PART 3 WHAT ARE WE ARGUING ABOUT?

[Robert Stern]

Reserve Studies use an inflation factor. In the last reserve studies that factor was 2%. That number impacts the calculation as to determining future replacement costs or repair costs of SCA’s assets over the next 30 years.

We know from our personal lives that inflation is quite high and impacting us and accordingly it should impact the 2023 Reserve Study.

I have been arguing that Mr. Porter who is doing the Reserve Study is also a Name Partner in the Audit firm doing our annual audit certification as to the fair presentation of our financial statements. He has ownership in both and in my view violates the “ appearance of independence” standard.

Putting that aside ,as the Reserve Study Specialist Mr. Porter is choosing to give the board a choice of the inflation factor between 3 ½ % and 6%. I argue that a Reserve Specialist ought to be the one to pick the inflation %age. That’s what we are arguing about because that board decision will greatly impact the calculation and contribute to determining the necessary level of funding. By giving the board the choice it becomes a political decision. The higher the inflation number chosen the more pressure there will be on increased assessments but if the board is worried about the political fallout from higher assessments from homeowners they could keep the number as low as politically acceptable. The board should not be in that position. A truly independent Reserve Study Specialist should have been selected.

I do not know what the board will decided but in my view the inflation factor ought to be no less than 5%. That would be a reasonable assumption. We shall see.

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