A four part test was established by the National Reserve Study Standards in 1998 and has been followed by CAI and APRA (Association of Professional Reserve Analysts) since inception. The details of this 4 part test are:
· Is the component a common area maintenance responsibility?
· Is the component life limited?
· Does the component have a predictable remaining useful life?
· Is there a minimum threshold cost for the component (typically above .5% - 1% of the annual budget)?
If the answer to any of these questions is "no", then it "fails" the test in one way or another. NOTE - the Reserve Study update is considered an administrative expense and not a capital replacement item, therefore, it should not be included in the Reserve Study - unfortunately!
Several of our associations have developed a separate savings account for catastrophic instances (ie, excessive snow removal charges, tree damage from a snow or wind event, flood damage, HOA snow removal expense reporting , etc.). Once they reach their goal of $XX,XXX in this account, they stop "contributing" to it. When the money is spent, a plan is then established to “pay back” the fund. This allows an association to save for large expenses without adding them to their Reserve Study.