Fellow
homeowners,
You
have come to know my commitment to keeping our monthly HOA dues low. Mendocino
is in an excellent financial position. We've been getting things done on or
below budget while maintaining healthy reserves consistently over 100% funded.
But:
Mendocino's infrastructure is aging, requiring frequent repairs, while
inflation has pushed up the cost of everything, from water to vendor services.
This has necessitated adjustments to our reserves and operating budget for 2022
and beyond.
RESERVE
STUDY AND RESERVE ALLOCATION
Our
Percent Funded has gone from 141% in 2021 to 98% in 2022.
The
Reserve Study is a useful fiscal tool if used properly. It has multiple
variables that are adjusted periodically: components list, quantity, RUL
(Remaining Useful Life), and Cost Basis / Unit Cost.
The
initial components list comes from California Department of Real Estate and is
subsequently adjusted as assets are added or replaced.
The
RUL is determined in periodic visual inspections with an independent reserve
expert and can be adjusted up or down based on the condition of the assets.
The
cost basis is based on the best most current available bid.
This
year we updated our largest reserve component – roads – and adjusted the
allocation for irrigation repair, which brought our Percent Funded down from
141% to 98%.
Asphalt
and Concrete (Roads)
The total square footage increased from 57,150 to 62,000 based
on vendor estimates. The increase is due to more accurate online/satellite
measurements and was accepted by our reserves expert.
The unit costs went down from $3 to $2.50 per sq. ft. The old
amount was for Remove and Replace (R&R) – removing ALL the asphalt to the
ground and putting in a new one. In practice, this option is rarely used unless
there is major structural damage. The new amount is for Mill and Overlay
(M&O) – remove the top 2 inches of asphalt and overlay with a new one.
The actual unit costs for M&O vary from $2.30 to $2.44, depending
on the size of the job, supply and demand, and other market conditions so $2.50
gives us a safety cushion.
However, the FUL (full useful life) for M&O is 20 years
instead of 30 for R&R. The previous onsite inspection gave us a remaining
life of 15 years for R&R but the top layer of asphalt on Pacifica Place has
deteriorated so we gave it a RUL of 0 years and Monterey Place - 3 years. This
change was the biggest factor pushing down Percent Funded.
Irrigation
The original Cal DRE components list did not have a line item
for sprinklers, valves and pipes. Our aging infrastructure is past its FUL and
keeps breaking down, resulting in water losses. Valve repairs are costly, and
we keep upgrading our sprinkler heads to save water and provide better
coverage. We therefore added $10,000 for annual irrigation repair.
These changes pushed down the Percent Funded. 98% is still very
conservative and puts us in the top HOA tier financially. However, the reserve
study indicates that to stay 100% funded, we will need to increase our reserves
allocation in the operating budget going forward.
OPERATING BUDGET AND MONTHLY HOA DUES
Our landscaper has done an excellent job repairing and upgrading
our irrigation system. The number of costly water leaks due to failing valves
and sprinklers is down. But there were also several dry spots that were not
getting any water due to broken pipes. In addition, this year we overseeded
grass throughout Mendocino, which required extra watering, while optimizing our
watering schedule. While these efforts have resulted in a greener Mendocino,
our water use remained the same while unit costs have gone up, resulting in a
$1,000/mo deficit. We've been able to cover the deficit from surplus operating
funds from previous years but must finally bring our operating budget in line
with our water expenditure. Our monthly budget for water was increased from
$1,500/mo to $2,500/mo, which pushed the monthly HOA dues to $156/mo starting
in January 2022.
These changes ensure that Mendocino remains in a strong
financial position.
Slav
