How can you tell if the HOA has too much in reserves?

You expecting a refund or reduced dues? Most likely never happen...A HOA is a non profit but does not mean it can not have a savings/reserves. A ggod size reserve is a good thing and lucky you have it. The older your HOA the more expensive the repairs and maintenance is.

A good reserve would be a minimum of 3 months operating expense in my opinion. You also have to factor in what the HOA takes care of. Are they responsible for roofs? Roads? Amenities run great expence once needing work.

Ask yourself what your looking exactly? Reduced dues or you think it is time for payback?

Looking for reduced dues, and how much should they have in there. How much is too much, and what organization is a watchdog of HOA's?

You can get a lot of info at davis-sterling.com, which contains everything you want to know about HOAs in CA. It, for example can show you the laws about reserves.

Now, your reserve study should have been sent to you with your annual budget. Reserve studies are pretty easy to read, especially if you don't have a lot of components. But do you set money aside to fund your HOA's roads? Sprinkler systems? Pool locker rooms? Sewers? Tree replacement? The guard gates or guard structures? Camera equipment?

There's no watchdog agency that oversees HOA boards in Calif.

I'm shocked at your annual security operating budget! Does it include more than staff? Ours, just for staff, is $238,000 for 24/7 coverage, and 18 hour coverage (staffed by more than 2 people, of course) . And your security operating expenses appear to exceed your annual operating budget ("operating funds").

Send a written request to your property manager or your board of directors requesting a copy of the 2011 study. You need to allow 10 days for a reply and they may charge you for copying the study.

Meantime, attend your Board of Directors meetings and learn more!!

This would be determined by your Reserve Study.

For more info on Reserve Studies, visit this thread on the forum.

I will point out that when we had our Reserve Study done, we required a 20% increase in Annual Assessments to properly fund the Reserves.


You need to look at more than just those documents. For example:

The Reserve Study should tell you how much is needed per year to fully fund the planned maintenance, expected repairs and replacement of the various amenities and capital components of your Association. The study should be reviewed annually for inflation and completely redone every 5-7 years.

The Insurance policy will specify your deductible. Some Associations create a fund to cover the deductible, some do not.

The treasurers report to the Board (found in the minutes) should tell you the delinquency rate for assessment payments. If their is any delinquencies, this needs to be considered when adopting a budget so expenses are met.

Basically Annual Income (assessments, interest, resell packages, etc.) should equal annual budgeted expenses (contracts, administrative costs, contributions to Reserves, etc.).

Some Associations will also establish an operating contingency fund to make up budget shortfalls and pay for unexpected expenses (minor repairs, extra heavy snow fall, storm damage, etc.). Contributions to this fund would be considered an expense for budgeting purposes.


There is no governing body to consult. The checks and balances are the responsibility of the membership.
The members should educate themselves by reading and understanding the Associations governing documents and applicable State and Federal laws. They should attend as many board meetings as possible and volunteer as able to help run their Association.

If the membership disagrees with a decision of the Board the options are to recall the board or vote them out of office at the next election. There is no governing body or government agency that will do this for you.

A good source of info for CA Associations(in addition to this site and their sponsers) is davis-stirling.com.

Hope this helps,

Tim

I agree with the previous responses about consulting the reserve study. Our HOA is similar in size (801 single family homes) with private roads, two pools, clubhouse and extensive common areas. Our annual budget is $2,300,000. From that we contribute $426,000 to reserves per year. Our community is 10 years old so many components have not yet been replaced. As a result our total reserve funds stand at $2,500,000. This conforms to the amount recommended in the reserve study which we had updated last year.

While it is difficult to directly compare separate HOA's I am offering this information to show that the amounts set aside in reserves may sound large but are, most likely, based on a rigorous process and methodology. Only if you can show that your HOA's reserves are not based on such a rigorous process should you seek a reduction in the contributions to reserves.

Barbara

You say you have 24/7 security on one gate and 12/7 on another gate. This is 13,104 man hours (at one person, per gate) of gate coverage per year. You say this cost $414,540.00 per year so this comes out to $31.64 per hour.

Figures can look quite different when broken down.

Hope this helps.

Wow, $31.00/hour for our security, and they aren't that good. I doubt they are making that much, it is probably more like $15.00. If it is $31, I should apply! Thank you for that info. I am asking for a breakdown of the monthly rate to security, because I highly doubt they are making $31/hour. No one in this area pays that high for a job.

Thank you all for the insightful replies. They do paint a different picture for me. The annual contribution to our reserves is $110,000. They gave the $800,000 as "best case reserve amount". In looking over the components of the reserve study, there are several items that have 1 year of life remaining, and then some that have 10-12. The majority of them are one to two, so, I guess it is good we have a high reserve.
I did notice tho that the reserve study's "best case" quote for replacement of the 2 computers in our security shacks (one at each gate) was $5,000. This year, they replaced them, and on the reserve expenditure budget, the real cost came to $35,000.00. Now, should I question where the extra $30,000 went for 2 computers?

I did read the numbers right re: computers, and have emailed the President of our HOA (a homeowner) to see what he says. He usually forwards my email to the Management company, and I hear back from them. I also emailed the management company asking them for the hourly wage/breakdown of security. So...we'll see. Thank you all for your help and the valuable links provided.

Barbara,

You want to read the contracts more than ask the board and property manager to do financial breakdowns. It will tell you the same thing - what it costs the HOA to hire this security for an entire year. Since the budget is an annual budget, you can make a nice comparison and gauge of financial commitment. Many of us on this board are on top of our contracts but couldn't break down a contract on a per-person, per-hour basis.

As for the $30,000 spent when the budget called for $5,000...you have an EXCELLENT question to ask. The board should be able to tell you that expenditure with zero problem.

I tend to have a philosophical problem w/ automatically dumping a question off on the property manager when the question should be answered by those authorizing the decision. The property manager handles daily load but directors need to be informed and accessible.

Bonnie, for me, I can see no relationship between one or many months of operating expenses and the amount which should be in and contributed to the reserve account. Your self-directed reserve study worksheet or your professionally done reserve study is the determining factor as to the amount of reserves needed. Some may use budgeted expense amounts as a guideline, but it's only a guess. As a board member, it is my fiduciary responsibility to make well-informed decisions.

You mentioned your reserves are over $100,000 but remember that amount may be there for some costly repair and replacement expenses scheduled to be done in the next years. In most states you cannot just withdraw funds from the account without replacing them. If your reserve study indicates a surplus, you can reduce the amount moved into that account in the future based on the findings of the study, but be careful to otherwise have documentation showing why and how any change is justified.

As others have posted, the “reserve study” is the determining factor (the study itself) as to the amount of reserves needed, so that the “money” will be there when needed 5, 10, 20 years down the road, or sooner.

As to the question “how much should be in Reserves”, the dollar amount in reserves (savings) is obviously going to vary from Association to Association. And that amount, the Reserve Savings (rainy day account), is also going to vary from year to year, and/or month to month, as money is “saved” and then “spent”.

Re BonnieG’s post: “we need to cash in one of our cds when it matures and place the money in a separate account from our operating expense account. One of our Board members determined that if we handle our accounts correctly we can slash our taxes by 50%.”

I agree she seems to be talking about an "Operational Contingency Reserve" but I wonder what IRS tax form they are filing, to make saving taxes a consideration, when reserves are only in the $100,000 range. Of course, any money saved is money saved.

Re FrankM7’s post “Monies staying in the operating account and allocated for contingent purposes or emergency purposes are sometimes subject to being taxed because they come in as income to the association, but don't go out as an expense.”

Not too far off the topic of Reserve Funds – how the IRS defines “income” for Association tax filing purposes - perhaps someone will post that information again.