GM Report — Change to Replacement Reserve Fund Rules
March 1, 2018
Replacement Reserve Fund Rule Change:
At the February 27 Board Meeting the Board approved changes to the Rules regarding the Association's Reserve Funds which will be published for Membership review prior to final Board approval. The primary purpose of these changes to the Rules is to simplify accounting and reporting of the Reserve Fund and to have one Reserve Fund which is common among the vast majority of homeowners associations.
In case you're not familiar with the purpose of a Reserve Fund, it's important to provide a very basic explanation.
Simply put,a Reserve Fund is a savings account for the purpose of repair and replacement of the Association's major components. LWA has defined major components as items that cost $2,500 or more and have an estimated life of more than a year. For example, a truck that the Association owns may have cost $25,000 and it isestimated that it will last 10 years. In this case, $2,500 plus an inflation factor would be placed in the Reserve Fund each year so that in 10 years the truck may be replaced if needed.
Now, let's look at how these proposed Rule changes come about. When I took the position of LWA GM, one of the first unusual things I noticed is that the Association had two Reserve Funds, one called a Capitalized Fund and another called a Non-Capitalized Fund. Since I had never dealt with two Funds such as this during 38 years of managing communities, I inquired as to why these Funds existed and if they were needed. Consultation with the Association's legal counsel indicated that there is no legal reason why LWA would be required to have two Reserve Funds. When I asked the Association's CPA about this situation, he informed me that the two Reserve Funds were established for tax purposes when application was made for the Association to be a 501(c)(4) corporation. However, after reviewing the need for the two Funds and consulting with his associate who is a CPA tax expert, he advised that there is no longer a need for the two Funds and that the major components that are included in the two Funds may be consolidatd into one Fund. As a result of this professional advice from both the Association's legal counsel and the Association's CPA, I made proposed changes to the Rules that were taken to the Finance Committee for review. The Finance Committee agreed that the Rule changes should be brought to the Board for consideration which brings us to the Board action taken earlier this week.
Clearly a Reserve Fund is a simple concept that is a very responsible way for a community such as Lake Wildwood to be prepared for repair and replacement of assets that are valued at $2,500 to a few million dollars. By keeping the accounting and reporting of the Reserve Fund as simple as possible in one Fund, the Association is being as transparent as possible and the Membershipis more clearly apprised of the Association's assets and Funds.
2018/19 Association Budget:
Over the past several weeks, four open meetings were held at which time the proposed Budget was presented to the Finance Committee and any interested Association Members. As a result of these presentations and discussions, the Finance Committee and I have submitted a proposed Budget to the Board of Directors for consideration and approval. Due to several factors including but not limited to increases in utilities, lake testing as a result of the E. coli issue, labor costs, security contract increases, a negative prior year carry-over, a special assessment to complete the next phases of Unit 4 culverts and a need to improve the Reserve Fund balance, the proposed Budget reflects an increase of approximately 9%. On March 6 at 1:30 in the Clubhouse Cedar Room, the Board will review the Budget, possibly make changes,and approve the Budget for publication and review by the Membership. After the Budget is published the Board will review the Budget again and discuss any input from the Membership at the March 27 Board Meeting. The Board with then give final approval of the Budget, or if unable to take action on March 27, will give final Budget approval at a Special Board Meeting on April 3.
BY BOB MARIANI
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