Working Capital v. Capital Reserve

Quick Question and thank you, in advance, for any help:

If a retention pond (common element) needs to be completely rebuilt (could be $30,000-$50,000) should the payment come from the working capital fund or can it be taken from the capital reserve fund? Our reserve study allows for dredging of the ponds but says nothing about a rebuild. Thank you!

Sounds like a number too large to fit into the current years ops budget - is your working capital the same as current year operations?

This is exactly the reason for reserve funds, and comprehensive reserve studies.

Rebuild can mean a lot of things.

To substantiate the cost of rebuilding, I would move funds required to the reserve fund, to leave an audit path.

Maybe even discus removal of the retention pond thus no more maintenance.

It's a capital asset (meaning useful life longer than one year). I suggest the board pay for the rebuild out of the reserve fund. Then the board should see if it can possibly put a little more into the reserve fund from its operating budget in the next year or so, by cutting operating expenses. If the reserve fund is not healthy, an assessment increase or special assessment ought to be considered. Else I am with George on maintaining the retention pond (to say the least). It's just about guaranteed that the city where this HOA is regulates drainage. When the development where the HOA sits was first built, the City's land use department likely approved drainage including the retention pond. The HOA cannot just eliminate the retention pond without risking liability to others when flooding happens and getting tagged with a violation from the city.

For the next reserve study, and like Tim wrote, change the line item on retention ponds to include dredging and a complete rebuild every __ years.

Sheesh.

Steve - I’d probably leave this one to the on site engineers. Maybe make that sort of recommendation - to work with local engineering staff to understand why the pond is there?

Steve,

Retention ponds are typically required by the EPA to manage storm water and sediment.
Failure to properly maintain (much less completely remove) such a pond would result in major fines from the EPA.

Better yet, contact the local branch of government that deals with storm water and ask how best to address the issue.

Peg,
This sounds fishy to me as other have pointed out. A retention pond is really just a low lying part of the development that is used for runoff of excess water from storm drains. I have never heard of rebuilding this are before. I can understand dredging possibly but rebuilding seems like someone trying to use scary words on a Board. You really need to get at least 3 other vendors out to give bids on what the Pond needs. Give them no information from any sources that may not be accurate.

Over my 10+ years of being on Boards and 39 years in business before retiring recently I have noticed that some Property Managers and Boards are ripe for Bad contractors to pray on them. You have a terrible combination of a PMC that is trying to get tasks done and use the same vendors over and over with very little oversight. Oversight takes time and Knowledge of many areas and expertise. Then you have HOA Boards made up of people that have in many cases less experience than the PMs and take their suggestions without many challenges. Both parties are spending "Other Peoples Money" so as long as they have it they take the easiest path. Contractors know when they are bidding on jobs who the customer is and what they will except. This may sound skeptical but I have seen it time after time. They need to be challenged.

George,
The areas you are describing seems like City infrastructure more than HOA assets or Liabilities. If in fact they were installed and are maintained by the HOA the Reservist who did the first Study should have estimated the Life span and repair costs for all of the component's. It would still be doubtful that it would ever need to be fully rebuilt.

As usual we are left to speculate with only the information we are provided.

I'm in a state where flooding from storm water is a problem certain times of the year. Not like Florida, but still, lots of damage has been occurring with the larger storms in the last few years. To get a new subdivision's drainage plan approved by the city where I am is a huge but necessary bureaucratic endeavor. A HOA cannot just put down significant additional impermeable surface (for, say, additional parking) without completing a long application, including engineering studies. I spoke with some civic-active relatives in Illinois about this, commenting about how stormwater is heavily regulated where I am. My relatives responded: 'It comes up all the time in our Illinois city as well, with the land use department. Whenever new pavement is laid, problems with drainage often arise.'

Here's a small town in Pennsylvania with a 90 page stormwater management ordinance:
http://www.westpikeland.com/wp-content/uploads/Stormwater_Ordinance.pdf . Then evidently there's Pennsylvania's Storm Water Management Act of 1978, https://www.legis.state.pa.us/cfdocs/legis/li/uconsCheck.cfm?yr=1978&sessInd=0&act=167, requiring cities to set up programs and ordinances for storm water management or else.

Yada yada. The OP should find out what its obligations are with regard to the retention pond, to stay informed and so his Board can explain why they have to maintain the pond (if it is not already obvious).