Posted By BobM5 on 01/27/2007 6:19 AM
I was under the impression that any money left in operating funds at the end of the year need to be rolled over into the reserve funds to avoid taxes. Our monthly operating funds were budgeted for about $12,000 a month in 2006. On December 31,2006 we had a balance of about $14,000 in our operating funds account. Our operating budget is about the same for 2007. At our annual meeting in March, should the $2000 excess be rolled over into the reserve account? Our management company says "no."
From reading the Realty Times article, I'm not sure. I note that it says a rollover must be approved by the homeowners and not just the board. If a rollover is necessary, can this be approved by a show of hands of those homeowners present at the annual meeting or must a ballot go out to all homeowners?
Bob, the Asc still has to have operating funds in January and February to pay the normal bills for those months plus any emergency expenses.
If your operating funds is budgeted at $12,000 per month, then you could keep from $12,000 to $36,000 per month in the operating fund at all times, depending on what your cash flow needs will be.
Let's say you determine that two months operating funds of $24,000 is sufficient. Then at the end of the year you have $40,000. The excess operating cash, over the $24,000 required to be on hand, is $16,000. That money would go into the reserve fund.
This is the way we understand and operate. You may get different opinions. However, look at it this way. If you put your full $14,000 into reserves, then you have zero(0) in your operating funds. Assume that no one pays their dues in January. They all wait until Feb 5 for some reason. You had $15,000 worth of repair work done in December and receive an invoice on Jan 2,due on receipt. Plus you will certainly have other bills due during the month. Now you have no cash to pay those bills. You are going to be late on every one, and could also be late on your February bills.
That may be an exaggerated example for the purposie of making a point of why you need to always have sufficient cash in the operating fund.
The accountant of the MC should be able to provide you with that information, or you could consult a CPA with HOA or non-profit corporation experience.