Contingency vs reserve fund

Is a contingency fund the same as a reserve fund? We are trying to put together a reserve fund study and the there are those who argue the contingency fund is the same thing and therefore a reserve fund is unnecessary.

Hi Janet-
thanks for getting back. One more question if you don't mind. Does the contingency fund need to remain separate from the operating fund?

The reason being is that it helps prevent overspending the operating fund or having fingers trying to stick into the Reserve/Contingency. Some individuals will use money in a fund just because it is there and not consider that it is there for long term future.

Thanks everyone...all of your answers are a big help. Looks like our Members have some work to do in bringing our finances into some sort of order.

LOL ... better watch it John I might decide to grow rattles.

Hi Kelley:

No “Special Assessment” to build a reserve fund. The special assessments are meant to be used for uncontrollable expenses. An example would be that in a Condo the roofs were scheduled to be redone within the next 2 years; however, all of a sudden they are leaking prior to what was estimated via the reserve study. The HOA is short XXX dollars to complete the work so they do a special assessment for the difference in order to complete the work needed ahead of schedule. Pretty much special assessments should be for emergency type situations.

To build the reserve fund you determine how much annually the association would like to place into the fund. This then is divided and added to the regular dues assessment for each unit over a period of time to build the reserve fund. This is also based on estimated future costs controlled and determined by the reserve study. For example if you need to repave roads in 20 years then the estimated cost + cost increase over time = X. This amount then is divided by the 20 years to determine an annual cost to be placed in reserve which then in turn is divided by the unit owners.