Require 3% contribution of Reserves in CC&Rs?

We're (again) discussion rewriting our original 15 y.o. CC&Rs. Each of us 7 directors has submitted a list of revisions we'd like to see for discussion at our next open board meeting.

Two directors suggest that we have a required minimum of a 3% increase every year to the contributions to reserves. For example, we currently contribute $53,800 a month to reserves. That would automatically increase 3% next year.

I have thought this through, but am concerned that we may create hardships or encounter some other unforeseen events that make this requirement a problem.

Opinions???

The amount contributed to reserves should be based on the reserve study.

It would be better to specify that a study be done every 5 years and that the Reserves are fully funded.

Tim suggested a CC&R amendment requiring that our reserves be fully, i.e, 100% funded. All reserves analysts recommend 70-100% funded, but only 30% of USA (or is it CA) HOAs achieve that goal.

I think placing a fully-funded requirement is just a constraining as a 3% annual increase requirement. I guess I worry about future Boards having the flexibility to act concerning our finances.

I tired previously to get on to Steve's program, Richard, and was unable to. Reserve studies are required every three years in CA HOAs, right?, and we have a study done every year with a certified analyst whose firm is recognized nationwide and cited in the field.

Four of our 7 directors now have a strong grasp of our reserves studies and one other a decent grasp. Of our 80 reserves components, now are all (except one) correctly stated and their remaining useful lives and replacement costs (one possible exception here) are accurate.

The two exceptions are BIG items, $750,000 --major elevator repairs in our 4 high rise elevators in 4 years. I need to learn if there's going to be that much all at one time in 4 or so years, or if various elevators parts can be replaced over time, or ??? The other is $500,000. to replace very single one of our 7,000 window glass panes.

We're about 65% funded at present which is a huge improvement over 42% funded a couple of years ago.

I think it's a stupid Idea too, Richard to have this nearly etched in stone in our CC&Rs. But I still don't quite get WHY it's stupid. any elaboration from you or others would be great!

I purchased Steve's program as I use it for my clients. I downloaded all the free versions and updates without any difficulty.

In your case, a reserve study working in conjunction with an building engineer should be required. I have no idea how much is in your reserve account(s), but if you had a $1M, it could be laddered in CD that should earn at least 2%, which would give you $20K annual in interest. According to your numbers, $19,200 would b e 3%. Up until 2007, my former HOA averaged $40K interest on their $1M.

There is a lot to understand in handling reserves for some HOA's that require outside help, other than Board members and Reserve companies.

Oh, I entirely agree there's a lot to reserve studies to comprehend. Even moreso in our HOA as we have three reserves accounts for 3 "entities" within our HOA. All Owners contribute to one, the two others only get contributions from certain owners.

We have several investment accounts that are laddered. We have close to $4m in reserves. We also have about $300k in a construction defect settlement account for our remaining defects--all are reserve items, e.g. certain roofs are being replaced now with some of these funds.

As i said above, with a couple of exceptions, my opinion is that our components are correctly identified, etc. It has taken a long time to get them listed correctly and in the correct reserves "entity" and most of the footwork was mine AS SUPPORTED by our chief building engineer.

So....again, Richard, why is specifying a certain % as a requirement in our CC&Rs "stupid?"

WE DO have a nice surplus in our operational budget this year. We could hire the kind of expert you refer to. But what are they called? Forensic reserves analysts, or???

I don't see an answer to my question, Richard: You stated it'd be "stupid" to build a specific required amount in contribution to reserves each year or month.

The interest we're earning on our reserves accounts is just fine. I don't see how that fits my question.

Our building engineer and PM keep our reserves analyst up to date when we repair or replace reserve components. These are re-set annually.

But what do you mean here, Richard? "In addition, a reserve study will have a higher than normal funding plan." What does "higher than normal" mean?

The reason it is "stupid" is your association is already getting a 6% increase JUST on the minimum interest your reserve account should be earning.

None of us have access to your reserve study(s), your balance sheet, income statement or CCRs. With those documents I could give a better analysis of your reserve situation, as well as correct assessments for each unit.