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HomeMy WebLinkAboutagenda.council.worksession.20151215 CITY COUNCIL WORK SESSION December 15, 2015 4:00 PM, City Council Chambers MEETING AGENDA I. Update on Options for Turbine and Generator II. HOA Capital Reserve Policy Update P1 Page 1 of 5 TO: Mayor and City Council FROM: David Hornbacher, Director of Utilities THRU: Jim True, City Attorney Scott Miller, Director of Public Works DATE OF MEMO: December 10, 2015 RE: Update and proposed action(s) for Turbine and Generator REQUESTED COUNCIL ACTION: Staff requests further Council direction regarding the sale, repurposing, or other alternatives regarding the generator and turbine equipment originally designed and purchased for proposed Castle Creek Energy Center (CCEC). This memo outlines several alternatives for consideration, however does not limit other alternatives that Council may determine are appropriate. PREVIOUS COUNCIL ACTION: • November 2007: City of Aspen voters approved bond issuance for CCEC costs, including the turbine and generator unit; • March of 2008: City staff finalized the contract with Canyon Hydro to construct the turbine and generator unit; • September 2010: construction of the unit was completed and the unit was stored on the Canyon Hydro premises until December, 2011 at which point the unit was delivered to the City of Aspen, where it is stored today; • November 2012: Advisory vote held on continuing CCEC. Result was a 51% majority vote of “No”; • April 2014: as part of the NREL consulting project, City Council chose three renewable energy options for staff to pursue, from a list of options which included the proposed CCEC. The Energy Center was not one of three options chosen by Council. As directed by Council, the FERC process was stopped, as was all other action related to the development of the project; • May 2014 to present: staff has been searching for potential partners, purchasers, and project sites for the unused turbine and generator equipment. DISCUSSION AND ALTERNATIVES: The City acquired the hydroelectric turbine and generator designed specifically to maximize the efficiency and energy output related to the CCEC. Specific design criteria included: Water Volume (cubic feet per second`) 52 cfs ( 5 – 55 range) Water Pressure (feet) 325’ elevation drop Shaft orientation vertical Connecting Pipe size (inches) 42” P2 I. Page 2 of 5 The specificity of design required for typical hydroelectric facilities also limits the potential repurposing of equipment at other locations. The City solicited a “request for offers” to test the market interest in the turbine and generator. Following are several options for Council to consider: 1) Sell Equipment - Proposed Action – Staff proceed with a sales process. Resulting bid information then submitted to Council for final approval of sale. Discussion - Staff advertised the equipment in hydroelectric industry journals, newsletters, and websites, as well as through word of mouth to individuals in the hydro business.1 Staff has fielded questions from multiple parties, and has in some cases shown the equipment to individuals who traveled to Aspen to inspect it. This process was informal and intended to provide information for decision making. Staff could proceed to negotiate with those parties that expressed the highest interest in the equipment, or move to a formal bid process as may be directed by Council. 2) Alternative Equipment Location and/or Installation - Proposed Action – Staff to continue search for an alternative location and/or partnership for placement of generator and turbine. Discussion – The premise of this alternative is that a higher value for the equipment may be achieved if a specific location that can utilize the design configuration to a maximum energy and economic output is identified. Staff has searched domestically for appropriate alternative sites and partners for the equipment to no avail. According to Canyon Hydro—the turbine manufacturer—the equipment would only work at a site that has hydraulic head between 305-335 ft. Using the Colorado Dam Safety Branch Database, as well as the Army Corp’s National Inventory of Dams (NID) database, staff was able to assess data from more than 87,000 of the nation’s dams. Based on equipment final design and manufacture criteria, only 21 dams matched the hydraulic head range, most of which are already producing hydroelectricity (see attachment, below). Alternatively, staff could continue and research other existing reservoirs or diversion structures in the Colorado and surrounding states that are of a lower dam height (< 300’) and that match the optimal designed operating water volume (52 cfs). However, this strategy would also require the ability to install a pipeline from the source that achieves the designed operating hydraulic head of 300’ to 335’, as well as has the necessary water rights, land/easement rights, site and electric grid access, etc. 1 The advertisement was placed in digital and print versions of Hydro Review, on the Hydro Review website, as well as in Hydro World Weekly eNewsletters. P3 I. Page 3 of 5 Presently the City stores most of the equipment locally, with some of the electronics still being held in Washington State. The turbine and generation equipment requires periodic maintenance (rotating the shaft), as well as storage space. Overtime, there is the risk of the equipment value declining. 3) Other Alternative – As May be Determined by Council. ATTACHMENTS: 1) List of Dams in the United States Fitting Basic Design Criteria 2) Advertisement for Equipment in Hydro Industry Magazine, eNewsletter, and Website P4 I. Page 4 of 5 1) List of Dams in the United States Fitting Basic Design Criteria P5 I. Page 5 of 5 2) Advertisement for Equipment in Hydro Industry Magazine, eNewsletter, and Website P6 I. ASPEN HYDRO TURBINE AND GENERATORAND GENERATOR CHOOSING A PATH FORWARD ASPEN HYDRO TURBINE AND GENERATORAND GENERATOR CHOOSING A PATH FORWARD P 7 I . TIMELINE 2007 Voter approved Project Bond Issuance 2008 Contract to design and manufacture Turbine and Generator 2009 In manufacturing 2010 Completed Turbine and Generator Manufacture 2010 Completed Turbine and Generator Manufacture 2011 Delivered in 2011 2012 Advisory Vote on project 2014 Renewable Energy Alternatives review with NREL 2015 Achieved 100%Renewable Energy for City of Aspen Electric Utility Today Options for Turbine and Generator TIMELINE Voter approved Project Bond Issuance Contract to design and manufacture Turbine and Generator Completed Turbine and Generator Manufacture Completed Turbine and Generator Manufacture Renewable Energy Alternatives review with NREL Renewable Energy for City of Aspen Electric Utility Options for Turbine and Generator P 8 I . • WATER VOLUME - 52 CFS ( 5 – RANGE) • WATER PRESSURE –325’ ELEVA DROP DESIGN AND OPERATING SPECIFICATIONS DROP • SHAFT ORIENTATION –VERTICA • CONNECTING PIPE = 42” P 9 I . • WATER VOLUME - 52 CFS ( 5 –55 CFS RAN • WATER PRESSURE –325’ ELEVATION DRO • SHAFT ORIENTATION – VERTICAL • CONNECTING PIPE = 42” DESIGN AND OPERATING SPECIFICATIONS P 1 0 I . OPTION #1-SALE OF EQUIPMENT POTENTIAL AVENUES: •NEGOTIATE WITH INTERESTED PARTIES •ADVERTISE AND PROCEED WITH A SALES PROCESS •OTHER COUNCIL DIRECTION SALE OF EQUIPMENT NEGOTIATE WITH INTERESTED PARTIES ADVERTISE AND PROCEED WITH A SALES PROCESS P 1 1 I . OPTION #2 CONTINUE SEARCH FOR ALTERNATE LOCATION •ASSESSED SUITABILITY OF •ASSESSED SUITABILITY OF EQUIPMENT USING NID DATABASE (MORE THAN 87,000 DAMS) •ADVERTISING IN INDUSTRY JOURNALS •EQUIPMENT IS DESIGN SPECIFIC •NO DEFINITIVE RESULTS TO DATE CONTINUE SEARCH FOR EQUIPMENT USING NID DATABASE EQUIPMENT IS DESIGN SPECIFIC NO DEFINITIVE RESULTS TO DATE P 1 2 I . OPTION # 3 OPEN DISCUSSION WITH COUNCIL OTHER IDEAS, CONCEPTS, AVENUES OPEN DISCUSSION WITH COUNCIL – OTHER IDEAS, CONCEPTS, AVENUES P 1 3 I . ASPEN HYDRO TURBINE AND GENERATORAND GENERATOR CHOOSING A PATH FORWARD ASPEN HYDRO TURBINE AND GENERATORAND GENERATOR CHOOSING A PATH FORWARD P 1 4 I . Page 1 of 21 MEMORANDUM TO: Mayor and Council FROM: Barry Crook, Assistant City Manager Mike Kosdrosky, APCHA Executive Director Chris Everson, Affordable Housing Project Manager DATE: December 11, 2015 MEETING DATE: December 15, 2015 RE: Update on Capital Reserve Policy and Discussion, Part 2 REQUEST OF COUNCIL: Receive the update and determine if the conversation is on the right track in terms of working towards a proposed policy solution. Begin to assess specific parts of the proposal terms. PREVIOUS COUNCIL ACTION: Council has, for several years, indicated a desire to formulate a policy that addresses the understood shortfall in capital reserves across the deed-restricted HOA community. For a long time, the policy discussion was deferred until a “solution” could be found to the issues that confront the Centennial homeowners – with those solutions informing the development of a policy for the entire community. Those communications, which were broken off by the Centennial HOA for some period of time, have recently been restarted. Council now prefers that a broad policy be developed and adopted, with Centennial being allowed to participate under the terms of that policy. On September 29, 2015, Council held a worksession and reviewed general terms of a proposed policy framework for Capital Reserves in our deed restricted community of owned housing. There were four areas covered in the last worksession: 1. What is the problem? 2. Why does the problem exist? 3. Why it is necessary to fix the problem? 4. Who pays? P15 II. Page 2 of 21 A majority of council indicated support for the general direction of having the community make investments in individual unit reserve requirements in return for a series of agreements t hat would work to prevent reserve deficits in the future. Council indicated a desire to delve deeper into specific areas in the next worksession. BACKGROUND: In the 2011-2012 Council Top Ten Goals was an effort to conduct a review of capital reserve issues. That resulted in an effort, partially funded through APCHA, to allow HOAs in the deed restricted community to conduct capital reserve studies and ascertain how they needed to address this critical need. Attachment A is the excerpt from the 2012 Housing Summit regarding capital reserves and the results of those studies. Attachment C is a summary of State Capital Reserve laws as of 2013. Many states have enacted legislation dealing with community association reserve and operating funds to protect owners from fiscal problems and financial hardship. More states may enact similar legislation as community associations continue to gain popularity. Attachment A contains a summary of each state reserve fund law. Reserve Studies are required in the following states: California, Delaware, Hawaii, Nevada, Oregon, Utah and Virginia. Washington statutorily encourages associations to have a reserve study performed every three years unless doing so would impose an unreasonable h ardship. In COLORADO the unit owners’ associations may adopt and amend budgets for revenues, expenditures, and reserves and impose and collect assessments for common expenses from unit owners. Section 38-33.3-302. There is no statutory requirement to cond uct a reserve study and no statutory requirement to fund reserves In the last worksession, we discussed four areas of concern: 1. What is the Problem? 2. Why does the Problem exist? 3. Why is it necessary to fix the Problem? 4. Who should pay to fix the Problem? To recap that discussion . . . What is the Problem? The issue – as illustrated above – is that HOA capital reserve accounts are underfunded. There is a conversation to be had about how much these accounts should have in cash, how much could be left for loans, and how much could be left for on-demand cash assessments. For now we are working on a principle that 70% of the capital reserve study amount should be held in a reserve account. It is unlikely that all of the capital reserve study amount would be needed at P16 II. Page 3 of 21 any one point in time, and even if it is, most HOAs would have some capacity to borrow from a lending institution or make a cash call from their owners for the remainder. As indicated in the 2012 Housing Summit Briefing Book excerpt, underfunding of HOA capital reserve accounts is a universal phenomenon – it is not simply people acting in a hopeful manner. Most people would prefer to defer accumulating reserves to take care of future needs that they may not be party to or benefit from. They are betting that nothing catastrophic will happen while they are owners and that they can defer the expense of repairs or accumulating reserves and pass off those costs onto the next generation of owners – all without impacting the value of their property or the re-sale price they might command in the marketplace. Usually this bet works – but not always. So for our ownership workforce housing system there is – by estimation – some $15 million or more of reserve shortfall. As we have seen at Centennial, this is a problem for the housing system and for those who benefit from the system. It is appropriate for the City Council, the BOCC and the APCHA Board to work together to solve this problem and get our deed-restricted housing stock on firm footing so that it works for today’s owners and for those who will follow them tomorrow. Both the community and the workers who purchased these units have heavily invested in the system and need to ensure it lasts into the future. Why Does the Problem Exist? The problem exists because people are rational economic actors. They want to avoid current expenses if they can and prefer to defer those expenses to the next generation of buyers who might benefit more from those investments. They do this in the deed-restricted marketplace and the free marketplace. There is a difference however in in the two markets – at some point in the free marketplace, decisions made about deferring maintenance or not investing in your property sends an economic signal to prospective purchasers that reduces the price the marketplace puts on your property. Let the property deteriorate too much and the sales price reflects that. Invest in the property and the marketplace reflects that decision, producing a higher price you could command for your property. This is seldom the reaction in the deed-restricted marketplace. The “APCHA guaranteed maximum price” is almost always the floor, not the ceiling on the sales price. It is almost guaranteed that if there are two or more bidders on a property, the guaranteed maximum price will be the sales price. Our deed-restricted marketplace does not reflect a lower price for the unit if owners fail to invest or to accumulate capital reserves. So both buyers and sellers act rationally in terms of their economic decision-making. Any solution to the problems that exist within the system must address the economic signals sent and the incentives for both buyers and sellers to “do the right thing” for the future of the system. P17 II. Page 4 of 21 Why is it Necessary to Fix the Problem? The long-term health of the workforce housing system that the community and owners have invested in demands that capital reserves be accumulated and that proper investment in the system be made. Too much public and private money has been invested to allow the inappropriate price signals to continue to incentivize behavior that, while rational to those in the system, puts in jeopardy some 1500-1600 units and millions of dollars of investment. The future workforce and future taxpayers demand that we not shirk our responsibilities. There is some urgency to this issue because units are changing hands on a weekly/monthly basis where sellers are receiving full value and new owners are ending up owning the capital deficit. The problem needs to be addressed to ensure the future viability of the system and to ensure equity among the various stakeholders. State law continues to evolve around condominium ownership and the responsibilities of common owners. It already exists that state law requires HOAs to formulate a policy regarding capital reserves; however neither law nor policy requires an HOA to actually fund capital reserves. Many think that will change over time. The problems with deferred maintenance or repairs from inadequate design/construction are highlighted at the Centennial ownership units. They require some $3.5 million to repair their buildings. Similar problems cannot be allowed to come into existence at other complexes in the system. The cost of major reconstruction/repair must be ameliorated by prudent consideration of reserves and investment. The nature of the problem and the need to fix it long-term suggest that all the stakeholders in the system – the community, current owners and future owners – must collaborate to fix the problem and solve it for the future community of taxpayers and owners alike. Who Pays to Fix the Problem? There are really only three groups of people who stand to benefit from fixing the problem and who therefore have a stake in seeing the problem fixed: the community, current owners and future owners. They should all contribute in some fashion to finding a solution and contributing monetarily to fixing the problem. The Community Taxpayers and the community have long invested in creating affordable workforce housing – either directly through taxes paid and the subsequent development of housing stock, or through the requirements for mitigation placed on new development. Their investment needs to be conserved so that the benefit is preserved for future generations. Therefore it is appropriate for the community to make an investment in existing properties and to ensure that it doesn’t have to repeatedly continue to make that investment in the future. P18 II. Page 5 of 21 Current Owners No one should seriously argue that current owners of property do not have a responsibility for maintaining property they own and use. Current owners need to recognize that the cost of home ownership includes more than mortgage, taxes and HOA dues to provide current services. Maintaining an investment is a cost of home ownership that needs to be recognized and if necessary required by the community who has created or caused to be created the housing stock now in private hands. Future Owners In the free marketplace a future owner would pay a higher price for a well-maintained unit that reflects a current owner’s continued investment in their property. They would pay a lesser price for those units that do not reflect that investment. The market place would send a signal to both buyer and seller regarding the condition of the unit – so in that sense the future buyer is contributing to the ongoing capital investment in common areas and in the condominium ownership areas. They often contribute a “transfer fee” of some kind at sale – a contribution that either goes to the HOA’s capital reserve or reimburses the seller for a part of their investment in the capital reserve account. There is no reason similar conditions cannot exist in the deed-restricted marketplace. We believe that any policy adopted should reflect a contribution from each of these stakeholder groups and should reinforce the kind of marketplace dynamics that would exist outside of the deed-restricted marketplace. DISCUSSION: Today’s worksession will go into more specifics about a proposed capital reserve policy, including: 1. How much should the community invest per unit? 2. How do the stakeholders (community, current owners and future owners) pay their share? 3. What are the pathways to implementation? How Much Does the Community Pay as its “Share”? Given an approach that is a combination of “carrots” and “sticks”, a consensus that the community should contribute some funding in order to preserve the huge investment it has already made in creating the number of deed restricted, workforce housing units it has built or caused to be built, and that substantial changes to the deed restriction, declarations and covenants, and housing guidelines will be part of a proposed policy change. It is appropriate that a substantial contribution from the community is forthcoming. P19 II. Page 6 of 21 The amount that has been discussed is at a level between $5000 and $10,000 per unit. In the 2012 timeframe, the capital reserve studies completed indicated an average shortfall per unit of some $9,484. It is the staff recommendation that the community offer $10,000 per unit to every HOA that:  Agrees to new deed restrictions, amendments to their Declarations and Covenants, and agrees in that new deed restriction that they will abide by the capital reserve policy as it is amended from time to time in the Housing Guidelines where it would reside in the future.  The agreement would be required of all units in an HOA and no unit in the HOA would benefit unless all agreed to the new terms and conditions. The agreement and the funds would be with and credited to the individual unit, not to the HOA.  The money would be set aside in an escrow account and accessible by the HOA for any qualifying capital requirement, released by the APCHA when requested by the HOA and qualified by APCHA. Ongoing accounting of capital reserve requirements and contributions by unit would be maintained by both the HOA and APCHA so that other aspects of the policy can be maintained.  Future contributions to this account would be governed by the terms of the policy and would come from current owners at the time of a sale if they are not yet fully funded as defined by the policy; AND by contributions from future owners as they purchase their unit as governed by the terms of the policy. How do Those Stakeholders Pay Their Share? The Community There is growing sense that a per unit contribution from the “community” is appropriate – setting that dollar amount and determining what “strings” go with accepting taxpayer money need to be determined. Today there are slightly over 1600 deed restricted ownership units – not all of which are in an HOA that has responsibility for common ownership building elements. At $5,000 per unit, the total requirement from government is some $7.5 to $8 million, at $10,000 per unit some $15 to $16 million (assuming every unit participates – something that may not be forthcoming for any number of reasons).  What is meant by “community”? There are really only a few choices about how the government would pay its share of the funding solution:  The city could pay it all  The county could pay it all  The city and the county could each pay half of the required contribution  APCHA could pay it through the Administration Fund – which means the city and the county would pay it on a 50%/50% basis, as the fund balance could not absorb the money contemplated.  APCHA could pay it by using its statutory authority to ask the voters for a tax increase. Under Colorado law, a housing authority may impose: P20 II. Page 7 of 21 a) a sale/use tax at a rate not to exceed one percent, upon every transaction or other incident with respect to which a sales or use tax is levied by the state, excluding the sale or use of cigarettes; or b) an ad valorem tax at a rate not to exceed five mills on each dollar of valuation for assessment of the taxable property within such area. In return for accepting that contribution, we believe that a system of “carrots and sticks” should be adopted that address the inappropriate economic signals being sent under the current system and prevent the problem from growing or reoccurring in the future. This might include the following:  Another 10% allowed increase in sales price (similar to the 10% increase allowed for improvements to the interior of a unit) for investments made by an owner in the common areas of their shared ownership. So a current owner might be able to recoup up to their invested amount or 10% of their purchase price (whichever is lower) after they have made that investment and improved the condition of their complex. This would reward responsible ownership in the same way the marketplace would reward free market owners. Considerations about how this impacts unit affordability and the category system will have to be taken into account.  A deed restriction, declaration amendment or guideline change that says if a unit is sold and the current owner has not met their “fully funded capital reserve” requirement, that amount will be deducted from the sales price and credited to that unit’s contribution. This too would mirror the economic signal sent to sellers in a free market transaction – in that sales prices would reflect the investment made or not made.  An requirement within the sales contract for payment at the time of closing made by the new buyer:  For example, a new buyer might be required to contribute a sum of money – say $500 – at closing to the HOA’s capital reserve account.  And a new buyer might be required to make a payment of up to $1500 (or some percentage of the assessment assigned to the unit – say 15%) to the seller IF, and only if, the unit in question has fully funded their capital reserve account (which makes the decision about what we mean by “fully funded” important to the conversation). The Current Owners Current owners will have to realize that their cost of home ownership must include investment in their property and the setting aside of funds for future capital investments. Establishing that dollar amount and making sure current owners participate in funding repairs and capital reserves would use some of the “carrots and sticks” approaches outlined above. Some of their investment would be offset by a “return” of some sort for that investment from the next generation of buyer for their property. P21 II. Page 8 of 21 Future Owners Using some of the approaches above, future owners would contribute to the capital reserve/common investment dilemmas outlined. They might pay slightly higher prices and/or be required to provide more funds at closing, but would be assured that they are buying a unit that has experienced sufficient investment so that their future use is guaranteed and that they would not inappropriately left “holding the bag” for a failure of past owners to adequately invest in the property. What Are the Pathways to Implementation? These changes can be imposed on the system via changes to:  The Housing Guidelines  Deed Restrictions  Declarations and Covenants for each HOA Housing Guidelines The Housing Guidelines are the major repository of housing policy for the City, the County and the Housing Authority. They are amended from time to time by a vote of all three boards. This requires a high degree of community consensus on the governing policies for the housing program and is the appropriate place for those policy choices to be made and maintained. Many of the current deed restrictions contain a reference to the controlling nature of the Housing Guidelines, with language in the deed restriction that the Housing Guidelines are applicable to the unit in question “as they are amended from time to time.” This language should be in every deed restriction and contain specific reference to the Capital Reserve Policy and the requirements for funding of capital reserves as it is identified in the Housing Guidelines. By inserting this specific language into the deed restriction, future policy decisions will be controlling via changes to the Housing Guidelines, not by amending each and every deed restriction. Deed Restrictions Each deed restriction should be amended to refer specifically to the controlling nature of the Housing Guidelines in general, and to the specific requirements for funding of capital reserves. The deed restriction should refer to the responsibility of the homeowner to adequately fund capital reserves as they are determined by the Housing Guidelines. The deed restriction should specifically reference the ability of the APCHA to retain a portion of future sales proceeds in order to carry out the conditions of the Capital Reserve Policy as it is amended from time to time in the Housing Guidelines. This simultaneous use of Housing Guidelines and Deed Restrictions would allow: (1) the APCHA to retain a portion of a seller’s proceeds if they are not fully funded with that unit’s capital reserve requirements in order to fully fund that unit’s contributions to capital reserves; (2) to P22 II. Page 9 of 21 permit a seller who has fully funded their capital reserve requirements to be repaid a portion of that funding as they sell their unit to the next buyer (15% of the funded reserve for that unit, up to $1500? – Council will need to determine the final amount); (3) permit the price of the unit to rise – up to 10% of the purchase price – for common area investments that meet the criteria of the Housing Guidelines Policy on Capital Reserves and Capital Investments; and (4) permit a Capital Reserve contribution at the time of sale from a new buyer to be required ($500? – Council would have to choose an amount). Declarations and Covenants for each HOA The Capital Reserve Policy would also incorporate a requirement of each HOA participating in the program to amend their Declarations and Covenants to require the HOA to: (1) have a Capital Reserve Study to be performed/updated by a qualified vendor every 3-5 years (Council will need to choose a deadline) and (2) to have a funding plan that would fund the Capital Reserve Amount to the 70% level in cash reserves within 7-10 years (Council will need to choose a deadline). By using a combination of Deed Restrictions, Housing Guidelines, and Declarations & Covenants, we assure the community that the community’s investment is specified for the purposes intended and not diverted into other uses by the HOA or a current owner. It works to ensure that the policy is enacted as intended and produces the desired outcome. It should make sure that the community only has to make this investment ONCE, not over and over again in the event that HOA Boards or owners fail to maintain their resolve regarding Capital Reserves. It would alleviate concerns around court challenges under a scenario where only one of the available tools are used to try and achieve the goals of the Capital Reserve Policy. RECOMMENDED ACTION: If Council believes this approach is the one they want to pursue, we can continue to put more details together, returning for ever more in-depth policy discussions. We have considered the impact these policy options would have on the ability of the Centennial owners to make the ir repairs and have had conversations with their representatives. The Housing Frontier s Group has had hours of conversations about the nature of the problem and the various pathways to solutions. The APCHA Board has likewise considered the issues. As council begins to provide a direction, we can return to these stakeholder groups and see what their reaction is to staff ideas and council direction. At some point we will need to engage the BOCC in this conversation if they are going to participate in both setting the policy and in funding the solution. Council should begin to affirm some of the specific details of the proposed policy so that a final decision about the Capital Reserve Policy and its implementation can be considered by the partners – the APCHA and the BOCC. All will have to agree with the proposed policy, will have to P23 II. Page 10 of 21 participate in the recommended changes and funding plans, and will have to adopt those changes at their board level. NEXT STEPS: 1. Agree on particular detail elements of the policy. 2. Draft language for Deed Restrictions, amendments for Declarations and Covenants, language for Housing Guideline changes relative to the Capital Reserve Policy. 3. Hold meetings with BOCC and the APCHA Board on those policy elements and gain agreement. ATTACHMENTS: Attachment A: Summary of Proposed Elements of the Capital Reserve Policy Attachment B: Excerpt from 2012 Housing Summit Briefing Book on Capital Reserves Attachment C: Summary of State Capital Reserve Laws (2013) from the Community Associations Institute P24 II. Page 11 of 21 Attachment A Summary of Proposed Elements of the Capital Reserve Policy P25 II. Page 12 of 21 Summary of Proposed Capital Reserve Policy Features: Item Description Needs Approval From Community Responsibility 1. Invest $10,000 per unit that participates. Agreement would be by complex HOA but would be with every unit owner in that complex. All owners must agree to terms and conditions for any owner to participate. Cost is estimated at a maximum of $16 million. 2. APCHA, on behalf of the community, will maintain escrow accounts for every unit participating in the program and will disburse funds to the HOA on behalf of every unit that satisfy the requirements for capital investment. 3. Maintain the Capital Reserve Policy in the Housing Guidelines. 4. Create a “Capital Reserve Refunding Policy” in the Housing Guidelines that would allow a fully funded unit owner to receive 15% (up to a maximum of $1500) of his fully funded assessment from a subsequent buyer at closing. This payment reflects the value of a fully funded capital reserve program and returns some value to the seller of a unit that has fully funded its reserve requirement. 5. Create a “Capital Reserve Contribution Policy” in the Housing Guidelines that requires a $500 contribution from every buyer of a deed restricted unit to the HOA’s Capital Reserve at closing (or whatever amount is set in the Housing Guidelines for this purpose). This reflects the “ante” for a new buyer entering the HOA community. Aspen City Council Pitkin County BOCC APCHA Board of Directors HOA Boards Unit owners P26 II. Page 13 of 21 HOA Responsibility 1. Perform a Capital Reserve Study and update it every 3-5 years. 2. Determine how to allocate capital reserve contributions to each unit (by unit count, bedroom count or square footage). Maintain an accounting – along with APCHA staff – of the current status of every unit towards that assessment total. 3. Create a plan to fund with cash reserves 70% of that study amount over a 7-10 year horizon. 4. Submit funding requests to APCHA in accordance with Housing Guidelines policy for what constitutes a legitimate capital spending request. 5. Maintain an accounting of common area capital investments made – and gain APCHA approval in advance of those investments – so that APCHA may make price adjustments in the subsequent sales price of those units in accordance with the common area investment policies. 6. Update Declarations and Covenants of their respective HOA to require the Capital Reserve Study and funding approach as defined by the Housing Guidelines. 7. Update Declarations and Covenants of their respective HOA to require a Capital Reserve Contribution by all future buyers at closing in the amount specified in the Housing Guidelines. 8. Confirm accounting by unit for assessment and spending with APCHA staff on an annual basis. Aspen City Council Pitkin County BOCC APCHA Board of Directors HOA Boards Seller Responsibility 1. Upon acceptance into the Capital Reserve Policy Program, a seller will either fully fund their capital reserve assessment or disgorge the difference between the current reserve contribution and the assessment required at the sale of their unit. 2. Seller will request up to a 10% price adjustment to their unit to reflect the investments made by their HOA and their Aspen City Council Pitkin County BOCC P27 II. Page 14 of 21 contribution to capital reserve assessments. This will be granted when the HOA has achieved a “fully funded” status as determined by the APCHA under the Housing Guidelines. 3. Seller will request up to a $1500 capital reserve payment from a subsequent buyer if eligible under the Housing Guidelines. APCHA Board of Directors HOA Boards Unit owners Buyer Responsibility 1. Buyer will reimburse a seller for 15% (up to a maximum of $1500) as a capital reserve payment IF the buyer has fully funded the capital reserve assessment of the unit involved in the transaction. 2. Buyer will pay a one-time capital reserve contribution of $500 (or whatever amount is set by the Housing Guidelines) to the HOA at the time of sale. Aspen City Council Pitkin County BOCC APCHA Board of Directors HOA Boards Unit owners Unit buyers P28 II. Page 15 of 21 Attachment B Excerpt from 2012 Housing Summit Briefing Book P29 II. Page 16 of 21 Excerpt from Housing Summit Briefing Book The purpose of a capital reserve fund for a condo or homeowners association is to fund and plan for the inevitable repair and replacements costs in the common areas of a community. From roofs to sidewalks, from shutters to gardens, repair and replacement is part of any property owner's task list. When done properly, an audit or capital reserve study will collect information on property condition, and project a useful life and repair and replacement costs. When projected out over a 15 or 30 year period (allowing for inflation), a study can provide a board with a roadmap to follow for the funding, replacement, and repair of the association's common areas. According to the Community Associations Institute (CAI), at the end of 2009 the total amount of money held in reserves (accumulated reserves) by all HOAs and condominiums in the U.S. is approximately $35 billion dollars. When divided by the total number of homes within these HOAs (24 million) we can see that the average accumulated reserves per household are a paltry $1,458! Under a cost sharing agreement with APCHA, Capital Reserve studies for maintaining existing housing stock are in various states of progress – some associations have rough estimates of need; others are still compiling assessments of various capital items and continue to develop their financial situation. However, from what data currently available, an underlying truth exists – that being there is a shortfall in capital reserves for the affordable housing developments in Aspen and Pitkin County, as there is for almost every HOA in the free market world. The following table notes that of the associations already reviewed, aggregate funded status for capital reserves stands at roughly 22%, or the equivalent shortfall of around $7.4 million. If the additional associations and total of ~1500 units were extrapolated from those which were the subject of the studies – and had a similar average shortfall per unit – the potential shortfall for the entire affordable housing environment could be as large as roughly $14.2 million. Looking at the across the distribution of associations who have participated in the study effort, first from the perspective of the total reserves needed and the gap between current reserve amounts and the recommendations: Table 9 # of Units Starting Capital Reserve Targeted Reserve Funded Percent Shortfall per Unit Aggregate Capital Shortfall Associations Reviewed 778 $2,050,018 $9,428,246 21.7% ($9,484) ($7,378,228) Minimum 91 $130,000 $82,481 158% $522 $47,519 Maximum 92 $500,455 $3,301,170 15% ($30,443) ($2,800,715) Source: Aggregated data from Housing Frontier’s as of July 2012 P30 II. Page 17 of 21 You can see that the vast majority of the gaps are less than $500,000 per association. When looking at the gap on a per unit basis the majority is less than $10,000 per unit. What is clear is that there are a few associations who have significant (> $1 million per association, >$20,000 per unit) funding problems to address. Of course, the shortfall above assumes reaching full funding for replacement of all capital items – a benchmark not typically achieved by homeowner associations whether deed restricted or free market, especially following recent economic conditions. In fact, most homeowner associations never target a full funding scenario but instead opt for other common threshold levels as described below: -$3,000,000 -$2,500,000 -$2,000,000 -$1,500,000 -$1,000,000 -$500,000 $0 $500,000 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 -$35,000.00 -$30,000.00 -$25,000.00 -$20,000.00 -$15,000.00 -$10,000.00 -$5,000.00 $0.00 $5,000.00 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 P31 II. Page 18 of 21  Baseline funding: Simply maintaining a positive balance in the reserve account – any amount is sufficient, so long as the balance does not fall below zero.  Threshold funding: Similar to Baseline funding, this method targets a specific dollar amount to maintain in reserves (other than zero).  Statutory funding: Uniquely defined by individual localities through statute, if such law exists in the location of your property, defining a minimum necessary reserve percent. Note that while some states prescribe specific funding requirements for HOAs in rule or law, Colorado is not one of these – Colorado’s only requirement is to have a replacement plan established, funding is not mandated and the reserve study may even be performed internally and not by an independent, third party. With multiple perspectives held by vastly different individual governing groups and the unique circumstances and regulations surrounding each development being managed, it is ineffective to relate the status of capital reserve funding shortfalls for Pitkin County affordable housing developments to other groupings. Rather, given the diversity that exists, instead of focusing on the state of the universe for current reserves, it is better to look at the implications of low reserves and how that affects the development. It is more beneficial to focus on individual unit sales and ability to secure lending as the basis for determining appropriate reserve levels, and given today’s economic environment, reserve levels in the 70%-80% range appear favorable when considering lending options and real estate transactions. While there is a sizable gap between the desired 70%-80% benchmark and the current 22% reserve funding percentage in affordable housing units in the Valley with governing associations, given the number of units involved and potential to spread the shortfall over multiple years, the problem does appear to be more manageable. Many experts have recommended a 5-10 year plan to bring reserve levels up to the study- recommended amounts. Using the average shortfall per unit of $9484, and assuming a 70% target and a ten-year amortization period for all 684 units, the average temporary monthly increase would be less than $53/month per unit (assuming a 1% interest earned). Our HOA communities – and especially their board members – have to recognize the need to be responsible owners and create a plan to properly fund their reserve amounts at a higher level than is the current norm. If we look at a hypothetical Category 3 buyer of a 2-bedroom unit in 2000 who paid around $130,000 for the unit, and who, under the guidelines, could sell that unit today for $187,000, they would have $57,000 of appreciation. How much of an investment would be appropriate to secure that gain? It appears to be a reasonable expectation to invest $10,000 (the average capital reserve shortfall per unit) over those 10 years ($1000 per year) to realize their gain of $57,000, certainly the counterpart in the free market would see that as a very reasonable cost of home ownership. When faced with the need to make a repair and actually spend money, the following are ways that an HOA can budget those expenditures: P32 II. Page 19 of 21 1. Reserves: If you’ve set aside reserves for the type of project you’re facing, dipping into the reserves is an obvious option. “Unfortunately, associations aren’t reserving anywhere where they should be,” says Lisa A. Magill, a shareholder and association attorney at Becker & Poliakoff PA in Fort Lauderdale, Fla. “In Florida, owners can vote down the association’s funding of any reserves. Continually, you’ll have owners who aren’t in a position to pay any assessments. So if an association is collecting reserves, it’s usually only about 10 percent of what it should be collecting. When projects come up, they’re either paid for by a special assessment or some other means, usually a loan.” 2. A special assessment: A special assessment is a common fallback option for HOAs that need money immediately and have no other or better way to raise it. 3. A loan: “An institutional loan usually entails pledging as collateral the HOA’s lien rights in terms of collecting assessments,” says Andrew Lewis of Eisinger, Brown, Lewis, Frankel & Chaiet PA in Hollywood, Fla., who specializes in representing community associations. “Lenders look at all kinds of factors when considering HOA loans,” explains Magill. “Are you capitalized? Do you have reserves? What’s your percentage of delinquencies? What other maintenance items have to be performed? For example, with the loan, are you funding only one of 10 projects that need to be done? They also look to make sure you have all the appropriate insurance, which associations should have, anyway, but sometimes don’t. But really, the delinquency rate is the most important thing. Some lenders won’t approve a loan if your HOA has 7 -8 percent delinquencies, but the benchmark is 15 percent.” In our conversations with local lenders, they indicate they are making these loans and are willing to make these loans to deed restricted HOAs. Obviously, a combination of these three options is the most likely way that our deed restricted communities will fund major maintenance/repair work, given the general condition of their capital reserves. P33 II. Page 20 of 21 P34 II. Page 21 of 21 Attachment C Summary of State Capital Reserve Laws (2013) from the Community Associations Institute P35 II. Community Associations Institute (CAI) | 6402 Arlington Blvd., Ste 500, Falls Church, VA 22042 | www.caionline.org | (888) 224-4321 Summary of State Reserve Fund Laws (September 2013) Many states have enacted legislation dealing with community association reserve and operating funds to protect owners from fiscal problems and financial hardship. More states may enact similar legislation as community associations continue to gain popularity. The following is a summary of each state reserve fund law. Reserve Studies are required in the following states: California, Delaware, Hawaii, Nevada, Oregon, Utah and Virginia. Washington statutorily encourages associations to have a reserve study performed every three years unless doing so would impose an unreasonable hardship. Please remember that community associations are governed by state law, which can vary widely from state to state. This information is intended for general educational and informational purposes only; it may not reflect the most recent developments, and it may contain errors or omissions. The publisher does not warrant or guarantee that the information contained here complies with applicable law of any given state. It is not intended to be a substitute for advice from a lawyer, community manager, accountant, insurance agent, reserve professional, lender, or any other professional. ALABAMA The unit owners’ associations may adopt and amend budgets for revenues, expenditures and reserves and impose and collect assessments for common expenses from unit owners. Section 35-8A-302(2). Sellers must present buyers with an offering statement of the amount, or a statement that there is no amount, included in the budget as a reserve for repairs and replacement, and a statement of any other reserves. Section 35-8A-403(5). There is no statutory requirement to conduct a reserve study and no statutory requirement to fund reserves. ALASKA The unit owners’ associations may adopt and amend budgets for revenues, expenditures, and reserves and impose and collect assessments for common expenses from unit owners. Section 34.08.320(2). A public offering statement must include assumptions concerning the calculation of the amount of reserves certified by a certified architect or engineer; the amount included in the budget as a reserve for repairs and replacement including the estimated cost of repair or replacement cost and the estimated useful life of the asset to be repaired or replaced; and a statement of any other reserves. Section 34.08.530(5). P36 II. 2 Community Associations Institute (CAI) | 6402 Arlington Blvd., Ste 500, Falls Church, VA 22042 | www.caionline.org | (888) 224-4321 There is no statutory requirement to conduct a reserve study and no statutory requirement to fund reserves. ARIZONA For condominiums, unit owners’ associations may adopt and amend budgets for revenues, expenditures, and reserves and impose and collect assessments for common expenses from unit owners. Section 33-1242(2). The resale disclosure statement must include the total amount of money held by the association as reserves. The purchaser must also receive a copy of the most recent reserve study of the association, if any. Section 33-1260. For planned communities, resale disclosure statement must include the total amount of money held by the association as reserves. The purchaser must also receive a copy of the most recent reserve study of the community, if any. Section 33-1806. There is no statutory requirement to conduct a reserve study and no statutory requirement to fund reserves. Section 10-3830 requires directors of nonprofit corporations to discharged duties in good faith, with the care an ordinarily prudent person in a like position would exercise under similar circumstances, and in a manner the director reasonably believes to be in the best interests of the corporation. ARKANSAS There is no statutory requirement to conduct a reserve study and no statutory requirement to fund reserves. CALIFORNIA On a quarterly basis common interest development boards of directors must review reserve accounts and compare reserves to the previous year. At least once every three years, boards must conduct a competent and diligent visual inspection of the property that the association is obligated to repair, replace restore or maintain as part of a study of the reserve account requirements. The board is to annually review this study to consider and implement necessary adjustments to the board’s analysis of the reserve account requirements. See more detailed information in California Civil Code Sections 1365 and 1365.5. COLORADO The unit owners’ associations may adopt and amend budgets for revenues, expenditures, and reserves and impose and collect assessments for common expenses from unit owners. Section 38-33.3-302. There is no statutory requirement to conduct a reserve study and no statutory requirement to fund reserves. P37 II. 3 Community Associations Institute (CAI) | 6402 Arlington Blvd., Ste 500, Falls Church, VA 22042 | www.caionline.org | (888) 224-4321 CONNECTICUT Condominium associations shall provide in the proposed budget for the condominium adequate reserves for capital expenditures. Section 47-88e. Common interest community executive boards, at least annually, shall adopt a proposed budget for the common interest community for consideration by the unit owners. Not later than thirty days after the adoption of a proposed budget, the executive board shall provide to all unit owners a summary of the budget, including a statement of the amount of any reserves, and a statement of the basis on which such reserves are calculated and funded. Section 47- 261e. Resale disclosure statement must include the total amount of money held by the association as reserves. Section 47-264(5). There is no statutory requirement to conduct a reserve study. DELAWARE Condominiums must contain within their declaration provisions that mandate that the association create and maintain, in addition to any reserve for contingencies, a fully funded repair and replacement reserve based upon a current reserve study. Section 81-205(14). Condominium disclosure statement must include the current balance in reserves and the most recent reserve study. Section 84-409. DISTRICT OF COLUMBIA The unit owners’ associations may adopt and amend budgets for revenues, expenditures, and reserves and impose and collect assessments for common expenses from unit owners. Section 42-1903.08. Disclosure statement shall include the amount, or a statement that there is no amount, included in the projected budget as a reserve for repairs and replacement. Section 42-1904.04. There is no statutory requirement to conduct a reserve study and no statutory requirement to fund reserves. FLORIDA Condominium financial reporting rules must include, but not be limited to, standards for presenting a summary of association reserves, including a good faith estimate disclosing the annual amount of reserve funds that would be necessary for the association to fully fund reserves for each reserve item based on the straight-line accounting method. Section 718-111(13). Annual budgets shall include reserve accounts for items such as, but not limited to, roof replacement, pavement, painting and other items with a replacement cost exceeding $10,000. Funding for the accounts can be waived by a majority vote at a duly called meeting. Section 718.112(f)(2). Homeowner associations may adopt a budget that includes reserve accounts for capital expenditures and deferred maintenance for which the association is responsible. If reserve accounts are not established, funding of such reserves is limited to the extent that the governing documents limit P38 II. 4 Community Associations Institute (CAI) | 6402 Arlington Blvd., Ste 500, Falls Church, VA 22042 | www.caionline.org | (888) 224-4321 increases in assessments, including reserves. Associations may waive reserves with proper notification in their financial statement. Section 720.303(6). There is no statutory requirement to conduct a reserve study and no statutory requirement to fund reserves. GEORGIA Condominium resale disclosure statement must include the estimated or actual operating budget for the condominium for the current year’s reserves. Section 44-3-111. There is no statutory requirement to conduct a reserve study and no statutory requirement to fund reserves. HAWAII Condominium budgets shall include the amount of money in reserve, future reserve estimates based on a reserve study performed by the association, an explanation of how reserves are computed and the amount to be collected for reserves in the year ahead. The association shall compute the estimated replacement reserves by a formula that is based on the estimated life and the estimated capital expenditure or major maintenance required for each part of the property. The estimated replacement reserves shall include: adjustments for revenues which will be received and expenditures which will be made before the beginning of the fiscal year to which the budget relates; and separate, designated reserves for each part of the property for which capital expenditures or major maintenance will exceed $10,000. Parts of the property for which capital expenditures or major maintenance will not exceed $10,000 may be aggregated in a single designated reserve. Section 514B-148. IDAHO There is no statutory requirement to conduct a reserve study and no statutory requirement to fund reserves. ILLINOIS The Common Interest Community Act requires the board to give each owner a copy of the proposed annual budget which shall provide for reasonable reserves for capital expenditures and deferred maintenance for repair or replacement of the common elements. 765 ILCS 160/1-45. The Condominium Act requires the board of managers to adopt a budget that provides for reasonable reserves for capital expenditures and differed maintenance for repair or replacement of the common elements. To determine the amount of reserves appropriate, the board shall take into consideration the any independent professional reserve study which the association may obtain. Any association without a reserve requirement in its condominium instruments may elect to waive in whole or in part the reserve requirements by a vote of 2/3 of the total votes of the association. 760 ILCS 605/9. P39 II. 5 Community Associations Institute (CAI) | 6402 Arlington Blvd., Ste 500, Falls Church, VA 22042 | www.caionline.org | (888) 224-4321 Disclosure statement shall include a statement of the status and amount of any reserve or replacement fund and any other fund specifically designated for association projects. There is no statutory requirement to conduct a reserve study. INDIANA All sums assessed by the association of co-owners shall be established by using generally accepted accounting principles applied on a consistent basis and shall include the establishment and maintenance of a replacement reserve fund. The replacement reserve fund may be used for capital expenditures and replacement and repair of the common areas and facilities and may not be used for usual and ordinary repair expenses of the common areas and facilities. Section 32-25-4-4. There is no statutory requirement to conduct a reserve study. IOWA There is no statutory requirement to conduct a reserve study and no statutory requirement to fund reserves. KANSAS There is no statutory requirement to conduct a reserve study and no statutory requirement to fund reserves. KENTUCKY The Horizontal Property Law requires all co-owners to contribute toward the expense of maintaining a replacement reserve fund for repairs and maintenance of the general common elements. Section 381.870. Condominium unit owners’ associations may adopt and amend budgets for revenues, expenditures, and reserves and impose and collect assessments for common expenses from unit owners. Section 981.9167. The resale disclosure statement must include the total amount of any reserves for capital expenditures, if any, and of any portions of those reserves designated by the association for any specified projects. Section 381.9203. There is no statutory requirement to conduct a reserve study. LOUISIANA Associations may adopt and amend budgets for revenues, expenditures, and reserves and make and collect assessments for common expenses from unit owners. Section 9:1123.102. Public offering statements shall include an indication of the amount, or a statement that there is no amount, included in the budget as a reserve for repairs and replacement. Section 9:1124.102. P40 II. 6 Community Associations Institute (CAI) | 6402 Arlington Blvd., Ste 500, Falls Church, VA 22042 | www.caionline.org | (888) 224-4321 There is no statutory requirement to conduct a reserve study and no statutory requirement to fund reserves. MAINE Unit owners associations may adopt and amend budgets for revenues, expenditures and reserves and collect assessments for common expenses from unit owners. Section 1603-102. Public offering statements must contain a statement of the amount, or a statement that there is no amount, included in the budget as a reserve for repairs and replacement and a statement of the amount and purpose of any other reserves. Section 1604-103. There is no statutory requirement to conduct a reserve study and no statutory requirement to fund reserves. MARYLAND Councils of unit owners have the power to adopt and amend budgets for revenue, expenditures, and reserves and collect assessments for common expenses from unit owners. Section 11-109. The level of reserves is required to be included in the annual budget; however, there is not a required level of reserve funding. Section 11-109.2. Resale certificate must contain the current operating budget of the condominium including details concerning the reserve fund for repair and replacement and its intended use, or a statement that there is no reserve fund. Section 11-1350 There is no statutory requirement to conduct a reserve study and no statutory requirement to fund reserves. MASSACHUSETTS All condominiums shall be required to maintain an adequate replacement reserve fund, collected as part of the common expenses and deposited in an account or accounts separate and segregated from operating funds. Section 183A-10(i). Managing agents shall be responsible for rendering, in no case less frequently than quarterly, a written report to the trustees or the managing board of the organization of unit owners detailing all receipts and expenditures on behalf of the organization, including beginning and ending balances and copies of all relevant bank statements and reconciliations for the replacement reserve fund, and maintain a separate and distinct account for the replacement reserve fund. Section 183A-10(f). There is no statutory requirement to conduct a reserve study. MICHIGAN Condominiums must have a reserve fund for major repairs and replacement of common elements shall be maintained by the associations of co-owners. The administrator may by rule establish minimum standards for reserve funds. Section 559.205. P41 II. 7 Community Associations Institute (CAI) | 6402 Arlington Blvd., Ste 500, Falls Church, VA 22042 | www.caionline.org | (888) 224-4321 The state administrative code requires the co-owners’ association to maintain a reserve fund which, at a minimum, shall be equal to 10% of the association’s current annual budget on a noncumulative basis. The funds shall only be used for major repairs and replacement of common elements. Additionally, the following statement shall be contained in the bylaws: “The minimum standard required by this section may prove to be inadequate for a particular project. The association of co-owners should carefully analyze their condominium project to determine if a greater amount should be set aside, or if additional reserve funds should be established for other purposes.” Rule 559.511. There is no statutory requirement to conduct a reserve study. MINNESOTA The common interest ownership act requires an association to include in its annual budgets replacement reserves projected by the board to be adequate, together with past and future contributions to replacement reserves, to fund the replacement of common elements. The act also requires the association to reevaluate the adequacy of its budgeted replacement reserves at least every third year after the recording of the declaration creating the common interest community. Section 515B.3-1441. Unit owners associations have the power to adopt and amend budgets for revenues, expenditures and reserves and collect assessments for common expenses from unit owners. Section 515B.3-101. Communities must distribute an annual report with a statement of t he asso ciation's total r eplacement rese rves , t he co m po nent s of t he commo n i nte re st comm unity f o r wh ich the re se rv es are set aside, and th e amo unts o f th e reser ves , if a ny, that t he board ha s allocated for t he replacem ent o f eac h o f t h ose c o m ponent s. Sec t io n 515 B.3 -1 06. D isclo sure statem e nt s m us t include the amount i n t he budget as r e plac e ment re se rv es and a st atem ent o f a ny o th er r es erve s. There is no statutory requirement to conduct a formal reserve study. MISSISSIPPI There is no statutory requirement to conduct a reserve study and no statutory requirement to fund reserves. MISSOURI Unit owners associations may adopt and amend budgets for revenues, expenditures, and reserves and collect assessments for common expenses from unit owners. Section 448.3-102.1. Resale certificates must provide the amount of any reserves for capital expenditures and of any portions of those reserves designated by the association for any specified projects. Section 448.4 -109.1. There is no statutory requirement to conduct a reserve study and no statutory requirement to fund reserves. P42 II. 8 Community Associations Institute (CAI) | 6402 Arlington Blvd., Ste 500, Falls Church, VA 22042 | www.caionline.org | (888) 224-4321 MONTANA There is no statutory requirement to conduct a reserve study and no statutory requirement to fund reserves. NEBRASKA Unit owners associations may adopt and amend budgets for revenues, expenditures, and reserves and collect assessments for common expenses from unit owners. Section 76-860. There is no statutory requirement to conduct a reserve study and no statutory requirement to fund reserves. NEVADA The common interest ownership act requires an association to establish adequate reserves, funded on a reasonable basis, for the repair, replacement and restoration of the major components of the common elements. Section 116.3115. Additionally, the executive board of an association is required to conduct a study of reserves at least every five years, review the study to determine if reserves are sufficient, and adjust reserves, if necessary. The statute specifies how the study is to be conducted. Section 116.31152. A public offering statement must include a budget which has a statement of the amount included in the budget as reserves. Section 116.4103. NEW HAMPSHIRE Public offering statement must include the status and amount of any reserve for the major maintenance or replacement fund and any portion of such fund earmarked for any specified project by the board of directors. Section 356-B:58. NEW JERSEY The association may levy and collect assessments duly made by the association for a share of common expenses or otherwise, including any other moneys duly owed the association, upon proper notice to the appropriate unit owner, together with interest thereon, late fees and reasonable attorneys' fees, if authorized by the master deed or bylaws. All funds collected by an association shall be maintained separately in the association's name. For investment purposes only, reserve funds may be commingled with operating funds of the association. Commingled operating and reserve funds shall be accounted for separately, and a commingled account shall not, at any time, be less than the amount identified as reserve funds. Section 46:8B-15. There is no statutory requirement to conduct a reserve study and no statutory requirement to fund reserves. P43 II. 9 Community Associations Institute (CAI) | 6402 Arlington Blvd., Ste 500, Falls Church, VA 22042 | www.caionline.org | (888) 224-4321 NEW MEXICO Unit owners of a condominium association may adopt and amend budgets for revenues, expenditures, and reserves and collect assessments for common expenses from unit owners. Section 47-7C-2. Disclosure statements must make a statement of the amount or a statement that there is no amount included in the budget as a reserve for repairs and replacement and a statement of any other reserves. Section 47-7D-3 and 47-7E. There is no statutory requirement to conduct a reserve study and no statutory requirement to fund reserves. NEW YORK Condominium bylaws may contain provisions governing the payment, collection and disbursement of funds, including reserves, to provide for major and minor maintenance, repairs, additions, improvements, replacements, working capital, bad debts and unpaid common expenses, depreciation, obsolescence and similar purposes. RRP Section 339-V. Co-operative corporation directors must periodically set aside reasonable sums for reserves. CCO Section 72. There is no statutory requirement to conduct a reserve study. NORTH CAROLINA Unit owners associations may adopt and amend budgets for revenues, expenditures, and reserves and collect assessments for common expenses from unit owners. Section 47C-3-102 and 47F-3-102. Public offering statements must include the amount, or a statement that there is no amount, included in the budget as a reserve for repairs and replacement and a statement of any other reserves. Section 47C-4- 103. There is no statutory requirement to conduct a reserve study and no statutory requirement to fund reserves. NORTH DAKOTA There is no statutory requirement to conduct a reserve study and no statutory requirement to fund reserves. OHIO Unless otherwise provided in the declaration or bylaws, the condominium unit owners association, through the board of directors, shall adopt and amend budgets for revenues, expenditures, and reserves in an amount adequate to repair and replace major capital items in the normal course of operations without the necessity of special assessments, provided that the amount set aside annually for reserves shall not be less than 10% of the budget for that year unless the reserve requirement is waived annually by the unit owners exercising not less than a majority of the voting power of the unit owners P44 II. 10 Community Associations Institute (CAI) | 6402 Arlington Blvd., Ste 500, Falls Church, VA 22042 | www.caionline.org | (888) 224-4321 association. Section 5311.081. P45 II. 11 Community Associations Institute (CAI) | 6402 Arlington Blvd., Ste 500, Falls Church, VA 22042 | www.caionline.org | (888) 224-4321 Planned community owners associations, unless otherwise provided in the declaration or bylaws, through its board of directors, shall annually adopt and amend an estimated budget for revenues and expenditures. Any budget shall include reserves in an amount adequate to repair and replace major capital items in the normal course of operations without the necessity of special assessments, unless the owners, exercising not less than a majority of the voting power of the owners association, waive the reserve requirement annually. Section 5312.06. There is no statutory requirement to conduct a reserve study. OKLAHOMA There is no statutory requirement to conduct a reserve study and no statutory requirement to fund reserves. OREGON The declarant, on behalf of a homeowners association, shall conduct an initial reserve study, prepare an initial maintenance plan and establish a reserve account. A reserve account shall be established to fund major maintenance, repair or replacement of all items of common property which will normally require major maintenance, repair or replacement, in whole or in part, in more than one and less than 30 years. The board of directors of the association annually shall conduct a reserve study or review and update an existing study to determine the reserve account requirements. After review of the reserve study or reserve study update, the board of directors may, without any action by owners adjust the amount of payments as indicated by the study or update and provide for other reserve items that the board of directors, in its discretion, may deem appropriate. Section 94.595 and 100.175. Following a turnover of power from the declarant to the association, the board of directors at least annually shall adopt a budget for the planned community and include moneys to be allocated to the reserve account. Section 94.645 and 100.412. However, the board of directors, with the approval of all owners, may elect not to fund the reserve account for the following year. Section 94.595 and 100.175. PENNSYLVANIA Unit owners associations may adopt and amend budgets for revenues, expenditures, and reserves and collect assessments for common expenses from unit owners. Section 3302 and 5302. Disclosure statements must statement of the amount or a statement that there is no amount included in the budget as a reserve for repairs and replacement and a statement of any other reserves. Section 3402 and 5402. There is no statutory requirement to conduct a reserve study and no statutory requirement to fund reserves. P46 II. 12 Community Associations Institute (CAI) | 6402 Arlington Blvd., Ste 500, Falls Church, VA 22042 | www.caionline.org | (888) 224-4321 RHODE ISLAND Unit owners associations may adopt and amend budgets for revenues, expenditures, and reserves and collect assessments for common expenses from unit owners. Section34-36.1-3.02. Public offering statements for condominiums must disclose a budget detailing the amount of reserves sufficient for painting exterior surfaces, replacing roofing, resurfacing roadways or other items subject to declaration. Must also disclose itemized life spans for common elements and expected impact on assessments. Section 34-36.1-4.03. There is no statutory requirement to conduct a reserve study. SOUTH CAROLINA There is no statutory requirement to conduct a reserve study and no statutory requirement to fund reserves. SOUTH DAKOTA There is no statutory requirement to conduct a reserve study and no statutory requirement to fund reserves. TENNESSEE Unit owners associations may adopt and amend budgets for revenues, expenditures, and reserves and collect assessments for common expenses from unit owners. Section 66-27-402. Disclosure statements must include the amount, or a statement that there is no amount, included in the budget as a reserve for repairs and replacements, and whether or not any study has been done to determine their adequacy, if a study has been done, where the study will be made available for review and inspection, and a statement of any other reserves. Section 66-27-503. There is no statutory requirement to conduct a reserve study and no statutory requirement to fund reserves. TEXAS Unit owners associations may adopt and amend budgets for revenues, expenditures, and reserves and collect assessments for common expenses from unit owners. Section 82.102. Resale statements must include the amount of reserves, if any, for capital expenditures and of portions of those reserves designated by the association for a specified project. Section 82.157. There is no statutory requirement to conduct a reserve study and no statutory requirement to fund reserves. P47 II. 13 Community Associations Institute (CAI) | 6402 Arlington Blvd., Ste 500, Falls Church, VA 22042 | www.caionline.org | (888) 224-4321 UTAH Condominium management committees must cause a reserve analysis to be conducted no less frequently than every six years and review and, if necessary, update a previously conducted reserve analysis no less frequently than every three years. The management committee may conduct a reserve analysis itself or may engage a reliable person or organization, as determined by the management committee, to conduct the reserve analysis. An association of unit owners shall annually present the reserve study and provide an opportunity for unit owners to discuss reserves and to vote on whether to fund a reserve fund and, if so, how to fund it and in what amount. Section 57-8-7.5 and 57-8a-211. There is no statutory requirement to fund reserves. VERMONT Unit owners associations may adopt and amend budgets for revenues, expenditures, and reserves and collect assessments for common expenses from unit owners. Section 27A-3-102. Public offering statement must include the amount, or a statement that there is no amount, included in the budget as a reserve for repairs and replacement and statement of any other reserves. Section 27A-4-103. There is no statutory requirement to conduct a reserve study and no statutory requirement to fund reserves. VIRGINIA Associations must conduct a reserve study at least once every five years to determine the necessity and amount of reserves required to repair, replace and restore the common elements or capital components. The board of directors must review the study at least annually and make adjustments as the board determines to keep the funding of reserves sufficient. The statutory provisions on reserves also include requirements for the contents of the association budget if reserves are determined to be a necessity. Section 55-79.83.1 and 55-514.1. Resale certificates must include the current reserve study report or a summary thereof, a statement of the status and amount of any reserve or replacement fund and any portion of the fund designated for any specified project by the association. Section 55-79.97. WASHINGTON Unit owners associations may adopt and amend budgets for revenues, expenditures, and reserves and collect assessments for common expenses from unit owners, and establish and administer a reserve account and prepare a reserve study. Section 64.34.304 and 64.38.020. The decisions relating to the preparation and updating of a reserve study must be made by the board of directors of the association in the exercise of the reasonable discretion of the board. Such decisions must include whether a reserve study will be prepared or updated, and whether the assistance of a reserve study professional will be utilized. Section 64.34.388. Associations are encouraged to establish a reserve account to fund major maintenance, repair, and replacement of common elements, including limited common elements that will require major maintenance, repair, or replacement within 30 years. Unless doing so would impose P48 II. 14 Community Associations Institute (CAI) | 6402 Arlington Blvd., Ste 500, Falls Church, VA 22042 | www.caionline.org | (888) 224-4321 an unreasonable hardship, an association with significant assets shall prepare and update a reserve study. The initial reserve study must be based upon a visual site inspection conducted by a reserve study professional. Unless doing so would impose an unreasonable hardship, the association shall update the reserve study annually. At least every three years, an updated reserve study must be prepared and based upon a visual site inspection conducted by a reserve study professional. Section 64.34.380 and 64.38.065. The public offering statement shall include copies of the association's current reserve study, if any. If the association does not have a reserve study, the public offering statement shall contain the following disclosure: “This association does not have a current reserve study. The lack of a current reserve study poses certain risks to you, the purchaser. Insufficient reserves may, under some circumstances, require you to pay on demand as a special assessment your share of common expenses for the cost of major maintenance, repair, or replacement of a common element.” Section 64.34.410. WEST VIRGINIA Unit owners associations may adopt and amend budgets for revenues, expenditures, and reserves and collect assessments for common expenses from unit owners. Section 36B-3-102. Public offering statement must include the amount, or a statement that there is no amount, included in the budget as a reserve for repairs and replacement and statement of any other reserves. Section 36B-4-103. There is no statutory requirement to conduct a reserve study and no statutory requirement to fund reserves. WISCONSIN An association may, with the written consent of a majority of the unit votes, create or terminate a statutory reserve account. Section 703.163. There is no statutory requirement to conduct a reserve study and no statutory requirement to fund reserves. WYOMING There is no statutory requirement to conduct a reserve study and no statutory requirement to fund reserves. P49 II.