2012 Syndrome and Reserve Funding

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Most people have heard about the Mayan calendar that was created hundreds of years ago, even before the Americas were discovered by explorers. Of particular concern (when calendars were deciphered) has been the dominant interpretation of the Long Count calendar that some cataclysmic event would take place on December 21, 2012. Many believed this would be the end of the world.

December 21, 2012 is now over, and obviously the world does not end. Until that day, however, many were so convinced that the world would end just as they refused to plan for the future beyond that date. Their attitude was, why plan for something in the future if you are not going to be here? There are others who believe that in 2012 was simply misinterpreted and that the end is still relatively imminent.

This continued to claim that the world is going to end (soon) is nothing but a convenient form of denial. It is often referred to as the “2012 syndrome” where the date is so widely known, and it was proven to be a hoax. Those who suffer from the syndrome in 2012 tend to use denial as an excuse for not taking action today. It does not matter the context in which this happens. The man simply believes that there is no reason to believe that … (specify the reason you want here).

How does this concept applies to associations world? We see this mainly in connection with reserve planning. Very few organizations achieve 100% funded level, and many never aspire to. We have performed studies ordered many organizations stated goal is to “achieve 65% funded in 20 years.” Some organizations can get away with this by using the cash flow method reserve financing to confirm that the company can get by with lower reserve funding and still avoid special assessments. In one sense, there is nothing wrong with such a financing plan as long as the members are fully advised of and supportive of this program. However, it is not “fair” method of financing, as it means people “up” Community components are not paying for the full use and enjoyment they get -. They are passing the buck to future owners

On the other hand, too much confidence in the “percent funded” concept can also be a problem. The Association really need to carefully conduct Cash Flow Analysis to make sure that enough money will be available in “peak spending years.” This is a year in which many major expenditures are scheduled to take place on the basis of the date placed in service and the estimated useful life. For example, if the condominium association has exterior painting, roofing and paving projects all come at the same time, that would be considered the peak spending year. Only a leading company can accommodate the cash flow requirements of these types of years are to (1) build up the necessary cash in advance, (2) to distribute tasks out to fall in different years (though there is a high risk of postponement of projects simply because they are inconvenient), and (3) to borrow when needed and repay later.

From experience I have learned that “2012 crowd” is alive and well within the community association industry. These are people who do not want to fund reserves at all, or only a very minimal amount. To be honest, I do not think most of these people believe that the world is about to end. I think they’re just in denial, for example, the roof really needs to change. After all, there has not been a problem for the last 20 years, so why should it be a problem now? Let someone else worry about it. This type of thinking affects social order financing programs, as net reserve requirements have been established and strengthened, and the necessary maintenance work is either delayed or reinforced with special food. This strategy might work in a relatively short time, but is doomed to fail in the long term.

Unfortunately, I believe that 2012 believers will always be with us. As for me, I’ve long been a skeptic 2012 theory. Think of it this way – you have to create a calendar consisting of future periods. How far into the future do not take it? Until you run out of paper? Using a computer, you can theoretically run calendar future period. However, the Mayans did not have computers, nor did they have the paper. They had only stone. I have always maintained that the Mayans simply ran out of stone, and they had no more room to continue – and after all, calendar, search the hundreds of years in advance. Maybe they just do not bother to get another stone.

Moral of the story? Not a denier. Carefully consider future funding requirements of partners and begin to set aside a reasonable amount of money to finance the future expenses.

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