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Lakewood Reserve Funding

A Turning Point in our Financial Planning in 2015

For many of the first 30-40 years of Lakewood, there were insufficient Reserves being held back, which attributed to the low dues that residents enjoyed. (Similar to not saving for retirement).

Although there had been some sinking funds, there had never been a full analysis of the life cycle of amenity assets.

In 2015, after 43 years, the LPOA ordered its first “Reserve Study” to establish how much we SHOULD be reserving to prepare for planned maintenance of all our facilities. It calculated the reserves needed through the year 2045. The Association followed up in 2019 with another updated version, and will continue to update every several years.

Reserve Studies

Definition of Reserves

Reserve Study

A professional study conducted by an outside contractor that provides a long term (30 year or more) comprehensive study of projected maintenance and replacement costs for existing amenities within an association.

Our Reserve Studies have been professionally done by an outside firm, Reserve Advisors.

Reserve Funding

A Reserve Fund is a fund in which you can set aside money to cover routine, predictable, and scheduled expenses that will arise. Lakewood’s Reserve Funding is informed by the Reserve Study, and earmarks funding for expenses 30 or more years in the future.

Our Reserve Funding is being professionally invested and managed by Strong Box Wealth.

Our Recent Reserve Funding has had a Significant Impact on Lakewood

The Lakewood Reserve program initiated in 2015 has created a major shift in the health of our organization, by providing detailed long term strategy in the finance and planning for our amenities.

For the first 42 years in Lakewood, boards and committees made decisions about dues without having detailed projections about the needs of the future. Now, we’re able to confidently plan 30-40 years into the future, ensuring that funding for future projects is secured for our life-long residents.

Financial Benefits:
Predicting and preparing for long term maintenance needs helps to:

    • Prevent the need for taking lines of credit in an emergency
    • Prevent unexpected impacts on the overall budget when maintenance needs arise
    • Prevent the need for large one-time assessments on residents

Operational Benefits:

    • Helps to avoid deferred maintenance on our most treasured assets
    • Helps staff to prepare annually and plan maintenance rotations
    • Provides guidelines and timelines for replacing important equipment
    • Identifies short term and long term priorities for spending and investment of time

How significant are our Reserve Funds as they relate to our dues?

Excerpt, 2019 Reserve Study:

“The 2020 Reserve Contribution of $550,000 is equivalent to an average monthly contribution of $19.10 per homeowner.”

Overview of the 2019 Reserve Study

2019 Reserve Study Chart

Our Reserve Funding can be found in our Lakewood Improvement Projects (LIP) Budget. This budget is also known as our Capital Expenditures Budget, or the Facilities Development Budget.

We have been funding the reserves with about $550,000 per year, each year since 2015. The funds are itemized and earmarked by topic. Below is an EXAMPLE of how we apply reserves annually to accrue under particular line items, to build up funds for later, planned use.

Excerpt of Reserve Funding

Budgets - Lakewood Improvements Program (LIP)

The Timeline History of Lakewood Reserve Funding

2015 - Lakewood Commissioned our First Reserve Study

For the first time in Lakewood’s 43 year history, a professional Reserve Study was ordered in 2015. This study was commissioned through a trusted provider, Reserve Advisors. It provided an eye-opening account of the amount of reserves we would need to be saving for future projects.

2015 - Reserve Funding was Implemented, while Launching Program 2020

Program 2020 was launched in 2015, which called for a dues increase that simultaneously began allocating reserves for the future, as well as taking care of immediate needs with credit.

We simultaneously also took out loans to pay for immediate capital expenditures including:

    • East Lake Pool,
    • Cove Aquatic Center Pavilion, and
    • Repairs to the East Lake Marina security systems.

The 2015 Reserve Study did not anticipate the failure of the East Lake Pool, but it did in fact reach the end of its life cycle in 2015. During that time, members pushed strongly for a swift rebuild of the East Lake Pool. We eliminated the Cove Clubhouse as needed due to its inspection, and added the East Lake Pool simultaneously, which then impacted the trajectory of the study as written.

We were unable to replace the Cove Clubhouse in its entirety, due to the line of credit structure that would need to be implemented, and the Davis vs LPOA lawsuit that challenged the debt limit of our ability to incur debt. We were never able to regain the funds or credit to complete the planned Activities Center. This topic will be discussed more under alternative Transparency pages (Spring 2024).

2019 - An Updated Reserve Study was Launched

A second Reserve Study was conducted reflecting the new facilities: The new East Lake Pool, Cove Pavilion, and fully replaced Marina Docks expansion at East Lake.

We will likely continue to update the study every several years in the future to ensure that we stay on track with our trajectory.

2022 - Moved our Reserve Funds to be managed by Financial Planners

In June of 2022, the Board of Directors, after reviewing a recommendation from the Finance Committee, approved a motion to have staff move our reserve funds to our new financial planner StrongBox Wealth.

Our Policy #6 on Financial Management was updated to reflect policies on the financial management of reserve funding investments.

Prior to Strong Box Wealth becoming our Financial Planner, our reserves were held in money market accounts with Wells Fargo Investment Division. Return of investment is paramount. Some liquidity and accessibility is required except for the long term investment portion of the Reserves.

The goal is to keep pace with inflation plus a factor if possible while investing with minimum risk.

Our Funds are Earning Returns Through Financial Planning

Partnering with Financial Advisors

In June of 2022, the Board of Directors, after reviewing a recommendation from the Finance Committee, approved a motion to have staff move our reserve funds to our new financial planner StrongBox Wealth.

If our reserve investments can help us keep up with inflation, then this can help us keep dues down in the future. By making sound investment decisions outside of a Money Market environment, the gains we make will help to mitigate the impact of inflation over time.

Our Investment Policy

This Investment Policy #6 was updated in April 2022 to provide the following guidance: When addressing excess funds beyond checking or savings that are earmarked for future projects, it is better to save and earn money on it rather than use credit.

Property Owners Associations should not, as a rule, have to borrow money if proper planning and funding is in place.

The goal to beat inflation plus a factor – our Accounts are designed to beat inflation.

We are investing with a posture to grow, but very conservative – but with growth tools to beat inflation.

Our Investment Categories

Different Accounts require different Levels of Liquidity:

Main Account

Moderate liquidity required. Long term reserves required for future repairs and asset replacement.

Vision Reserves

High liquidity until loans are paid off. Then very low liquidity.

All Parcels Account

High liquidity to perform annual maintenance with some long term reserve requirements.

Lakewood Bay

Lakewood Bay is a Maintenance Provided Parcel. Moderate liquidity due to annual Parking Lot and Buildings Maintenance. Long term reserves are growing for roofing replacement and siding / paint.

  • Clubhouse – This is for the LPOA Pavilion that is a newer and low maintenance building with a lifetime roof. Long term reserve required for future repair or replacement.
  • Desiltation – Moderate liquidity. Long term reserve is required to save up for main lake desiltation.

Tracking Our Investments and Monitoring their Performance

Every quarter, our financial planner meets with and addresses the Finance Committee and the General Manager along with the Corporate Treasurer in the Finance Committees quarterly meeting.

The investments are discussed and any adjustments are considered. The Finance Committee documents their recommendation in the quarterly meeting minutes and submits the minutes to the Board of Directors.

Frequently Asked Questions

How have Lakewood Dues been impacted by Lack of Reserve Funding in the past?

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.

What Happens When There Are No Reserves?

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. 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.

How does inflation affect Reserves?

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%.”

How to Find Reserve Details in our Financials

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

Reserve funding details can be found in the LIP Budgets.

Budgets - Lakewood Improvements Program (LIP)

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:

Excerpt of Reserve Funding

Things that May Not Be Included in our Reserve Fund

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

What are the differences between our Operating Budget and LIP Budget?

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.

How Much Money is in the Current Reserve Funds?

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.

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