Effective January 1, 2012, changes in Washington’s reserve study laws will go into effect. These changes, among other things, affect the content of reserve studies, add reserve study reporting requirements to the budget summary associations must provide to owners, and extend reserve study requirements to HOAs with “significant assets.”
Over the next few weeks, we will post articles dealing with many of the new requirements. Today, we will discuss the reporting requirements that have been added to the budget process for condominiums and HOAs.
The Condominium Act requires that “new act” associations (by way of the board of directors) propose an annual budget to its owners. The board sends a summary of the proposed budget to the owners; the association then holds a budget meeting, at which owners are given the opportunity to reject the budget. If the percentage of owners required by the declaration vote against the budget, it fails and the association continues to operate on the previous budget.
The reserve study changes do apply to old act condos; however, the changes to the budget process only affect new act condos and HOAs. The changes to the law add a list of required information which must be included in the budget summary sent to owners. The idea behind the changes to the budget process was that owners would receive information about what the reserve study professional was recommending for contributions, what the current contributions were, and what the proposed budget was for their association, and then to highlight what the future looked like for each of these.
Unfortunately, what was intended to be a simple and practical list of information has expanded to a somewhat complicated list of information that associations must disclose to owners with the budget summary. The list is as follows (from RCW 64.34.308(4)):
(a) Current amount of regular assessments budgeted for contribution to the reserve account, the recommended rate of contribution from the reserve study, and the funding plan which the recommended rate is based on;
(b) If additional regular or special assessments will be imposed, the date those assessments are due, the amount of the assessments per each unit per month or year, and the purpose of those additional assessments;
(c) Based upon the most recent reserve study and other information, whether currently projected reserve account balances will be sufficient at the end of each year to meet the association’s obligation for major maintenance, repair, or replacement of reserve components during the next 30 years;
(d) If reserve account balances are not projected to be sufficient, what additional assessments may be necessary to ensure that sufficient funds will be available each year during the next thirty years to ensure that sufficient funds will be available, the approximate dates assessments may be due, and the amount of the assessments per unit per month or year;
(e) The estimated amount recommended in the reserve account at the end of the current fiscal year based upon the most recent reserve study, the projected reserve account balance at the end of the current fiscal year, and the percent funded at the date of the latest reserve study;
(f) The estimated amount recommended in the reserve account based upon the most recent reserve study at the end of each of the next five budget years, the projected reserve account balance in each of those fiscal years, and the projected percent funded for each of those years;
(g) If the funding plan approved by the association is implemented, the projected reserve account balance in each of the next five budget years and the percent funded for each of those years.
If you’re thinking that this list is going to complicate your budget process, you are probably right! Many associations are approaching their annual budget process and will be sending out budget summaries at the end of 2011 or the beginning of 2012. Pay attention to whether your association (new act condo or HOA) is required to comply with these new requirements. If so, be sure to read the law carefully to ensure that your budget summary complies. You may wish to consult with your association’s attorney for help in understanding the list. Your reserve study professional may also be able to assist you in identifying the information in the reserve study that must be disclosed to owners.
If you have any questions we can answer, please feel free to leave a comment or contact us directly. Ken Harer from our office was on the Legislative Action Committee which helped draft the legislation, and is also a Reserve Specialist with 19 years experience doing reserve studies. We look forward to continuing this conversation with you in our future posts!