In the middle of a major drought, many of our California clients are asking whether or not Reserve Funds can be used for drought-friendly landscape renovations as they try to be both “good citizens” and financially responsible.
Landscaping Projects and National Reserve Study Standards
The answer to the above question is yes, but consider that landscape renovations can be classified as a Reserve Project only if they meet the National Reserve Study Standards’ four-part test:
- The project is a common area maintenance responsibility
- The project has a well-defined Useful Life interval
- The project has a predictable Remaining Useful Life
- The project is above a minimum threshold cost of significance
Reserve Funds for Landscaping
Many associations already have landscape-related projects in their Reserve Study, the most common being tree trimming. Many others have other periodic landscape renovation projects to periodically freshen up the appearance and health of their greenscape. Is it appropriate to allocate Reserve Funds for drought-friendly landscape renovations?
If your association currently has a landscape renovation Reserve Component, those funds could be used for re-planting and re-designing with drought-tolerant species. If you wish to add such a line item, get some guidance from your Reserve Study and landscape professionals to select an appropriate Useful Life, Remaining Useful Life, and cost. Remember, any addition will result in an increase to your Reserve contribution rate.
Borrowing from the Reserve Fund
Another strategy in drought areas is to borrow from Reserves for a landscape or irrigation renovation, with these borrowed funds expected to be recouped by savings from lower water usage.
While California Civil Code requires borrowed Reserve funds to be repaid within 12 months, the following clause allows the association to delay repaying the funds over a longer period of time:
“…the board may (delay repaying the borrowed Reserves), after giving the same notice required for considering a transfer, and, upon making a finding supported by documentation that a temporary delay would be in the best interests of the association.” CA Civil Code 5515(d)
So if you find that a $50,000 landscape renovation project would result in a projected $50,000 water savings over 3.5 years, and if your Reserve balance can support that magnitude of an expense without delaying necessary Reserve projects, an updated Reserve Study can provide the documentation necessary to make this multi-year, zero interest loan from Reserves to Operating. Just let us know, and we’ll work that project into your next Reserve Study update.
Additional Landscaping Reserve Project Considerations
- Make sure the landscaping project meets your architectural requirements. You don’t want to replace grass in your greenbelts with artificial turf if you’ve been denying homeowner requests to do similar projects in their front yards!
- If you are installing artificial turf (or something else that will need renovation or replacement, like Decomposed Granite), remember to add it to your Reserve Component List!
- If you make design changes to your landscape, think 10, 20, or 30 years into the future. The current drought may be temporary, yet because of a project’s cost your association will want to stick with your new landscaping for decades into the future.