3/15/2012 ADA Requirements – Do they Apply to You?

Posted on February 14, 2012 by Robert M. Nordlund, PE, RS

A significant deadline is rapidly approaching: the 3/15/2012 date when the higher 2010 ADA standards apply to all new and altered recreational facilities. But do these requirements, which require at least one ramp or a lift for your pool, spa, and wader, apply to your association?

The 2010 American Disabilities Act (ADA) guidelines for the Accessible Design for Recreation Facilities were revised and signed into law on September 15, 2010. This Act applies to all private and public facilities that are a place of ”public accommodation”. So the first question is whether your association’s pool area is used only by members and their invited guests, or if it is open for use by members of the general public (community events, outside weddings, Boy Scouts and Girl Scouts, etc.).

If your pool area is a place of public accommodation, the question then moves to when this requirement applies. Obviously, it applies for new construction. But what is an “alteration”? Will installation of a lift be triggered the next time you make any change to your pool or spa (a new heater, filter, pump, or resurface project)? It appears the answer is no… an alteration has to do with a change to the accessibility of the asset. A new heater or a resurface project can be interpreted as “maintenance” of an existing asset. On the other hand, replacing the pool deck and related stairs and gates is an alteration of the area, which would trigger a requirement to comply with the higher 2010 ADA standards.

Bottom line: the 2010 ADA standards do not apply to most residential community associations. Please consult legal counsel for specific guidance on this matter.

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Why are components “Lumped Together” in a Reserve Study?

Posted on January 17, 2012 by Robert M. Nordlund, PE, RS

This was a good question asked recently by a client. They wanted to see all the separate items in their equipment shed in their Reserve Component List, not all the mowers grouped together, or the small runabouts grouped together. The reason we did this, grouping, or lumping them together, is the same reason why we group furniture together in a Recreation Room… it is better to replace all at once. If we separately identify the assets in the Reserve Component List, it is not as obvious that these components should be replaced together all at the same time.

It is easy to understand when you consider furniture in a recreation room. The assets are a matched set, with complementary styling and age. They all share the same purpose, Useful Life, and Remaining Useful Life. It would not be appropriate to replace the tables and chairs, but not the couch (with the same trim). For aesthetics, it is best to replace all at once. The same principle applies for assets within timeshares… it is best for consistency of appearance between rooms, and within an individual room, to not memorialize exceptions by tracking individual assets separately (now on different life cycles) in the Reserve Study. It is best to replace all at once for a consistent, purposeful aesthetic.

With mechanical assets, the principle is the same. A fleet of mowers tends to age, and rather than track which ones are new and which ones are old, stocking multiple sets of replacement parts, continuing to squeeze a few more months of life out of an old unit, in many instances it is best to simply get a new fleet. Management time is saved, and maintenance time is saved.

Remember, a Reserve Study is a budget planning tool, not an asset management inventory. The additional # of Reserve Component line items found when individual assets are listed often detracts from the recommended concept of replacing an entire category of asset at the same time. It is not a matter of your Reserve Study provider taking a shortcut. A Reserve Study helps you cost-effectively maintain the assets of the corporation, maximizing appearances and minimizing management and maintenance overhead. Assets with similar purpose, with identical Useful Life and Remaining Useful Lives, are often appropriate for being “grouped”, or “lumped” together.

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It’s a New Year – Don’t go on a Reserve Diet!

Posted on January 5, 2012 by Robert M. Nordlund, PE, RS

I was recently contacted by an association explaining their strategy of not funding their Reserves according to the recommendation in their Reserve Study. They looked at that recommendation, then decided on a smaller contribution rate that they felt was reasonable (about half, they explained). When a Reserve expense occurred, they paid for the expense figuring that half of the expense was being paid with contributions they had been making, and half of the expense was being paid with “leftovers” in the Reserve Fund from prior years.

Folks, that’s faulty thinking. The money in Reserves got there because boardmembers in prior years put it there to offset ongoing deterioration at the association. While the actual expenses from Reserves occur rarely, deterioration is ongoing, every day. The design of a successful Reserve Funding Plan is to set aside Reserves at the rate your assets are deteriorating. In this way, your Reserve Fund will be ready to handle the expense when it comes due.

If you regularly under-contribute to Reserves, supplementing with funds “left over” in the Reserves from prior years, what you are really doing is spending money that has been set aside for other purposes. It is very similar to going on a diet. Dieting is fundamentally taking in (eating) less calories than your body burns. You lose weight when your body is burning its Reserves.

So in this new year, when many people resolve to go on a diet and lose those 5 or 10 pounds they picked up over the last year, make sure your Reserves are not on a diet. Make sure you are sustainably putting enough cash into Reserves. Don’t use up the Reserve cash so sacrificially put there by prior owners!

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Why do we Care about Percent Funded?

Posted on January 2, 2012 by Robert M. Nordlund, PE, RS

According to National Reserve Study Standards (see complete standards here), an evaluation of Reserve Fund Strength is one of the three primary results from a Reserve Study (the current component list, the current strength of the Reserve Fund, and the current recommendation for Reserve contributions).

Reserve Fund Strength is most appropriately measured in terms of Percent Funded, which reports the size of the association’s Reserves (as of the first day of the fiscal year) compared to the deterioration of the Reserve components (again, as-of the first day of the fiscal year). In this way, you are measuring how well the Reserve Fund compares to the deterioration it was designed to offset, not a vague notion about a cash balance that “feels” good.

It is important to note that a measure of Reserve Fund Strength is independent from whichever future funding objective is chosen, or whichever funding method is chosen. Those two things affect the future. You’ll want to know your current Percent Funded, because it clearly reports your Reserve strength now. National Reserve Study Standards support the philosophy that you should clearly know “where you are” before you strike out towards a future objective.

BTW – We consistently recommend our clients become Fully Funded. This is because Fully Funded is the “bulls eye” of financial responsibility, whereas Baseline Funded represents the edge of the target (barely enough cash to keep the Reserve Fund positive). On average, Fully Funded contributions are only 13% higher than Baseline contributions, so becoming Fully Funded is not cost-prohibitive. Baseline Funded associations regularly experience unsettling deferred maintenance or disruptive special assessments, so one could argue that there are no real “savings” by pursuing a Baseline Funded objective.

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Why Didn’t our Percent Funded Change?

Posted on December 9, 2011 by Robert M. Nordlund, PE, RS

I recently had a client have us investigate the contribution differences between our recommendation to Fully Fund their Reserves, and only Baseline Fund their Reserves. After their initial reaction that the difference was rather small, they asked why their Percent Funded didn’t change. Good question!

The reason their Percent Funded didn’t change is that Percent Funded is a measure of the strength of the Reserve Fund on the first day of their fiscal year. With no change to their Reserve Component List and no change in their starting Reserve balance, there was no change to their Percent Funded.

If you want to see an increase in your Percent Funded, the best way is to add some cash to  your starting Reserve balance. You could make some adjustments to your Reserve Component List in order to minimize the present Reserve needs of the association, but that type of monkey-business is regularly discouraged.

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Why be 100% Funded (instead of 70%)?

Posted on December 5, 2011 by Robert M. Nordlund, PE, RS

In the Reserve Study industry, the Percent Funded range of 70-130% is described as the “strong” range. So why shoot to be 100% Funded and not the lower (more attainable) target of 70% Funded?

The answer lies in understanding that we are planning ahead for the future, something we do not control. Due to expenses that can occur higher than anticipated, or earlier than anticipated, there is a good chance that your Reserve plan will not work out exactly as intended. So that’s why we recommend our clients shoot for the 100% point, the “bull’s-eye”, rather than the edge of the target (the 70% point). If you miss the bull’s-eye, you’re still close to the center of the target. If you aim for the outer circle and miss slightly, you’re off the target.

So aim for the bull’s-eye, the center of the target. That means aim for being 100% Funded, where your Reserve cash equals the deterioration of your Reserve components.

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When do you Perform a Reserve Study?

Posted on November 18, 2011 by Robert M. Nordlund, PE, RS

In the live Q&A session after a one of last week’s webinars, one participant asked when it was best to perform a Reserve Study for their association… suggesting that he thought it would be best in the last quarter of a major component’s life.

That was a good idea, as it is important to make sure the association is prepared as it approaches a major project. But for most associations, waiting until “soon before” a major project means waiting too long.

Most Reserve projects take years of financial preparation in order to avoid last minute “catchup” panic-level Reserve contributions, or a special assessment. So I suggested that it is actually more important to do a Reserve Study early in the life of a major component, to make sure the association is moving in the right direction financially, when it still has plenty of years to collect Reserves.

Of course, the best time to perform a Reserve Study is every year. Each year, some of an association’s components are in the early stages of their Useful Life (when it is a good idea to do a Reserve Study update), and each year some of an association’s components are nearing the end of their Useful Life (when it is also a good idea to do a Reserve Study update). We find that when we update a Reserve Study only every third or fifth year, we often are recommending significant adjustments to their Reserve contribution rate. But for those associations that have us update their Reserve Study annually or every-other year, we typically recommend only minor adjustments to their Reserve Study.

Becoming well prepared financially happens in two stages – getting into the right ballpark, and making adjustments as a major project approaches (when the scope and timing becomes more clear). So update your Reserve Study annually, to make sure both are happening!

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Keep your Owners Informed!

Posted on November 5, 2011 by Robert M. Nordlund, PE, RS

A Maryland court recently entered a $1M judgment against the Tomes Landing Condominiums and its management company, MRA Property Management, for providing misleading budgets to prospective purchasers. Read more here.

Apparently the Board and Management did not accurately represent the physical and financial status of the association to purchasers of 23 of the association’s 93 units over a period of four years (2000 – 2004) when they provided what are called in Maryland “resale certificates”. It is one thing to be optimistic, it is another thing to be fraudulent by misrepresenting the facts. The Resale Certificates over that period of time stated that there were no known problems. But a Reserve Study in 1999 clearly identified many physical and financial problems with the association. The “smoking gun” finally appeared in 2004 when the board levied a special assessment to resolve the physical deficiencies throughout the property.  The new owners were not amused.

Currently the judgment is being appealed. Regardless of the final decision on this case, the board had to know what was going on with their budget and their common areas through that period of time. It appears they simply decided to ignore telling the truth through annual Operating Budget and Reserve Fund disclosures.

$1,000,000 is a big penalty for a failure to communicate. The lesson to be learned is update your Reserve Study annually, being honest with your owners about the physical and financial status of the association. Misinformation and surprises lead to lawsuits!

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Don’t Confuse Trivia with Significance

Posted on April 13, 2011 by Robert M. Nordlund, PE, RS

Within a Reserve Study, the Reserve Component List contains life and cost estimates for the major assets the association is obligated to maintain, thus establishing the scope and schedule of Reserve projects. Typically, this list gets longer and more complicated as stray projects got added to the Reserve Study, making the Reserve Study gradually more unwieldy, unworkable, and as a result, unimportant. This can be avoided with a commitment to focus on the objective of keeping it a Reserve Component List, not an inventory and history of every stray asset that has been purchased.

Fundamentally, a Reserve Study reveals current status of the association’s components, Reserve Fund, and serves as a budget preparation guide. There are and always will be, exceptions to every well-laid plan. The wisdom is in knowing when the plan needs to be adjusted, and when adjustments should not be made (by ignoring projects that are exceptions and can be better served outside the Reserve Study). Time is saved, and money is saved, when projects can be accomplished with economies of scale and in a consistent, repeatable manner. The opposite is what we call “checker-boarding”. This is when exceptions are allowed to become the norm, and uniqueness becomes commonplace throughout an association. If allowed to happen, it begins to take more time to manage the assets, and more money to replace the assets.

Surprises will always happen. Memorializing an exception by adjusting the Reserve plan is a mistake. Do the minor project, ignore it, and move on. Yes, the newer 3rd floor carpet will not need to be replaced when it is time to replace all the other 10 floors, but go ahead and replace that still “fair” 3rd floor carpet with the rest of the building. Similarly, replace all the pool furniture at the same time, even that one chaise lounge that you needed to restrap last year!

When a minor project occurs, that does not mean you should revise the Reserve Study or your plan to replace all of that asset as one project at the next opportune cycle. This is where you choose to control the Reserve assets, instead of letting them control you. The Reserve Study is a budget plan. Let exceptions remain exceptions. Keep the integrity of the plan. The key is seeing the Reserve Study as a planning guide, not a record-book. Don’t confuse Reserve planning with an accounting or asset-tracking task.

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