CONTRIBUTING TOO MUCH? P.2

6. Don't Defer Projects

Avoiding a repair or replacement project is a bad idea. Deferring the expense doesn't just postpone the expense. because deferred projects tend get more expensive due to deterioration of underlying materials. This is especially true of asphalt, painting, and roofing.

7. Don't Assume 50 Percent Funded Means Making 50 Percent of Your Full-Funding Contributions

Funding capital projects is expensive. Even a baseline-funding objective (where your contributions are designed to just keep the reserve fund barely positive) requires a lot of money. For this reason, baseline-funding contributions average only 13 percent less than full-funding contributions. Thinking you can cut your full-funding contributions in half typically leads to running out of reserve funds in just a few years.

8. Don't Put Your Head in the Sand

Thinking that asphalt will "essentially never" need resurfacing, or that a roof or elevator is a "lifetime component" are both critical mistakes. Calculating reserve contributions without those influential components is irresponsible. Asphalt, roofing and major mechanical components are destined to deteriorate or fail. Ignoring that reality will only commit your co-op / condo board to an unstable financial future.

The primary responsibility of a co-op or condo Board of Directors is to maintain the physical assets of the corporation, many of which will deteriorate on a fairly regular cycle. These assets can be translated into a list of reserve components, each with its own

• Useful Life
• Remaining Useful Life
• Replacement Cost

What we've listed are several steps toward minimizing your reserve contributions, but it is unrealistic to expect a major, substantial reduction. Analyzing your reserve contributions in detail as we've described is a wise way to trim costs just enough that you save yourself from special assessments or borrowing.

Robert M. Nordlund is a registered Professional Engineer and a Reserves Specialist certified by the Community Association Institute. A former president of his homeowners association, he is a past chairman of the CAI's Reserve Professionals Committee and past president of the organization's Los Angeles Chapter, and a past Chairman of the Association of Professional Reserve Analysts. This is adapted from his article at the website of his firm, Association Reserves, Inc.