When I was a young, my brothers and I would refer to dad as "The Money Tree". When we needed some, all we had to do is pluck some bills. Sadly, some homeowner associations handle their financial and maintenance planning as if they owned a Money Tree.

Let's do the numbers:

Option #1 - If a new association initiates a Reserve Study plan to pay for future roofing, painting, paving and other cyclical repairs, the portion of the monthly assessment dedicated to those costs amounts to only 5-15% of the total.

Option #2 - The association that waits for five or more years will commonly need to pay 30-50% of its monthly assessment for reserve expenses to catch up. And there is a strong likelihood that periodic special assessments will be needed for urgent repairs.

With Option #1, reserve funding hardly impacts the monthly assessment; With Option #2, the increased assessments become a real burden on owners that are paying the price of their predecessors' poor planning. Reserve expenses are predictable so there is no excuse for not developing a plan to both fund and schedule the work. In a growing number of states, it's the law but it just makes good sense since aging assets will only require bigger and more frequent repairs and replacement.

One of the key indicators of a reserve plan is the Percent Funded. All associations should be 100% Funded (have the indicated amount of money side aside according to the current time line of a 30 year reserve study). Some argue that if there is enough cash to pay for current reserve expenses, what does it matter if you have 100% or not? If all owners are not paying their fair share of reserve costs today, someone else will have to pay in the future. To accept anything less than 100% funding is a slippery slope.

Boards that do are soon performing all kinds of budget gyrations to make it work. Failing to fund reserves is the same thing that happens with the infamous chain letter: Pay-off is based on a never ending number of future suckers who will ante up money for those that came before. The Money Tree is a myth. The responsible way to pay for reserve expenses is a plan where every owner pays a fair share for the time they are living there.

For more on this subject, see www.regenesis.net

Published: March 29, 2000

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Richard Thompson owns Regenesis, a management consulting company that specializes in condominium and homeowner associations. He is a nationally recognized expert on HOA management issues. Regenesis publishes The Regenesis Report, a monthly newsletter for HOA boards, developers and managers. To subscribe, go to Regenesis.net. He can be contacted by email at .