Sunriver Owners Association - SROA Reserve Fund FAQs

What is a reserve fund?
    A reserve fund is a savings account for our association’s numerous amenities and assets such as our: roads, paths, buildings, park playgrounds, tennis courts and buildings. As owners pay their monthly maintenance fee to the association, a portion of that fee is set aside into this account. The basic concept of reserve funding is as an asset comes due for scheduled replacement or needing repairs, the association will have saved enough money to pay for the item in question.

Do all community assets get included in the reserve fund?
    No. There are specific criteria used to qualify assets for replacement reserve funding. Basically, any asset costing more than $3,000 with a useful lifespan up to 30 years is considered a reserve item.

What can our reserve funds be used for?
    These funds are set aside for the primary purpose of repairing and replacing our community owned assets and therefore cannot be used for any SROA operations budgeting. It is important to keep in mind though, that items coming due for replacement do not have to built “same for same” as what previously existed or even in the same location. In short, assets can be updated to meet contemporary needs as they are being replaced.
    While our Consolidated Plan does make allowances for the use of reserve funds to create new assets (with the approval of the ownership by vote), our financial safeguards would require an adequately funded reserve fund prior to doing so. In other words, while possible to use the reserve fund in this manner, the fund itself would need to reach or exceed the targeted levels of healthy funding first. Our experts do not anticipate achieving this target level in the next 20-25 years.

Why aren’t our pools considered a reserve item?
    While the actual pool vessel itself does not qualify as a reserve item (its lifespan exceeds the 30 year cut off for a reserve item), many of the associated pool items do. For instance the pool decks, water edge coping, tile work and even plaster for the pool counts as reserve items. Our bathhouse components, hot water heaters, roofing and mechanical room equipment, even the landscape work and fences are all catalogued in out reserve items inventory.
    The reasoning behind the 30 year cut off criteria for reserve items is twofold: First, items lasting longer than that period of time ordinarily do not receive a simple replacement. Factors such as contemporary design, technological advancements and functionality often come into play, requiring something more than standard replacements. Secondly, attempting to forecast replacement costs beyond this timeframe is unreliable measuring tool. A good example for example would be a building that could stand for 70-100 years or more. While many of the items associated with the building (roof, mechanical equipment, plumbing, painting, etc) can be accurately calculated for replacement costing, the actual replacement of the structure itself cannot. Therefore, the building structure would not qualify as a reserve item.

Why are reserves so important?
    The level of the reserve fund tells not only the current financial status of the association, but more importantly, where it is headed in the future. The condition of the reserve fund is a critical component in evaluating the financial condition and market strength of the association. For members, proper funding of the reserves ensures protection of their property values by making sure that assets remain in good condition. For potential buyers and even lenders, the market value of an entire community can be best assessed by the level of the reserve fund.

Why do we need a professional reserve study?
    Attempting to do this study internally, even with the best intentions, is extremely dangerous for a board and finance committee on many levels. Most obviously of which, would be the outside perspective brought by a certified reserve professional.
    Absent of current reserve study information (percent funded, a funding plan and a component listing of assets) the board has a greater potential to miss-step financially costing our association dearly. Using the tools provided by a professional study, the board can make confident decisions regarding the financial future of our community. Ultimately, the professional study rewards all association members with maximized aesthetic appearance and property values coupled with minimized association financial disruptions for years to come.

Reserve funding level, what is considered “good”?
    Larger associations (such as ours) that possess extensive and varied assets and amenities in need of replacement or repair usually carry a much larger reserve fund balance. Conversely, smaller associations with very few common area assets and amenities to care for have less of a need for a large reserve balance. Simply put, each community has different reserve requirements. This is precisely why a simple dollar amount limit or benchmark can be misleading when considering the financial wellbeing of an association’s reserve fund.
    Reserve Specialists understand this all too well and routinely caution their clients not to fall into the trap of quantifying the health of their reserves by mere dollar amounts. Instead they use an evaluation tool of comparing an association’s specific needs to the size of their reserve fund. They call this standard of measure, percent funded. The higher the percent funded an association is rated, the better their overall reserve fund health. 0% -30% funded is considered to be poor or weak according to industry standards with 70%- 100% by comparison being good to strong.

What percent funded is our association?
    Our independent reserve specialist performed a comprehensive, on-site evaluation of our assets and amenities and compared them to our existing reserve fund balance. Their assessment of our current reserve fund found SROA to be currently 17.5% funded. They have determined our current funding model to be “weak or poor,” predicting a $2 million deficit by 2012 if not corrected in the near future. They noted that associations found in this category are subject to special assessments and deferred maintenance of their assets. Additionally, this situation ordinarily leads to a decline in property values, and reduced amenities and services if not corrected.

What did the reserve fund specialists recommend for SROA?
    Finding SROA’s reserve fund calculated at only 17.5%, the specialists developed a plan with two major objectives:

While their plan does call for increased monthly contributions to be infused into this fund, they also recommended several funding safeguards for the current and future SROA boards to follow.

What new safeguards specifically has the SROA Board put in place?
Attempting to solve problems by merely applying dollars to a situation is the equivalent to treating the symptoms without ever searching for the cure. Understanding this statement as it relates to our association reserve funding, the SROA Board took swift action upon reviewing the prepared reserve study findings. In short, not only did they need to develop a long range funding plan to correct the current shortfalls, but also develop and install additional financial safeguards and triggers to the association policies to ensure that the association never revisit this financial crossroads again. The board adopted several policy changes listed below:

•    Professional Study Required: Every three years, the association will be required to have an independent reserve specialist conduct a full reserve study to ensure that proper funding levels are being met.
•    Joint Workshop: A joint meeting of the board, finance committee, staff and the reserve specialist will be held following the conclusion of the three-year reserve study. This will help set the association’s focus for the upcoming three year cycle, ensuring that we never stray off course.
•    70%-100% Funding Goal: The board has adopted this long term target range, recommended by the specialists, as the associations funding benchmark.
•    Yearly Analysis: Under the direction of the general manager, staff will be required to review the reserve study for accuracy regarding the funding model assumptions and make any adjustments to stay on goal with the targeted funding model.
•    Achieve/Maintain Funding Goals: The association must make every attempt to achieve the desired funding target range and, once achieved, will be required to maintain that level moving forward.
The SROA Board adopted all of the above into the current SROA financial policies in February of 2009.

How do I know that the increased maintenance fees that I pay will be used properly?
    It is required not only by our association financial policies, but also by state law that the reserve fund account only be accessed for specific, intended uses relative to reserved items. There is certain criterion for which an association item is assigned into the reserve fund and likewise, strict regulations as to how reserve funds can be used. Your board’s primary charge is their fiduciary responsibility to the membership. As such they have, and will most assuredly continue, to adhere to the adopted financial policies of the association. In fact, the board is fulfilling a large portion of their responsibility through the seeking and also following the professional recommendations of the reserve specialist.

Why not just “special assess” owners when items come due instead of increasing the reserves through monthly maintenance fees?
    The most equitable way to finance the replacement of community held reserved assets is by members paying their proportionate share of the replacement of an item for the amount of time that they enjoyed the use of it. By contributing to the eventual replacement cost each month, the costs are evenly distributed among those owners who benefited from the use and availability of the asset. To put it another way, a long term owner would pay more into the fund over the years, yet that owner also would have “used up” a greater portion of the useful life of the asset.
    In contrast, the method of “special assessments” unfairly assigns replacement burden to the current association member regardless of how long he or she owned the property. For example, an owner who lived in the community and enjoyed the use of the community assets for 25 years sells to a new owner. The following year, the association special assesses each owner for funds to replace a community asset. The new owner is left to pay for the entire replacement cost for the use of the asset by the previous owner.     Adequately maintaining the reserve fund through our maintenance fees is simply the most equitable manner to address replacement of our assets.

Why did the board hire a pavement management specialist?
    Our extensive roads and pathway systems make up the large majority of our reserve funding. As this component plays such a large role on the entire reserve fund, the board sought input from a trade specialist in the area of asphalt maintenance. The evaluation proved most prudent, as the pavement study not only reinforced the initial reserve study findings, but additionally afforded us with a structured, multi-year maintenance and rehabilitation plan for our roads and paths.

So, reserve funds can only replace items that exist?
    Yes, that is correct. These funds cannot be used for SROA operations, programs or the construction/establishment of any new assets. It is important to keep in mind though, that items coming due for replacement do not have to be built “same for same” as what existed previously. Assets can be updated to meet contemporary needs as they are being replaced. A good example of this would be the replacement of the tennis hut at Tennis Hill, where a shack/shed building was replaced with a modern tennis welcome center.

With this proposed increase, how does Sunriver compare to other communities in the area?
    As the graph below indicates, even with the increase to the monthly dues, Sunriver owners will still enjoy one of the lowest monthly maintenance fees in Central Oregon.

2009 Maintenance Fee comparison chart
Black Butte Ranch.............. $330
Crosswater........................$280
Caldera Springs..................$235
Vandervert Ranch...............$207
Broken Top.......................$155
The Ridge at Eagle Crest.......$ 88
River Meadows...................$ 74
Sunriver...........................$ 58 + $30 for 2010 = $88
*Note: all fees listed above do not include costs for fire and police

Where can I learn more about this issue?
    If, after viewing the online presentation and these FAQs you still have questions or concerns, please contact us toll free at 888.284.6639 or at 541-593-2411.