Great Oak Reserve Fund Study: 2015 - 2019 Funding Proposal

Finance & Legal 2015-12-02

Summary:

Spreadsheet is viewable here:
https://drive.google.com/file/d/0B2UnkS1QO3rOUkJGam1ycUxmcU5OdUN4dDZ1TFk3RUJLcmlz/view?usp=sharing

Background:

Every 5 years GO pays an expert to have a Reserve Study completed in order
to ensure we are saving enough money to pay for the replacement of
expensive, commonly shared items, based on their life expectancy.

A Reserve Study is a tool that anticipates major common area repair and
replacement expenses and develops a prudent Reserve Funding Plan to pay for
these expenses. By its nature, a Reserve Study must make assumptions about
the future, which can sometimes be unpredictable. However, by using
meticulous research and analysis together with proven methodologies, a
well-executed Reserve Study provides Great Oak with valuable budget
planning information and guidance on upcoming long-term maintenance and
repairs.

We have contracted with a professional, who has reviewed the current amount
in the Reserve against our projected expenses and confirmed that the
aggressive savings plan we instituted 5 years ago has resulted in a Reserve
Fund that is adequate for our needs at this time. As a result, he
recommended increasing our overall Reserve Fund amount by approximately 4%
per year, instead of the 11% increases we saw from 2010 - 2015.

However, this increase will not affect every household the same way in the
first year. In addition to increasing the total fund amount OVERALL (by
approximately 4% each year) we have to apportion the percentage of building
expenses (siding, etc.) and unique amenities (skylights, etc.) used by each
individual household. These individual unit calculations changed when we
removed decks from the Reserve Study, resulting in a net decrease for B
units that have a deck.

In addition, since the Reserve Study only includes items that are scheduled
to be replaced within the next 25 years, several items with long life spans
have been rolled into this study for the first time - specifically siding
and roof replacements. These large expenses will disproportionally impact
the units with larger roofs and more siding, as they pay a bigger
percentage of the replacement costs. Likewise, because exterior painting
is scheduled every 8 years, in this study, there are 3 paintings factored in: in 2020, 2028 and 2036 - which also has a disproportionate impact on
units with more exterior surfaces to be painted. This means that some units
will be paying a higher monthly amount in 2016 because even though the
OVERALL increase is only 4%, their portion of the overall costs increased
by more than 4%.

F&L has heard the strong concerns from a few members about how we allocate
unit contributions. Given that, we need to implement the reserve
changes by January
1, F&L is recommending that at least *2 years prior* to the *next* Reserve
Study, we as a community have discussions/brainstorms about if and how we
would like to change the allocations.


Taking all of these facts into account, the Finance & Legal Committee is
proposing the following schedule for funding the 2015 - 2019 Reserve Study.

Proposal:

Great Oak Cohousing will fund the 2015 - 2019 Reserve Study by adjusting
per unit percentage changes in 2016 and then increase each unit's annual
cost by approximately 4% for 2017, 2018 and 2019. See table for actual
amounts (these costs assume that nothing significant changes in a household
during the next 4 years - i.e., no one buys or sells a garage).

*Pros: *

Rebalances the unit allocations in the first year, then adds in an
approximately 4% per unit increase for 2017 - 2019.

Results in our total Reserve savings matching the amount recommended
by our professional.

Units with an increased monthly contribution will pay the difference
in a year when our Association Fees have been lowered by $16/month.

Gives clarity for every member's monthly Reserve amount through 2019
(given no significant changes in household amenities).

*Cons:*

Some households will see a significant increase in their Reserve
contributions in 2016.

This proposal uses a spreadsheet to determine per unit percentages
that may be revisited before the next Reserve Study.

Process Comments:

No stand-asides