by Guy Scharf ✉ Email
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In 2015, the Board committed to a professionally prepared reserve fund analysis to guide us on our upcoming major road maintenance and replacement expenses. The Board increased homeowner dues to fund these and other major expenses that we anticipated. In 2017, the Board updated the reserve fund analysis to reflect improved estimates of when work would need to be done and changing costs.
How well have we managed our reserve fund and expenses?
We began 2016 with $213,979 in our reserve fund. In 2016 and 2017 we spent $280,000 on roads, yet have been able to begin 2018 with $424,000 in our reserve fund. We expect continued large expenses over the next several years and that the reserve fund will grow only slowly.
Reserve fund standards use a figure called the Fully Funded Balance to evaluate how well funded an association’s reserve fund is. At the beginning of 2016, our reserves were funded at only 24%–considered as a weak funding level. Now in 2018 we are 42% funded—a fair funding level. Our goal is to have a strong reserve fund with 70% to 100% funded. It will take us ten years to reach that goal.
Our reserve plan acknowledges that prices increase over time. National forecasts are that cost of living will increase between 2% and 3% annually for the next decade or so. We assume 3% for planning purposes.
For all of the details on the reserve fund and our funding plan, please see the articles on the smve.org website.
Future Dues
As inflation increases our reserve and operating expenses, dues will need to keep pace. Rather than waiting until an increase is desperately needed and then imposing a large increase in dues, the Board thinks that small annual increases are preferable. We expect to begin those increases in 2020. If our estimates for inflationary growth in expenses are correct, we would expect an increase between 2% and 3%. Any increase for 2020 will be announced at the 2019 annual meeting.