Reserve Funding

There were 20 total years when there were no dues increases at all (between 1974-2008), which meant the dues were kept low, but long-term preparation was not being made for future maintenance needs.

During this time, we lost about $2 million in potential revenue that could have been saved or attributed to future capital projects.

When large projects did arise, we did not have sufficient reserves in place to handle them without incurring debt or sharp increases in dues.

Therefore a shortage of reserves that should have been available to use for replacing major assets (like the East Lake Pool, Pavilion replacement, etc) forced the association into having to borrow and sharply increase dues.

An HOA without an adequate reserve fund will find major disruption in services or amenities when the reserves do not prepare for future changes.

When an HOA without money in reserve is faced with expenses outside its general operations budget, the HOA will likely have three choices:

1. 1. Increase dues significantly right away
   2. Take out large lines of credit to meet immediate needs
   3. Levy special assessments to all members (ie, large one-time fee assessments)

None of these options are satisfactory for members of the Association. Owners will balk at, and might not be able to afford, steeply increased dues or the demand for a large amount of money at one time.

Taking out lines of credit means you’re paying interest on loan repayment for an extended period of time, as opposed to building interest in advance.

Special Assessments penalize the current owners for the HOA’s lack of planning. It’s much more fair and efficient to include repair and replacement costs automatically as a part of the periodic dues, as occurs when a reserve fund is properly maintained.

Reserves must be planned to save for projects while still calculating the cost of inflation in the future.

“During the observation period from 1960 to 2022, the average inflation rate was 3.8% per year. Overall, the price increase was 903.96%. An item that cost 100 dollars in 1960 costs 1,003.96 dollars at the beginning of 2023. For November 2023, the year-over-year inflation rate was 3.14%.”

(This can be found on the Balance Sheet of the Monthly Financial Statements.)

Reserve funding details can be found in the LIP Budgets.

For example, every year we ear-mark $80,000 in reserves for future repairs of the Dam Spillway, $50k per year towards future lake desiltation funds, and so forth.

By itemizing major categories, and planning in advance for major maintenance needs, we are able to prevent a discontinuation of service on our most important amenities.

Excerpt from LIP Budget 2023:

There are some projects that are so enormous that they may not be completely satisfied under our Reserve Funding alone.

• • Dam Spillway Maintenance
  • Desiltation of ponds and lakes
  • Any Golf Course Changes

Operating Budget: This budget is about $6 million annually. It includes recurring administrative and operations expenses and income for the general maintenance and upkeep of the services and departments within the association.

Capital Expenditures Budget (Lakewood Improvement Program Budget): This budget ranges from about $1.5m – $2 million each year. This budget is used for debt repayment, large one-time maintenance projects, or pre-planned and ongoing infrastructure needs. This is where all the Reserve contributions are accounted for.

Reserve Funding is embedded into the LIP budget, because funds are earmarked for future maintenance needs. We are contributing about $550k per year to this budget, to adequately fund future predictable projects.

As of 2024, there is approximately $2,780,000 in the LPOA Reserve Funds. If you see the chart above, you’ll see the estimate for maintenance is approximately $564,300 in 2204. Why do we have more?

Our new Reserve Program includes a much wider scope, planning far into the future for all aspects of the association. Some of these are not included in the Reserve Study chart, so we have made sure to include them intentionally and responsibility. much more for our specific needs within the association. Our Reserve Funding program takes into consideration the following needs:

$2,780,000 – 2024 Snapshot – Actual Reserve Funds

• • $564,300 – Reserve Study 2019 Recommended Year End Balance Actual Funds on Hand for the following: $1,426,000 Maintenance Elements Only, not structures:
    • Clubhouse Remodel
    • Pleasure Docks
    • Play Parks
    • Maintenance Equipment
    • Marinas
    • Pools
    • Community Service Equipment
    • Storage Lot
    • Sidewalk Replacement
  • $861,700 – Buildings or Structure Replacement, referenced but not itemized in 2019 Reserve Study Document.
  • $1,354,000 – Major Categories Not Referenced in 2019 Reserve Study, but monitored in Balance Sheet.
    • Desiltation
    • Vision Reserve Fund
    • Spillway & Dams (See *Note 1)
    • Erosion & Stormwater

These numbers are general in nature, and must be reviewed every year by management and the board. It’s imperative that changing conditions are monitored, and we’re on track for any current or planned projects.

*Note 1: These funds are likely under-funded. The LPOA has two 80-foot tall dams that represent the tallest privately held dams in the country. Dams generally have a life-span of 100 years before they will require significant repair and upgrade. They are about 50 years into their lifespan. Learn more about the Dam Spillways.