Having a Long-Range Reserve Plan is an Important Part of an Association’s Budget

Dec 20, 2010 By Shaun Marker Condominium Associations

It is very important for homeowner and condominium associations to have budgets with adequate reserves for necessary maintenance repairs to association property. Association board members and property managers may be interested in the Association of Professional Reserve Analysts (“APRA”). APRA is a non-profit corporation established to maintain an understanding of reserve planning and increase awareness in this field. APRA maintains a bimonthly publication with various articles of interest that contain beneficial information for board members and property managers involved in the budgeting of their associations.

APRA recently discussed some of the common problems with some association’s budgets. There is the “head in sand plan” where associations will often mimic the budget from last year and apply it in the current year. The thought process behind this tactic seems to be the view that if it worked then and we got through it, it will work again this year. APRA also mentions the “wrist slashing plan” which is where last year’s budget is taken, and realizing that since certain costs have gone up, unnecessary costs are eliminated, like the irrigation expense.

The problem with these approaches is that they stem from a lack of a foundation and a lack of a solid budgeting plan. On their website, www.apra-usa.com, a real example is given of a horrific story of a homeowners’ association needing major maintenance repairs, but having inadequate reserves and no action plan.

With appropriate detail in the budget to identify significant costs for preventative maintenance, rather than reactive, the association is off to a solid start. The association can follow a reserve plan with long-range schedules and funding mechanisms in place for future repairs, like a thirty year projection with a monthly funding plan.

Money is the “lifeblood” of a homeowners’ association and in community living. The importance of maintaining adequate reserves through appropriate planning and budgeting cannot be understated. Board members and property managers of associations should consider checking out the articles and bimonthly publication of APRA to share ideas on appropriate budgeting and reserve planning with professional reserve analysts.

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