major projects over the next six years. Ignoring inflationary increases the result would be in a $120,000 reserve shortage by 2028. This scenario also fails to consider major maintenance or repairs that might be needed regardless of the remaining useful life of the capital asset. For example, a swimming pool drain, water line, or pump fails unexpectedly during summer time use.


The above scenario can only be properly assessed with the assistance of a current reserve study. Without one, the association does not know what truly awaits around the corner in terms of replacement projects and associated costs. Furthermore, the lack of a current reserve study marginalizes one’s ability to sufficiently address potential shortfalls to ensure the association has a clearly defined path to achieve long-term success.


INSUFFICIENT RESERVE FUNDS SCENARIO Associations that lack long-term planning and those that do not execute on an appropriate funding strategy (one that is in-line with the reserve study) will almost certainly end up short on reserve funds at some point in time. Without sufficient reserves, associations are faced with two decisions: 1) Defer replacement, some of which may be critical, or 2) Increase cash-flow to cover the cost of a particular project.


1. Deferred replacement is a common choice amongst those facing a shortage of reserve funds. If the funding gap is small, the deferred project is non-critical (aesthetic items such as pool furniture, common area carpeting, etc.) and the association has a short-term plan to improve funding levels, then the deferral is likely not a critical issue. However, time and time again, many associations in this position often face significant reserve shortages during years of relatively significant expenses, often times leading to postponement of critical projects, and resulting in accelerated deterioration and potential safety concerns. The deteriorating condition of the property due to the board’s failure to properly reserve, (Connued on page 34)


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