The Four Reserve Rules
In preparing to speak to two different audiences in two days, both made up of new boardmembers and new managers, I wanted to make sure I was communicating the simple truths about Reserve planning. It forced me to get down to the real basics, and in almost 30 years I found I had never crystallized my thoughts on the matter. What indeed are the underlying rules, on which all the details are based? So after some pondering, reflecting on questions I’ve recently fielded, and problems I’ve recently helped solve, I came up with this short list. I believe it defines the underlying reasons why Reserve planning, Reserve Studies, and National Reserve Study Standards are important:
1) Reserve Expenses Always Occur. There is no dodging them. They are inevitable. Pretending they won’t happen is foolish. Bills for significant Reserve expenses are as real as any of the monthly bills you get at your association. The only difference is that Reserve bills arrive separated by years, not weeks.
2) The Board is Responsible. One of the first lessons I learned entering the community association industry is that the primary responsibility of the Board of Directors is to maintain, protect, and enhance the assets of the association. That is still true. The Board is charted with the responsibility to run the association, which includes budgeting enough income to pay the bills. All the bills.
3) The Homeowners Always End up Paying. There is no “fairy godmother” magically going to fix the problem. There is only one entity that pays the bills, and they are the homeowners.
4) Reserve Expenses Grow if Deferred. Like most other bills, there are penalties for being late. In addition to the expenses not going away (see rule #1), Reserve expenses tend to get larger the longer they are deferred.
Care to comment? Do all Reserve planning issues fundamentally arise from these four basic rules?