The capital reserve is a fund set aside for capital expenditures above and beyond the normal operating expenses. Normally, there is a check written to this account each month by the accounting and management firm from the operating funds. This is a reserve fund that allows for major expenditures of capital such as a new roof, street repairs, pool repair or replacement, emergency needs such as storm, flood, hail or electrical damage, etc.
A capital plan allows the BOD to determine the amount that is needed to fund the capital expenditures. The life of an asset is determined and then the replacement costs and a date on which it is expected to be needed at the end of life of the asset. For example, a roof of the Colony Club house was evaluated by a roofing expert and he/she tells us the life expenctancy is another x years and the replacement cost is $x and when done will last another x years. This is then a continuing process of evaluating the capital budget. The capital plan then determines the reserve needed by the organizaition and the dues necessary to fund both the operating and capital needs.
