Are my dues going up in 2021?
If the budget is approved, dues will not increase. Budgeted dues for 2021 are $144.31 per lot for developed lots, the same as 2020.
If the budget is rejected the 2020 budget and dues will prevail, with one exception. The Recreation Special Assessment mandated a 3% increase from 2020 to 2021, the proposed budget compensates for this by reducing operating dues to keep the number flat. The overall dues could be increased by 33 cents per lot, per month, if the proposed budget is rejected.
What is a Reserve Study?
A Reserve Study is made up of two parts:
- The information about the physical status and repair/replacement cost of the major common area components the association is obligated to maintain. This is called the Physical Analysis.
- The evaluation and analysis of the association’s Reserve balance, income, and expenses. This is the Financial Analysis.
The Physical Analysis is comprised of the Component Inventory, Condition Assessment, and Life & Valuation Estimates. The Component Inventory should be relatively stable over the years, while the Condition Assessment and Life & Valuation Estimates will necessarily change from year to year.
The Financial Analysis is made up of a finding of the client’s current Reserve Fund Status, which is measured in cash or as Percent Funded, and a recommendation for an appropriate Reserve contribution rate, the Funding Plan.
How is Reserve Funding Calculated?
There are two methodologies for calculating funding of the Reserve Study:
Baseline Funding means establishing a funding objective of keeping the reserve cash balance above zero, meaning that a reserve account balance should collect enough funding to at least pay for the assets that are scheduled to be replaced in any given year.
Full Funding is a conservative alternative, where the objective in any year is to have a reserve balance equal to the value of deterioration of the assets. When that target balance is met, the association is described as “fully funded” or “100% funded”. For example, if a particular asset with a useful life of ten years needs to be replaced in ten years’ time, then in order to be fully funded, 10% of the cost of the asset should be set aside each year so that in ten years’ time, the reserve balance will have accumulated the necessary funds in order to pay for the replacement asset.
Where does Reserve Study data come from? How is it updated and how often?
The initial Reserve Study includes a Level I, or “Full”, Reserve Study. The provider of the study (in our case, Schwindt & Co.) performs a site visit and considers all aspects of the study. This includes considering whether all components are included by reference to governing documents and the complete inspection of the property, cost of assets, useful life, and funding schedule. This is the most comprehensive study.
Subsequent reserve studies update the initial study and may include a site visit to determine if any abnormal changes have occurred and updates the study as to beginning cash balance, costs, lives, and funding schedule. This is known as a Level II study, which was the level done for Sudden Valley in 2020. The 2020 study did include a site visit.
Each year, we send our Reserve Study consultant updates based on projects that have been completed, assets that have been retired, and any new assets acquired. All of this information is factored into the recommended long-term funding plan.
How does the Reserve Study impact our Dues?
The study is a tool used to determine if our funding can properly maintain our infrastructure and amenities, but it doesn’t determine dues.
Washington state RCW 64.90 requires that we keep the Reserve Study current and share with the Membership the surplus or deficiency of funding on a per unit basis. Essentially, we need to show where we are in relation to the 100% funded goal each year.
We use a spending plan to determine the amount of funding necessary to complete projects according to what is listed in the Reserve Study and compare against our current contribution for capital dues. The spending plan for Roads and CRRRF can be found in the budget documents.
The biggest difference between the Reserve Study and the spending plan is that the spending plan does not include the replacement of the maintenance building in 2021 or Barn 8 in 2022 but rather assumes those will be completed at a later date once the community has had more time to provide input on a final plan.
Where did the $400/mo. Dues projection come from? Was that based on a Reserve Study?
The 2019 AGM ballot booklet included a ten year projection of capital spending requirements that showed a “what if” scenario. If that Reserve Study were followed exactly, and all projects were paid for out of dues in the year they were listed, then the projection showed that dues could go as high as $387.22 for the year 2022.
That assumption wasn’t intended to show a future plan. If and when SVCA is ready to pursue some of these larger projects, the Board will likely explore funding options such as a loan to extend the cost over a longer period.
The budget documents include a more realistic idea of what dues may look like over the next few years and assumes that larger projects will be covered by a Special Assessment. Regardless of what future Boards determine priorities to be, the terms of the dues limit bylaw which passed in September of 2019 will remain in effect.
How is the collections rate calculated?
We calculate the collection rate based on dues revenue received divided by dues revenue assessed for a given time period. The 2021 budgeted collection rate is set at 95% and is based on historical collection rates.
Historical rates are as follows:
- YTD 2020 (as of September 31) – 94.5%
- 2019 – 97.3%
- 2018 – 97.3%
- 2017 – 96.9%
- 2016 – 94.6%