The preparation of a Level I Reserve Study can be broken down into three main steps:
1. Component Analysis
All components the Association has an obligation to maintain are identified and inventoried. Per RCW 64.34.382(2)(a), this list includes the following: roofing, painting, paving, decks, siding, plumbing, windows, and any other reserve component that would cost more than 1% of the annual budget for major maintenance, repair, or replacement.
An onsite visit is scheduled to visually inspect all common area components. This inspection is limited to components that are normally visible without destructive or intrusive means of inspection or testing, or concealed mechanical, electrical, structural, or other components.
The Useful Life, Remaining Useful Life, and Current Replacement Cost of each component appropriate for reserve funding is established using information entered into a Commercial Cost & Useful Life Database. The data is based upon industry standards, manufacturer’s specifications, and/or the actual repair and replacement costs to similar residential and commercial properties. Costs of repairing or replacing components can vary greatly depending on current labor costs, material costs, and the conditions of the component. Wherever possible, actual quotes from local contractors are used as a comparison.
The Association provides the following financial information:
- The Association’s current Reserve Balance.
- Current rate of investment on Reserve Fund.
- Special Assessments already implemented or planned.
- Tax rate applied to interest or dividends earned on the invested Reserve Funds.
- Interest and Inflation assumptions.
- Current Reserve Account Contribution Rate.
- Date of Fiscal Year End (FYE).
3. Reserve Study
The information obtained during the Component Analysis and Financial Analysis is entered into a Reserve Study Funding Plan computer program. The program calculates the necessary monthly and annual reserve contribution, projected annual expenditures for repair and replacement of identified components, percent funded, and reserve account balances for the analysis period.
Per RCW 64.34.382(i) and 64.38.070(i) the following Reserve Study Funding Plans are created:
- A recommended reserve account contribution rate.
- A contribution rate for a full funding plan to achieve 100% fully funded reserves by the end of the 30 year study period.
- A baseline funding plan to maintain the reserve balance above 0 throughout the 30 year study period without special assessments.
- A Reserve Study Professional recommended reserve account contribution rate.
The computer program provides a projected reserve account balance for 30 years and a funding plan to pay for projected costs from those reserves without reliance on future unplanned special assessments.