Tuesday, July 20, 2010

How much should your association save for a rainy day?


A reader recently asked how much money her homeowners' association should put away for future storm-related damages.

According to Wendy Murray, Director of Business Development at Associa Management and a Community Advocacy Network Broward County Advisory Council member, there is no magic formula however there are ways to project close enough to minimize the financial impact of a tropical storm or hurricane. Murray's HOA lost over 400 trees, 1,800 ficus hedges, 8 swing gates as well as some other items during Hurricane Wilma in 2005. Landscaping is not covered by most insurance so the cleanup of the trees and hedges in Murray's community alone was more than $61,000. That did not include the cost of replacing items just the cleaning up the damage wrought by Wilma.

Calculating reserves requires a projection of the estimated remaining useful life of a component and the replacement cost for such component. Since hurricanes can hit our State every year and we can also go years without one (as evidenced by the almost 5-year span since Wilma devastated us), Murray suggests funding on a 3-year cycle. If we get lucky enough not to be impacted by a storm, the reserves continue to build however you need some sort of a timetable for funding therefore she uses the number 3.

You should ask your current landscaping company to provide you with their proposal to provide storm cleanup services for the next year. You can also obtain other bids from landscapers that do not service your property. According to Murray, what you will commonly see is that an average of most bids received will fall around the range of $2,000/day for a 3-man crew, bucket truck and chipper, plus any additional dumping fees that they may incur. Your own landscape company is the most familiar with your property and should be able to project with the most accuracy the size of the crew needed (3-5 crew members a day) as well as help you identify a "temporary debris staging area." Most people forget that such a staging area is necessary.

In the event that dumps are closed, or backed up, you need to have an already designated area where you can stage the landscaping debris until it can be taken or hauled away. Murray suggests designating two debris areas: one for landscaping debris and one for construction debris. When you designate the construction debris staging area, please know that if any oils, fuels and contaminants enter into the soil, part of the cleanup will be removing all dirty soil until you get to clean fill.

Experience has taught that financial planning is the key to the financial well being of any association. While there is no magic formula when planning for emergencies requiring storm cleanup, there are ways in which to estimate associated cleanup costs. One method is to examine the costs associated with prior storm cleanups of the community, i.e. Wilma or Andrew. Obviously, this will be harder for a new community that has never experienced a storm. Even partially funding emergency reserves is better than having no funds on hand to weather a storm. In my own community, we had a beautiful live oak canopy down the main street of our community. Wilma tore it to pieces and made anything other than foot traffic impossible. We had followed the suggestions set forth above by having a fully funded emergency reserve as well as a preplanned debris removal contract with our landscaping company. Our debris was cleared within 24 hours of the storm helping us get back to normal much quicker than our neighboring communities.

Tomorrow we'll take a look at a few other suggestions proffered by Wendy Murray regarding emergency reserve funding. More of Wendy's excellent tips can also be found in our free Hurricane Preparedness Guide for Community Associations which can be downloaded off the CAN website at www.canfl.com.

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