The Roof and the Reserve
A 96-unit association's reserve study shows the roof must be replaced in three years at an estimated $520,000. Reserves currently hold $310,000, and the board contributes $48,000 per year to reserves. The operating budget has a $6,000 annual surplus. The board wants to use $150,000 from reserves to resurface the pool this year and delay the roof, saying "the roof has lasted this long." A director proposes a 10-year bank loan for the pool instead. Owners have not had a dues increase in four years. The manager must present options at the next board meeting.
1. Calculate the roof funding gap under the board's proposal and explain the reserve implications.
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Without the pool withdrawal, projected reserves at roof replacement are:
$310,000 current reserves + (3 years × $48,000) = $454,000.
That leaves a roof funding gap of $520,000 − $454,000 = $66,000.
Under the board's proposal, $150,000 is removed for the pool:
$310,000 − $150,000 = $160,000 remaining; $160,000 + $144,000 in contributions = $304,000.
The gap becomes $520,000 − $304,000 = $216,000, more than three times the original shortfall. If spread across 96 units, that is roughly $2,250 per unit in today's dollars, before considering future cost increases. The operating surplus of $6,000 per year is too small to close the gap without a dues increase, special assessment, or loan.
The manager should explain that reserves are not a surplus account; using them for a discretionary pool project shifts risk to future owners and may conflict with the board's fiduciary duty to maintain and replace major components.
2. What funding and communication options should the manager present to the board?
Read the worked answer
The manager should present options with trade-offs, not a single recommendation disguised as fact:
- Fund the roof first. Keep the $150,000 in reserves, adopt a reserve funding plan to close the $66,000 gap, and schedule the pool separately.
- Special assessment. A $216,000 gap after the pool withdrawal would require about $2,250 per unit if paid at once; the board must follow notice and approval rules in the governing documents.
- Loan. A 10-year loan spreads cost but adds interest and may require lender and member approvals; compare total cost with a special assessment.
- Dues increase. A sustained increase is more predictable than deferring maintenance; model several years at different contribution levels.
- Phase the pool. Resurface a portion now and defer the rest, if the reserve study and engineer support it.
The board should document the reserve study assumptions, vote in an open meeting, and communicate the arithmetic plainly: current reserves, annual contributions, projected cost, and the effect of each option on monthly assessments. Owners should hear why deferring the roof is risky-not merely that the board "needs more money."