1. Overview of RA Budget Components July 30, 2015

2. Board Responsibilities 2 As members of the Board you have certain responsibilities to the organization:  Determine long-range mission and goals;  Establish RA policy and procedures;  Hire the Chief Executive Officer (CEO), to oversee the operation of the Association;  Monitor finances, approve budgets, set the Assessment; and,  Approve Association programs through the budget process. Each of these responsibilities is interdependent, especially when establishing the biennial budget.

3. Purposes of the Association 3  Interpret, administer and enforce the protective covenants and restrictions of the Deed of Dedication in such a manner as to conserve and protect the value of all property subject to the Deed  For the benefit of the members, acquire, own and lease property (real or personal) and to improve, administer and maintain such property in neat and good order  Assess, collect, and disburse the assessments and charges authorized by the Deed  Promote the peace, health, comfort, safety and general welfare of the Members  Do any and all lawful things and acts that it, in its discretion, may deem to be for the benefit of the property and the owners and inhabitants thereof  Exercise powers now or hereafter conferred by law on VA nonstock corporations as may be necessary/desirable to accomplish the above stated purposes

4. Why a Biennial Budget? 4 Reston Deed Section V.13(b) Preparation & Approval of Budget:  (1) After Notice and hearing, the Board shall adopt a budget for the Association on a biennial basis containing an estimate of the total amount considered necessary for the ensuing two fiscal years to pay the cost of management and Upkeep of the Common Area and, to the extent provided in the Association Documents, Upkeep of the Lots, and the cost of other expenses that may be declared to be Common Expenses by the Reston Documents for purposes found by the Board to be in the best interests of the Association, including without limitation services provided to the Owners, Lots, or Common Area.  (2) Such budget shall include such reasonable amounts as the Board considers necessary to provide a general operating fund (working capital available for day to day expenses and to cover operating losses due to insurance deductibles) and reserves for capital repairs and replacements and may include reserves for contingencies (potential costs or liabilities which have not been incurred but which should be planned for). Note: The above texts have been abbreviated. For the full reference, please see the Reston Deed.

5. How is the Assessment determined? 5 Reston Deed Section V.5(b) Assessment Rates: Annually, the Board of Directors shall fix the amount of the Annual Assessment and set the date or dates such Assessment shall become due.

6. How is the Assessment determined? 6 Reston Deed Section V.7 Basis for Assessments:  The Basis for Assessments shall be an equal amount for each Apartment Unit or Lot.  After filing proof of qualification with the Association, Owners of Lots of Apartment Units may be granted an Assessment reduction, provided: (i) they qualify for real estate tax reduction by Fairfax County; (ii) their units are subsidized by the federal or state government; or (iii) their units are designed and used primarily for elderly congregate care of assisted living facilities and occupied by low or moderate income residents. Note: The above text has been abbreviated. For the full reference, please see the Reston Deed.

7. How is the Percentage Cap calculated? 7 Reston Deed Section V.8. Maximum Assessment: (a) In any one year, the sum of the Annual Assessment and any Special Assessment shall not exceed the lesser of: (1) Percentage Cap. One-half of one percent (0.5%) of the assessed valuation of such Lot and improvements as determined by Fairfax County; or (2) Maximum Dollar Amount. $461 per Lot, automatically adjusted as of the beginning of each fiscal year by the greater of 4.5% or the Percentage Change in the Employment Cost Index (ECI). Note: The above text has been abbreviated. For the full reference, please see the Reston Deed.

8. Assessment Cap vs. Annual Assessment 2006-2016 8

9. Assessments & Finance Resolution 1: Biennial Budget Development Process 9 StepDate Completed Step 1: CEO, Fiscal Committee & Board consider the level and sufficiency of the RRRF February 26, 2015 Step 2: CEO develops and Board approves budget calendar.February 26, 2015 Step 3: A Member Budget Suggestion Form is developed and shared with members for submittal up to a date certain. September 2014 through April 14, 2015 Step 4: CEO will conduct a work session with the Board to discuss the budget process and provide a summary of budget suggestions received. Board will determine which of the suggestions will be included in the proposed budget. June 29, 2015 + Fiscal Committee reviews preliminary draft budget with CEO and staff. July 20, 2015

10. Assessments & Finance Resolution 1: Biennial Budget Development Process 10 StepDate Completed Step 5: CEO will present a first draft budget proposal and hear comments from the Board. July 30, 2015 + Board Work Session SCHEDULED: August 24, 2015 + CEO and staff develop multiple draft budgets for review by the Fiscal Committee. SCHEDULED: August through October, 2015 Step 6: CEO will present a final draft budget proposal during a Regular Board Meeting at which a public hearing will be held. SCHEDULED: October 22 and November 19, 2015 Step 7: The Board may have additional work sessions to review the budget proposal. TBD Step 8: Biennial budget is approved by the board.SCHEDULED: Nov. 19, 2015

11. Assessments & Finance Resolution 3: Repair and Replacement Reserve Fund (RRRF) 11 Key Points:  A reserve study must be conducted at least every five years to determine the necessity and amount of Capital Reserves required to repair, replace and restore the Capital Assets.  Starting in 2014, the RRRF will be funded by 1/10 th of the forecasted 10 year expenditures based on the latest forecast prepared by staff.

12. Assessments & Finance Resolution 9: Capital Asset Acquisition Reserve Fund (CAARF) 12 Key Points:  The CAARF is for the acquisition of new capital assets.  The CAARF is segregated from the Operating Fund and the RRRF, and no funds from the CAARF can be used for operating expenses or repair and replacement of existing capital assets.  The Board can allocate dollars to the CAARF from assessment revenues, non-assessment revenues, or other cash surpluses.

13. Acquisition of new capital assets CAARF Operating Expenses Operating Fund Repair and replacement of existing capital assets RRRF Flow Chart: Revenues, Funds and Expenses 13 Annual Revenues Assessment Revenues Non- Assessment Revenues

14. Budget Process 14 1. Determine minimum transfer amount to Repair, Replacement & Reserve Fund (RRRF), per Assessment & Finance Resolution 3. 2. Calculate Operating Expenses. 3. Calculate Non-Assessment Operating Revenues. 4. Using the above figures, calculate the needed Assessment Revenues to balance. 5. Estimate Capital Expenses based on Reserve Study and staff’s proposed capital projects list.

15. Building a $100,000 Budget 15 Assessment Revenues $80,000 Transfer to RRR Fund $15,000 Operating Expenses $85,000 Non-Assessment Revenues $20,000 Assessment Revenues ? What’s needed to balance? =+ - =+ -  We’ll come back to this. Transfer to RRR Fund 1 Operating Expenses 2 Non-Assessment Revenues 3 Assessment Revenues 4 - -

16. Capital Repair & Replacement Building a $100,000 Budget 16 Non-Assessment Revenues Assessment Revenues Operating Expenses Transfer to RRR Fund =+ - $15,000 Transfer to RRR Fund $15,000 = $14,000$16,000 $15,000 < > RRR Fund Δ $0 $1,000 -$1,000 - Transfer to RRR Fund $15,000 Operating Expenses $85,000 Non-Assessment Revenues $20,000 Assessment Revenues $80,000 =+ - -

17. Calculating the Assessment 17  From previous slide, Total Assessment Revenues = $80,000  Membership Base: 1,000  850 pay full assessment  100 receive Tax Relief and thus pay 50% of the full assessment  50 own properties under the threshold tax-assessed property value, and thus pay 0.5% of their property value (P) in lieu of the full assessment  $80,000 = 850x + 100(0.5x) + 50(0.005P)  $80,000 = 850x + 100(0.5x) + 50(0.7x)  $80,000 = 935x  $85.56 = x On average, 0.005P = 0.7x