Can you Reserve for “Annual” Projects?

In a word, “yes”. There is no minimum (or maximum) Useful Life stipulated in National Reserve Study Standards. Often a project like tree trimming is a candidate for inclusion in the Reserve Budget rather than the Operating Budget, even if it occurs every year. And here’s the reason why.

Operating Budgets are typically handled on a monthly basis through the year. Thus they are great for seeing if the association is “on pace” (or not!) throughout the year. You may be able to anticipate some seasonal things… higher water bills in the summer, snow removal expenses in the winter, etc., but generally its strength is for ongoing expenses or expenses that happen multiple times throughout the year.

If a project only happens once during the year (as in the case where the association hires a tree trimming company for a trimming project, or a painting company to do all the annual touchup painting), in the months prior to the expense that line item will appear under budget, and in the months following the project the expense will appear over-budget. The only month that the line item will appear “on pace” is the final month of the year! In such cases, appearing in the monthly budget does not help the Board see if the line item is “on pace” or not. It is actually confusing (are we ahead, are we behind, or is this the line item that we have to wait on?).

So if the project only happens once during the year, it actually fits more appropriately into the Reserve Budget, where expenses are only expected once a year. If you are budgeted for a $5000 tree trimming expense in Reserves, then when you pay the tree trimming company $5000 (or something close to that figure), you are right on budget. No matter in which month the expense occurs! Thus a once-a-year expense fits nicely into a tool that plans projects on an annual basis.

So if you have projects that occur daily, weekly, or monthly, the appropriate place for them to appear is in the Operating Budget. If you have projects that occur once a year (or less frequently), they fit very nicely into the Reserve Budget. Annual projects can appropriately appear in the Reserve Budget.

This entry was posted in Blog. Bookmark the permalink.

Comments are closed.