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How to increase reserves – gently

November 19, 2018 By Pilot Prop

This time I have included the answer in the title. No-one wants an increase ever. No-one wants more taxes ever no-one wants to pay for a bond for a dam, a school (maybe if you have a bunch of young children..) a library, a freeway, the list goes on with people being more or less averse to the additional cost. Almost every association is California is under-funded. Why? Because the law presently does not require fully finding reserves or even that they be funded partially. A new regulation imposed by the government lending agencies requires that a certain percentage of the annual expenses be placed in reserve each year. Presently it’s 10%. But they left the back door open allowing associations to spend that money each year; so no actual increase may ever really occur. Some years ago they introduced a provision that said Boards must now inform the membership how much the funding shortfall is, and what if anything note if anything, the board plans to do about it. Boards didn’t take long to realize they could say with impunity they planned to do nothing about it and while members could read that, some would sigh in relief, knowing they had been spared another increase in their dues. My view. Decide upon a funding plan for 5 to 10 years share it with the members in advance and start collecting. The plan need not solve all the underfunding issues of the association in one stroke but should have the goal of reducing the shortfall by a certain percentage or increasing the funding to a certain figure or percentage by the year… If the goal is reasonable and the members swallow the bitter pill, then keep on until it is complete. As for the future.. Perhaps more of the same a long term plan to reduce the shortfall still further. It may take 50 years to fully fund but at least the association has a plan and its members are on board. If the members balk at the plan in sufficient numbers, elongate it, allow it to take a shade longer but stick to the final version when at least a vast majority are on board.
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Filed Under: Association Management: Administration, Association Management: Financial

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