Do we need to be “fully funded” by January 1, 2025?
No. “Fully Funded” is a specific term defined in Reserve Study Standards meaning having the cash in Reserves equivalent to the deteriorated value of the component/project. The law only requires you to collect at a rate such that you have sufficient cash on hand at future points in time to accomplish your Reserve projects when they are scheduled to occur. For associations using the pooled method, Reserve Study Standards define this as “Baseline Funding” your Reserves. Sufficient cash is currently interpreted as maintaining the pooled reserve fund at any amount above $0 for all projected fiscal years.
Do we need to separate our Reserves into separate (mandatory) structural and general (waivable) non-structural funds/accounts?
No. The law requires that you not spend any mandatory Reserve funds (i.e. those collected for items in paragraph (g) listing the specific components designated for SIRS) on general (waivable, non-SIRS) Reserve projects. The law does not state how to comply. Seek counsel from your legal, accounting, and Reserve Study professionals. Your association can comply with two separate funds/accounts, or by pooling all together while maintaining a clear understanding of the funds allocated to each category. Whether your association chooses to hold Reserves in one fund/account or two, the association’s Balance Sheet and Reserve Study should clearly state the amount held for mandatory (structural) Reserve projects and the amount held for general (waivable) Reserve projects, and your Budget and Reserve Study should clearly state the recommended transfers for each. For associations using the straight-line method (AKA component method) of reserve funding, separate reserve funds may be maintained and funded accordingly for individual SIRS components, or for multiple SIRS components combined together (such as plumbing and electrical).
If one building is three stories or higher in our condominium, do we need to perform a SIRS on that building or the entire association?
The entire association. Budgets and Reserve Studies are performed for associations as a whole, not on a building-by-building basis.
What is the difference between “pooling” and “straight line”, and are both permissible?
Pooling considers the Reserve Fund as one “pool” of money, with all the different Reserve projects being paid from that one fund. Income to the Reserve fund (pool) is developed to offset the predicted Reserve expenses from that pool. Straight Line separates the Reserve fund into different smaller “fund balances”, developing funding for each separate Reserve project/component. Both of these funding methodologies prepare the association for exactly the same Reserve expenses. Pooling generally results in lower funding requirements in the near term because the entire Reserve fund can be utilized for scheduled projects (e.g.: no Reserve funds are inefficiently “tucked away” in separate unusable fund balances for anything other than its “assigned” project).
Per FL law, both methods are permissible.
Why would the State force us to Reserve for future projects when I won’t be an owner?
It isn’t. Reserve funding fundamentally offsets ongoing deterioration. Owners are only being asked to pay to offset the steady, predictable, ongoing deterioration that occurred while they owned a home in the association. The State of FL is asking homeowners to responsibly pay for what they are “using up”.
Can/should we update our Reserve Study more often than once every 10 years?
Yes. A SIRS is required every 10th year. Community Association industry Best Practices (found in the Community Association Industry’s Condo Safety report, and national Reserve Study Standards) are to update your Reserve Study on the basis of a diligent visual site inspection every third year (with recommended No-Site-Visit updates in the in-between years). This schedule of regular updates captures ongoing changes to the physical condition of your common areas, the cost to repair or replace those common areas (always changing due to inflation), the ever-changing size of your Reserve Fund, and the annual changes to interest and inflation estimates. This Best Practice prepares the association and its owners to be ready for all scheduled Reserve projects, maximizing curb appeal, owner enjoyment, property values, and building safety.
Won’t properly funding our Reserves raise our costs prohibitively, making our homeowner assessments prohibitive to new buyers?
No. Reserve Funding nationwide is typically 15-40% of an association’s total budget. For FL associations in steep “catch-up” mode because of years of waiving Reserve Funding, they may temporarily be at or above the high end of this range. But properly funding Reserves to offset ongoing deterioration simply recognizes the true cost of ownership. Funding Reserves on an ongoing basis does not increase the cost of home ownership. Funding Reserves on an ongoing basis shifts exactly the same costs from large “catch-up” special assessments (or loans) to small increases in ongoing monthly assessments. When the funds exist when needed for Reserve projects – without delays related to passing a special assessment or obtaining a loan, curb appeal, owner enjoyment, property values, and building safety are maximized.