As we slide into 2012, it’s important for the boards of HOAs to take a careful look at the status of their reserve funds. By now, every HOA should have adopted a Reserve Study Policy that is required under Colorado law. C.R.S. 38-33.3-209.5(1)(b)(IX) provides that a Reserve Study Policy must include the following:

 

  1. When the association has a reserve study prepared for the portions of the community maintained, repaired, replaced, and improved by the association;
  2. Whether there is a funding plan for any work recommended by the reserve study;
  3. If the association has such a funding plan, the projected sources of funding for the work; and
  4. Whether the reserve study is based on a physical and financial analysis.

This Reserve Study Policy is an excellent tool for boards to utilize in determining whether their HOAs are appropriately planning for and funding reserves. In addition to reviewing your association’s Policy, here are some additional questions to ask:

 

● Is the funding plan in our Reserve Study Policy adequate to ensure we are prepared to handle major future repairs and replacements?

● Do we need to get real about our funding plan and commit to making appropriate contributions to reserves in 2012?

● Do we have surplus funds in our 2011 operating budget we can contribute to our reserve fund?

● Are we budgeting appropriately for operating expenses or are we routinely “borrowing” from reserves to cover these expenses?

● Do our current assessments provide us with the ability to make routine contributions to reserves? If not, are we prepared to levy a special assessment or obtain a loan to cover major repairs and replacements? 

● Have we educated our members about the importance of funding reserves?

 

During tough economic times, it’s sometimes easy to put off making tough decisions about funding reserves. However, failure to take even small incremental steps to fund reserves may ultimately result in significant future assessment increases or even a special assessment. Make 2012 the year your HOA takes on the issue of reserves!