Budgeting or Bologna
All knowledgeable and well run Community Board of Directors work within established budgets to operate and maintain their respective Communities. Budgets are established to insure fiscal responsibility on behalf the Community’s residents to take care of their common elements (Pools, Roofs, Landscape, Roads, etc.). These budgets are reviewed and adjusted periodically based on current conditions, changes in economic conditions, and other factors that impact the ability to manage these components. The question is “where do these budgets come from and how are they derived”? The answer varies; however, the majority of budgeting is obtained from “Reserve Studies” completed by companies that only do Reserve Studies. Wikipedia defines Reserve Studies as “a long-term capital budget planning tool which identifies the current status of the reserve fund and a stable and equitable funding plan to offset ongoing deterioration resulting in sufficient funds when those anticipated major common area expenditures actually occur.” The key here to the success of any reserve plan is the key portion of that definition, “stable and equitable funding plan”. It has been my experience in the almost 10 years that I have been working with Homeowners Associations that most do not have a “stable and equitable” plan for “anticipated expenditures”, more specifically pavement expenditures. What is important to note here is that a “Reserve Study” is a “study” on how to handle capital expenditures. It is not intended to be a document to rely on with regard to determining what those expenditures are. In fact, most (if not all) reserve studies claim as much. They want their clients to know that they are not “technical experts”. For example; if a Community’s roofs are in need of repair, the reserves will have assigned some cost to addressing roof repair; however, they are not claiming that the cost budgeted is appropriate to repair roofs. That is up to a Roofing Expert.