ASSOCIATION FUNDS

I am currently the President of our HOA. In the past we've had to deal with unscruplous board members who think they can spend association funds at will without bringing the matter before the homeowners. Our budget for 2011 and 2012 has been right out $37,800.00. Our annual assessments take in approxmiately $38,000.00 a year.

My concern at the moment is we have aprpoximately $129,000.00 in our checking and money market accounts (combined) with another $20,000.00 in 2012 assessments yet to be collected (the due date is March 31, 2012). There is great concern that future Board members will go crazy and do things with this money without ever consulting the owners.

We are a not-for-profit association. Is there some law or statue that dictates how much money we can have in a "reserve" account?

The Board I am currently serving on is trying to figure out a way to get this large sum down so it cannot be abused down the road. (It would be well over $200,000 right now how it not been for dumb/greedy/tyranical board members in the past.

We are proposing several options to be voted upon by the members that will hopefully drop this sum down considerably, but I would love to know if there is any governing force that I could use to SHOW that we should not/cannot continue to retain this type of money "just to have it in our account".

I will tell you that six years ago the homeowners were assessed $2,200.00 per lot so we could pave our 4 1/2 miles of private road. That venture cost us $440,000.00. (Mind you we were not given a vote on the matter, and those nut jobs re-paved large sections of roads that were only 7 and 5 years old with NO damage to them whatsoever!)

Jeanie,

You do not make clear in your post whether the "excess" funds you refer to are operating funds or reserve funds.

Do you have a separate replacement reserve fund? The fact that you previously had a special assessment to repave the roads makes it likely that your board failed to have a reserve study done and then failed to set aside an adequate portion of your regular assessments as a reserve to cover that expense.

If that is, in fact, the case then any funds that are in excess of your current year operating needs should be set aside, in a separate account as reserves for future repairs/replacement.

This is HOA financial management 101. Are you a self managed HOA? Or do you have a management company? Sounds like nobody is minding the store.

Jeannie, Please follow David's advice! If you don't have a Reserve Account or Fund, set one up. You mentioned the cost to repave the road, You need to set aside funds to do again. You may wish to pay a professional to set up your reserve schedule (how much to put aside for various elements; their estimated remaining lifespans, etc).

What other elements is your HOA responsible for? Roofs? Clubhouse or other rec facilities?

Hi Jeannie:

John hit a good nail on the head … the numbers do not compute.

You have at this tine $129,000 and have private roads which cost in the past $440,000. You want to make sure in the future that you have at least the $440,000 or MORE in reserves for future paving. And this does not include other items for which the association may be responsible for covering costs of repairs.

Now let me get this straight … the board wants to reduce the little $129,000 they currently have and potentially will not have enough in the future for paving? Instead of retaining money and saving until needed they want to insure in the future that they must again assess the owners for large sums of money to complete maintenance. Seriously …

Wow. Such hostility from some of you. You pass judgement without knowing all the facts.

The current Board is the only one in the past 16 years that has listened to what the ENTIRE association wants, not just a few rich cats that want to spend our money because they want to turn our subdivision into a country club. We live in an area surrounded by woods with three lakes and a private boat launch to the river. The majority of people that live here are reitred and on fixed incomes. Our annual dues were $100.00 a year but over time they have climbed to $174.90 a year. (And just because other Association dues are a LOT more that ours, doesn't mean we should be paying more.)

We have a few common areas from which to fish and the boat launch. That's about it. 12% of the Association wants to put street lights everywhere, fountians in the natural ponds, gazebos and jungle gyms at the common areas, widen the boat launch so two boats can come in and out at the same time, not to mention installing gates at our three entrances. The other 88% do not want these things because they moved out to this area to be in the close to nature..........not a country club. (Our streets do not have curbs.)

When people from that 12% were on the Board, they were very deceptive in collecting money as well as spendnig it. THIS Board is doing everything in it's power to adhere to the covenants and the wishes of the entire (MAJORITY) of the homeowners. (What we cannot figure out is if these people want this stuff so badly, why don't they move to a place that has these things?)

I'm all for keeping the money in a reserve account for future repairs, payving, etc. The concern many peole have is that at some point in time these people may eventually make it back on the Board, and they believe they can help themselves to this money, spend it however they want without asking the homeowners.

We are currently in the process of amending the covenants for this very reason. We have to get 2/3 of the members to vote on the changes, and we are very close to achieving that number.

As for the $38,000.00 coming in with a budget of $37,000.00.....in that $38,000.00 is a $6,000.00 earmark for emergencies and/or general repairs as needed (above the standard stuff). If that money is not used, it is carried over to the next year, we pretty much are adding between $4,000 to $6,000 a year to the "reserve fund" as we rarely ever have to touch that earmark.

This forum is a great tool for reaching out for advice, but shame on you that judge without knowing all the facts. Thanks to those that offered sincere advice as I will take your thoughts to tomorrow night's Board meeting.

Jeanie,

The amount required in a Reserve fund is determined by the Associations Reserve Study.

The amount of funds in a contingency fund (used to offset budget shortfalls and unexpected repairs) is established by the Board. The Association should use historical data on expenses (perhaps an unusual expense one year) and the typical annual amount in delinquent accounts to help determine the level needed.

Some Associations have two contingency funds, one for the operating funds and one for the Reserve funds.

I expect that you know the operating fund should only be enough to cover normal expenses each year and that Assessments would equal the amount needed to fund all three funds (operating, reserve, contingency) divided by the number or lots or percentage of units (depending on the wording within your governing documents).

My advice would be to earmark the reserve funds into categories/line items based on the items you identified within your Reserve study:

Roads - x amount in account and x amount needed annually to fund
Playground - x amount in account and x amount needed annually to fund
etc, etc

This way, the membership and future BOD are aware why those funds were set aside. You should also be able to identify a scheduled maintenance/replacement schedule from your Reserve study. Publishing this will also keep the members informed and keep future boards from thinking funds are available.

If your in an area prone to natural disasters (tornadoes/hurricanes/earthquakes) your Reserves should also include the insurance policy deductibles.

Hope this helps,

Tim

Hey Tim,

I totally agree with you, and discussed some of the things that were in the blog the first go around with my fellow board members last night. We are all in agreement that the excess should be put into a reserve fund specific to the roads and nothing else. We completely removed the option from the ballot to reduce the dues.

I've only served as president for the past 2 1/2 years so am learning as I go, but the last several responses were exactly what I was hoping to get because they are most enlightening. There's never been a study of this type that I am aware of and we've been a part of this association since 1994. This is definitely something we this board will do in the near future.

I think we are onn track when it comes to having enough money to put aside (at least for now). For the past two years our budget has included an excess amount in case of emergencies. When we don't use that money it goes to the "reserve". What has not been done, but we'll do so moving forward, is to actually designate a specific amount to go to the road fund as part of the "budgeted items".

We are also going to establish something that says that money cannot be touch except for the purpose of (paying the roads). Gonna get with the attorney to make sure it is done according to Alabama HOA regulations.

Thanks again for kind reponse (not just to you but the others that were so gracious to respond to my second email.)

It is hard to share advice when one doesn't have all the facts, but then we could all probably write books on what we've experienced since serving on our respective boards and/or living in HOA's. LOL

Wishing everyone a blessed day!

Jeanie

Jeanie,

Your most welcome. I'm glad I could offer some good advice.

If you follow the link in my previous thread (click the words "Reserve Study") you will be taken to a thread within this forum about the subject. In that thread are other links to excellent resources on how to perform a study yourself. It won't be as good as paying to have one done, but if you have never had one, it's a good place to start.

Like you, when I got involved with my Board I discovered that a study had not been done so I placed it on the agenda. We did the study ourselves and discovered we had to raise the assessments by 20% to fully fund the Reserves. Fortunately your Associations sounds like they have been thinking of putting money away better then we were so any increase shouldn't be as much as ours was.

Good luck. Please keep checking in with the forum and ask questions or offer advice to others so we can learn from your experiences.

Tim