RDA prepared reserve studies begin with a comprehensive analysis of the client’s operating guidelines and other governing documents to determine the extent of the client’s maintenance and reserve responsibilities. During an on site inspection, we complete a detailed inventory of all assets for which the client is responsible.
Using localized cost guides, economic and investment parameters and our detailed inventory of the client’s assets, we produce a complete reserve analysis study which includes detail reports for each asset, a summary of assets by category, a distribution of reserves report, a required monthly contribution report and thirty-year projections.
The determination of whether an expense should be labeled an operational expense, a reserve expense, or excluded altogether from a budget is sometimes subjective. Since this labeling may have a major impact on the financial plans of the association, subjective determinations should be minimized.
We suggest the following guidelines:
“Operational Expenses” and “Operational Budget” shall be defined as expenses, which are identified by the Board of Directors, as occurring on an annual or greater frequency, no matter the size of the expense, and are considered by the Board to be effectively budgeted for on an annual basis. They are characterized as being reasonably predictable both in terms of frequency and cost.
Operational expenses normally include all minor expenses which would not otherwise adversely affect an operational budget from one year to the next.
“Reserve Expenses” and “Reserve Budget” shall be defined as expenses, which are identified by the Board of Directors, as major expenses which occur other than annually and which are budgeted for in advance in order to provide the necessary funds in time for their occurrence. Reserve expenses are reasonably predictable both in terms of frequency and cost, however, the may include significant components which have an indeterminable but potential liability to the development and which may be demonstrated as a likely occurrence. They are expenses, that when incurred, would have a significant effect on the smooth operation of the budgetary process from one year to the next if they were not reserved for in advance.
Reserve budgets for associations normally do not include repairs or replacements of assets which are deemed to have an estimated useful life equal to or exceeding the estimated useful life of the facility or development itself, or exceeding the legal life of the development as defined in an association’s governing documents. Also excluded are insignificant expenses which may be covered either by an operating or reserve contingency, or otherwise in a general maintenance fund. Costs which are caused by acts of God, accidents or other occurrences which are more properly insured for, rather than reserved for, are also normally excluded.