Capital Planning

Hi neighbors, (this is Peter)

Appreciate the discussion at the annual homeowners meeting around how we fund capital projects as it’s a lot to absorb. As mentioned, the operating budget is in a good place and pretty straight forward; what annual expenses do we incur to keep our HOA running the way we want it and what changes do we expect to see next year.

Capital projects/reserves is very different story though so as requested, attached is a copy of the preliminary Reserve Plan I put together in Excel format. (NOTE: THE SPREADSHEET IS POSTED IN THE INFORMATION SECTION OF THIS HOA WEBSITE)

I highlighted in orange the values you can play around with, on the top section it’s the monthly contribution to reserves, you can enter different amounts and formulas will calculate and adjust the overall reserve account balances, contributions and special assessment amounts needed to keep a positive balance each year.

On the lower half, you can play around with life expectancy and todays costs of the various categories and it will calculate projected costs and replacement years. You will have to manually adjust the column year those projected costs appear though on the right because I haven’t figured out the formula to do that part automatically.  I used average cost estimates based on quantities for the 'today costs'.

I created a few extra tabs at the bottom copying the main sheet so you can play around with different scenarios while retaining the original to refer back to.  Feel free to reach out to me directly if you need help. I’m no Excel expert but mostly know my way around a spreadsheet.

Some things to bear in mind:

• Prospective mortgage companies and some buyers look for financial responsibility in a HOA. Not having a reserve plan or adequately funded reserve account can (and has) resulted in sales falling through because our disclosures were flagged by mortgage underwriters.

• Keeping dues unrealistically low and relying on special assessments for all capital projects is problematic (disclosures, inability of some homeowners to raise large assessment amounts, lender conditions etc)

• Abnormally high dues is equally damaging indicating past financial irresponsibility and can be off putting to prospective buyers.

• Minnesota Common Interest Ownership Act (MCIOA) is a state statute and is  required by all HOA’s formed after 1994. It provides a framework for legal and financial responsibility for HOA’s and supplements bylaws becoming part of governing docs. It includes requirements for funding reserves.  Many  HOA’s formed prior to 1994 adopted MCIOA as it strengthens their governing docs which are often inadequate. Please feel free to google MCIOA for more information.

• For comparison I looked at several smaller townhome HOA’s and dues typically range from low 400’s to high 600’s per month with 75 to 150 of that going to reserves. Lost Lake townhomes in Mound is $633/m though not sure of how much of that is going to reserves.

• The remaining life and todays replacement costs of our infrastructure are estimates that can probably be refined a little. The important thing is we are planning for capital replacements and can move projects closer or further out as needed. Reserve plans are typically reviewed and updated every few years.

• As discussed, our largest impending capital project is the pool, we know the concrete deck is compromised and the pool shell is old but its remaining life is unknown. One thought is to keep it operational as long as we can (while we save) until we are forced into making repairs then we can re-evaluate at that time how extensive we want to get.

• If anyone thinks of an infrastructure item I missed, please let me know and I will add it.

There is no definitive right or wrong answer on how we fund capital projects but we all need to be aware of them and ultimately make an educated decision on how the majority of members want to accommodate planning and replacements.

Please feel free to email individual feedback to the board using this email. This email is intentionally being sent out BCC so as not to clog the Seton board email account with open discussion, which we do encourage BTW, but the best platform for that is to start a Reserves discussion category in the forum on our website. See link below.

Many thanks and have a great sunny weekend on the lake!

Peter

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Seton Village Board4732 W Arm Rd, Spring Park, MN 55384setonvillageboard@gmail.comPresident: Peter RalphVice President: Jennifer Beers

Treasurer/Secretary: Ben RimoldeMember at Large: Marshall Weber

Seton Village Webpage