Excessive Reserves

Started by BettyO1 • 6 replies • 2109 views

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BettyO1 (California)
Posts: 104

Posted:

Are there guidelines for when the level for reserves for capital projects can be deemed to be excessive? Or any rules to prevent Boards from collecting dues that keep adding to reserves. Concern is that Board has track record of misusing funds, refuses to decrease monthly fees despite huge reserves.

RyanD1 (California)
Posts: 38

Posted:

Betty,

An association should always be putting money in the reserves. Even if you feel it is an adequate amount. Do you know if the dollar amount is greater than what the reserve study says is needed?

Also, if you feel that the Board constantly misplaces funds, then make them accountable and ask for the three bids and the financial statements. A good way to check to see if they are using the money appropriately is by checking the financial statements to the budget that is distributed every year. This will give you a really good idea of how well they are budgeting the associations money. It requires a little extra work on the side of the homeowner, but it could potentially lead to the lowering of the monthly dues.

On a final note, does the management company not give the appropriate guidance to the Board in regards to the financial direction?

RogerB (Colorado)
Posts: 5,067

Posted:

Quote:

Posted By BettyO1 on 10/29/2010 10:08 AM
Are there guidelines for when the level for reserves for capital projects can be deemed to be excessive? Or any rules to prevent Boards from collecting dues that keep adding to reserves. Concern is that Board has track record of misusing funds, refuses to decrease monthly fees despite huge reserves.

Yes, there are guidelines. It is the responsibility of the Board to establish guideline on amounts to assessed each year including needed amounts to be added to reserves based on the association's reserve study.

No there is no rule which limits the Board from adding to reserves. The Board needs to use good business judgement. There are usually rules, in the governing documents, limiting the amount of increase in the annual assessment which the Board can establish without approval of the members at a members meeting.

Are your concerns based factural information? Or are you one of the member who do not want to have their assessment increased irrespective of good business judgement?

KellyM3 (North Carolina)
Posts: 2,239

Posted:

I'd love to have the challenge of an overly-funded Reserve Fund!

That said, if there's a "fat" reserve fund and the community has amenities in disrepair, that presents a possible problem.

If reserves are "fat" and everything in the community is in tip-top shape, you may have a discussion point.

If one is checking the amount of reserves because there's a feeling that dues should lowered, be careful but watchful over the board's plans. One unforeseen emergency where a healthy reserve fund prevents you from being assesssed, and you'll thank your lucky stars for the board's fiscal prudence.

I hope your community has the issue ouitlined in Point #2 above.

RichardP13 (California)
Posts: 1,767

Posted:

Betty

We have $1.1M in reserves. According to the latest reserve study we are 149% funded. Our current board just approved the 2011 budget which discontinued funding into the reserve account. To fully fund the replacement or repair of our 31 line item assets over the course of their useful life based on current costs would take $2.7M.

The budget was never shown to the membership, the board discussed in Executive Session and then approved by a majority vote in open session. It was never discussed where the money that went to funding the reserves ($8100 per month) was being shifted to.

Th point is you have to financially understand how the reserve system works. Just because you are fully funded today, doesn't mean you are tomorrow.

JerrellC (Florida)
Posts: 83

Posted:

Betty, In our HOA the board can increase our dues 5% each year with our the members approval, however our members must vote on an increase in our dues above this amount. This takes 2/3 approval of all our members. Fortunately we havn't had an increase for 3 years. Our PM has recommended that the same dues be held for the next three years. I believe this is to be in good grace to everybody because of the economy and hard times. This recommendation was approved by our board. PS We also have an excess in our budget from past years. JerrellC Florida

MaryA1 (Arizona)
Posts: 388

Posted:

Betty,

Whether or not the dues should be decreased may have no bearing on the amount in the reserve fund. The "hugh" reserves may be required and IAW the assn's reserve study. The reserve study should make recommendations about how much should be funded for the reserves each year. But, this is what happens when the members do not understand the need for a reserve fund. All they look at is the amount of $$ in the reserve fund, just laying around not being used and wonder why they have to pay such a high assessment.

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