By Larry Helseth, Chair of Replacement Fund Sub-Committee
As published in The View, January 2022:
Results of 2022 Reserve Study
Our 2022 Level 3 Reserve Study was completed in October 2021, and you can review it on the SCSH website (124 pages). It meets all the requirements set forth in the Davis-Stirling CID Act, Civil Code sections 5550 through 5580.
The reserve study is a long-term capital budget planning tool for the common area assets called components and includes a 30-year Funding Plan to repair, replace, restore, or maintain the components.
There are approximately 700 major component types in the study. Some examples are: access gates, fountains, asphalt and concrete, fences, irrigation controllers, mailboxes, street poles, roofs, HVCA units, restaurant equipment, golf carts, lake liners, ceiling lights, fitness equipment, mowers, patio chairs, trucks, awnings, carpeting, pool heaters, plus tennis and pickleball courts, just to name a few items. Each component has a quantity, measurement unit, estimated life, remaining useful life, basis cost, current replacement cost, future replacement cost, straight line depreciation allocation, and a 100% funded level at beginning of the study year.
|Current replacement cost of components, note 4||35,743,196||35,117,247|
|Replacement fund balance, beginning of year (Cash in Bank)||14,054,829||13,343,219|
|Fully funded balance, beginning of year, note 1||18,166,159||17,321,131|
|Projected cash expenditures, current year||3,267,670||3,351,878|
|Percent funded, beginning of year, note 2||77.37%||77.03%|
|Average replacement fund deficit per homeowner unit||1,192||1,153|
|Monthly Replacement fund assessment||$51.23||$49.26|
|Percent of total budget allocated to reserves, note 3||16.6%||16.1%|
|Construction cost inflation rate||5.0%||3.0%|
|Return on investment rate||3.12%||2.25%|
|Income tax rate (Federal and State of CA)||28.11%||28.11%|
|Contribution percent needed in future years||6.63%||4.50%|
- Accrued depreciation is calculated for each reserve component, then summed together for a total dollar value that represents 100% funded.
- Dividing replacement fund balance by fully funded balance equals percent funded. Above 70% is considered a strong position for size and age of our association.
- The percent of assessment allocated to the reserves should be around 20% of the operating budget. Fannie Mae and the Federal Housing Administration require a minimum of 10% of the total budget be dedicated to reserve contributions.
- The three largest component categories are: Golf, 42.0%; Asphalt, 26.9%; and Clubhouse Buildings, 11.5%. All other components account for the remaining 19.6%.
FAC Members: Larry Anderson and Larry Helseth, Co-Chairs; Zerryl Becker, Bob Jester, Jerry Cavoretto, Mike Whelan, Mike Nilsson, Todd Murphy, Ed Levine. FAC Sub-committee Members for the Replacement Fund and Reserve Study: Chris Stevens, Don Salvatore, Mike Whelan, Bob Jester, and Zerryl Becker.
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