2022 Proposed Budget - Explanation
The board finalized the proposed 2022 budget at our board meeting on April 18, 2021. We have posted a link to the Proposed LRAA General & Water Fund Budgets on the Budgets & Financials page for members to read. Since we postponed our May membership meeting due to Covid, members will vote on this budget when we are finally able to hold our meeting (the proposed date is Sunday, Sept. 5th -- Labor Day weekend).
You will notice that both the Membership Dues and the Water Dues will increase with this budget. The purpose of this message is to explain the changes to the budget and the reasons for the increases. If you have questions that are not addressed in this message, please email us through the website. We will also have an opportunity to discuss the budget at our membership meeting before we vote for approval. According to our bylaws, if the membership does not approve the budget by majority vote, the association will continue to follow the last approved budget, which was from 2020.
The proposed 2022 budget is essentially a roll-over budget from 2020. Only one budget line changed substantially. In the Access part of the budget, we increased the budget for road maintenance from $10,000 to $15,000. Everything else either stayed the same or had a modest adjustment.
The primary driver for the increase to the membership dues is that we now have fewer members. In 2020, we had 177 members. Currently, we have 170 members. This decrease results from existing members buying additional property. According to our bylaws, if a member owns more than one lot, and all lots are in the same name, then the member will still only pay one membership due. This smaller number of members means a smaller denominator, which means that dues increase for everyone.
The water dues will increase by $45.37 per water right to fund the plan proposed by the reserve study that was recently completed. The reserve fund is complicated. Here is an explanation of the reserve funding and the water dues increase.
Over the past two years we have been communicating with the membership regarding the new Reserve Study that is required by state law (WUCIOA). The purpose of this study is to help communities like ours develop adequate reserves to cover all possible costs without requiring large and unexpected special assessments. The study considers the replacement costs of community assets over the next 30 years. Our study is posted on the website.
LRAA already has reserves. Our bylaws mandate that we hold $50,000 in reserve for the water system and $25,000 in reserve for the general fund. Additionally, about 10 years ago we added $30,000 to the annual water dues to pay for upgrades to our water system. This also is counted towards our reserve. However, the reserve study has determined that these reserves are not adequate to cover all possible replacement costs over the next 30 years.
The board is proposing that LRAA split the funding of the new reserve between money in the association savings and increasing annual water dues. The reserve study determined that our reserves are deficient. It identified “make-up” funding that we should have been contributing and annual funding that will keep us fully funded moving forward. The board is proposing that we use money we currently have in our savings to fund the “make-up” funding. This is $39,320. Further, the board recommends that we pay for the first year of the 10-year funding plan out of our savings. This amount is $8,117. The reason for this is that the study assumed that we began the funding plan in 2021. However, due to Covid causing us to cancel our membership meeting we were not able to vote to add this to our budget. Funding the first year from savings allows us to stay on the plan’s funding schedule. This means that a total of $47,437 of the reserve would be funded from our savings. The money in the reserve can still be spent by the association in case of an emergency. We are just required to replenish the money over time if we spend it. Funding this out of savings saves members money because it means less money that we need to bill through dues. This $47,437 is about half of our current savings, which means that we will still have substantial savings remaining.
The additional portion of the new reserve will be added primarily to the water dues because most of the items in the reserve relate to the water system. There are some smaller expenses that are non-water related, and they will be added to the general membership dues.
The water dues increases are $8,117 per year divided by 179 water rights, which equals $45.37 per water due. Only $2 per member will be added to the membership dues to fund the remaining items in the plan.
If the membership chooses not to approve this budget, we will simply not be able to fund the reserve. We are required to make public our reserve plan, along with the degree to which we are funding the plan. Having a fully funded reserve will both prevent unexpected assessments and help protect property values within the association.
Sorry for the lengthy message. If you have questions, please email them and we will reply. We will also discuss the budget and the funding of the reserve at our membership meeting.