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RESERVE STUDIES

We are worried about our association who keeps putting forth increase votes for capital improvement lump sum fees that are absorbed by buyer on sale of home. In unnecessary improvements and plans for a lot more. We are in the midst of another such increase vote and I am trying to find a line item that reflects our RESERVES. I can’t seem to find it in any of the financials and there are not recent ones posted. When a few of us dig we find things like they just transfereed 1 million from reserves into the captial improvement fund which it is my understand the capital cont. fees go to and the fund which they are paying out of for a massive “improvement” that it is my understanding is behind and over budget. Can I do a sort of FOIA for both an accurate real time accounting of the construction project…budget v actual, monies paid at at this point, and a real time snap shot of our reserves and the capital improvement fund? In addition, since from what I can see so far a Reserve Study is not required here annually or semi-annually like it is in some states. Our “audit” stops short of talking about that as it is not in the scope of work. I think they are valuable. Thank you!

3 Responses

  1. Dennis Legere

    Martia,

    An association has two basic financial accounts an operating account that they use for their budgeted annual expenses and a reserve account that is used for long term maintenance and capital improvements. You can ask the association bank statement for both accounts. It they divide the reserve account into normal reserves for long term maintenance and a capital improvement then ask for all three. You can also ask for all transactions from the reserve accounts in the last year there should be very few. The association has 10 business days to provide you access to that information under Arizona law. The association has no obligation to provide a report that does not already exist but if it exists within their accounting system it is a financial record subject to a records request. If they claim that such a report does not exist, then ask them how they are living up to their fiduciary duties to the association to for oversight of that project?
    While the association is free to move money between the two reserve accounts, they cannot move money between reserve accounts and operation accounts under IRS regulation, with a few yearend exceptions.
    Reserve studies are a valuable tool but not a requirement, Most commercial reserve study firms are a waste of money with a lot of show and very little substance. The real issue is to understand your long-term maintenance needs and how much they will cost when needed. The reserves then have to be managed to ensure that when a maintenance project is needed adequate funds will be available in the reserves to do the maintenance. To do this you have to make some assumptions on inflation cost which in a time like we are in now is often difficult, that is why these plans need to be reviewed at least every three years, but not more often then that. I’ll also point out that if the association did a reserve study that is a record and subject to records request provisions of the law.
    Dennis

  2. Marcia Tolin

    Thank you Dennis. A couple of questions then–is it legal for the Board to approve and then move money from Reserves Account and into the “capital fund”. Are they playing with semantics?
    Here is a copy of what they have in the minutes:
    Finance and Budget – 2022-2023 Budget
    Motion to approve the following items based on recommendations from the Finance-Budget
    Committee:
    1. Approve the proposed operating budget developed by SCOV Association Management and
    approved by the Finance-Budget Committee for the coming fiscal year (2022-2023) that results in
    annual dues of $2,245, an increase in annual dues of $110 (5.2% per home).
    2. Approve the reallocation of $1,000,000 that was planned as annual dues contribution to the Asset
    Reserve Fund into the Capital Fund.
    3. Approve Capital Budget expenditures for fiscal year 2022-2023 of $49,800.
    4. Investigate, communicate and vote (as required by the governing documents) on community
    options to fund future Capital Improvement Projects. (Schulz/Mashburn)
    Motion passed unanimously.

    I am sure some way it is legal, but then to ask us to raise our capital contriubution fee which they say is going to be used for future improvement (not maintenance), from Reserves and then threaten a special assessment does not seem right. How many accouts with the word “Capital” should an association have?

    Lastly, I will get my request in for records. Is here a way to title it and should I mention the statute? Can I email this to each Board memeber and the Treasurer or just the General Manager, or should I mail it certified? Thank you!

    1. Dennis Legere

      Marcia,
      As I mentioned earlier there are only two types of financial accounts for these communities, but within each type the association is free to divide those money into as many specific accounts as they want. Within the Reserve accounts you could have a road fund, a clubhouse fund, a landscape fund an entrance fund, and a special projects fund, etc. the semantics are irrelevant they are all Reserve funds. The association is free to transfer money between these accounts and raise money for each account within the budget and thru assessments (annual or special). Hopefully members of your community were at the board meeting when this was voted on and took advantage of their rights to speak to the issue before the board voted on the motion if they had any questions or concerns with what was being proposed. You all have the right to question the board about these future improvements and to demand specifics for the plan and timeline for those improvements.
      Records request do not need to be certified mail and can be a simple e-mail to the community manager. The statute is ARS 33-1805. Be as specific as possible with what types of records you are looking for and from what time frame. While the association can simply provide you the electronic version of those documents, they are not required to, they are only required to make the records available for you to view. You can request copies if you like once you view them or simply take pictures of the documents. if you want hard copies the association can charge you up to $0.15 per page.
      Dennis

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