided the road into sections (perhaps by street), evaluated each section on their own merit and had different replacement periods for each section. However, we chose to treat all the roads as one section. Therefore, one section that may deteriorate quicker then another (due to amount of traffic) may have more repairs or may have to wait to be replaced (milled and paved) until all streets are done. Some may not agree with this method. However, that is what we have chosen.

Tim - Thanks for the additional links.

But I disagree re the fence. It is not a big $ item (compared to other items) so there's no need to spread the cost out. I think the reserve specialist made a typo and didn't review their report before presenting it to the board. And based on prior history, the board probably didn't even look the report over. Although to be fair to them, this reserve study is very hard to look at. They show the "existing" scenario BY MONTH - so 360 lines; then the "baseline" version BY MONTH - another 360 lines. Completely unnecessary! But that is only for the General Reserves. The second study (Cluster Reserves) does the same thing: 360+360 lines. Total 1,440 lines for both studies.

And re the roads. Your process makes a lot of sense and I can understand why you do it that way. But I should clarify why I disagree with this new study. It normally wouldn't matter if they did it like you - all one pot or divided it up as they did - 25% for four consecutive years. BUT the way it's done, the Cluster homes will be hit with a %75,000 special assessment, starting 1/1/17 even though we wouldn't be in the red (by year) until 2020. The main point being that three roads were done in 10/2015 and shouldn't have to be done again until 2035 or, even say, 2030 if deterioration came sooner. For example: my alley - new in 1974 - redone in 1998 and in 2015. (24 and 17 yrs old).

Their report doesn't show the "remaining" useful life of items - it only shows the useful life and when the next work is to be done. For example the bridges have a 25 year life and are scheduled for 2027. So you can back into the #s: Last done in 2002 - currently 14 years old and 11 years remaining. I guess that fact is normally not important; but because they don't show the remaining useful life for the streets (by block/area or whatever) they are saying that all the streets need to be done 2017 thru 2020. And that just isn't true and is what is causing the special assessment.

Another point re our streets/alleys that causes me concern: the board reported at the 2014 Annual meeting that the asphalt company formulated an asphalt paving schedule. That showed that ALL the "roads" (~18)should be redone 2014 thru 2021. However, we've had major work done almost every year since 2001 (skipping 3 years) so why should some of those roads be done again? For instance, this same company billed us for asphalt work in 2007 ($49K) and again in 2008 ($54K). So with a 20 year life, these shouldn't be done again until approx. 2027 and 2028. Or to give the benefit of the doubt, maybe those needed done sooner. BUT in 2014 ($45K) and 2015 ($130K).

I think nobody is paying attention!

Correction - the report does show the remaining useful life (different section)for most components. However, the asphalt shows the remaining useful life as "varies" and that is the cause of the $75,000 special assessment.

Our HOA does it both ways, it is splitting the baby any way you look at it. In the budget sent out to each homeowner there is an itemization in the reserve study that covers landscaping maintenance in addition to a small monthly itemization that shows for "tree / shrub" replacement.

I agree, Sheila, that the tree should be in the operation expense side of the budget. We have over 1100 trees and are constantly taking inventory of the status of the trees. We pretty much know from year to year what trees have to be cut down what trees have to be replaced, and what trees should be trimmed. You cannot determine this in a reserve study and put the money away for five years to do something. Trees are a living item and need constant maintenance throughout the year. We also keep track of how many trees are cut, how many trees are replaced and not at 100%, but between 40 and 50% ratio and keeping track of what trees are damaged and or replaced by storms. This way we can adjust our annual budget, yearly determined by our inventory, past experience, and what we think is going to be required in the coming year. We currently have money in operations and reserve for trees. Our budget for this year is $93,000. Having a hard time convincing people to go to the operations side.