HOA 180% funded

I was just wondering if there is a limit to how much an HOA can have in their reserve fund. Ours has 1.8 million - 900k over whats needed for reserve. Our dues have already been lowered 15% but we are still over 29k per month. The hoa is not maintaining the common areas as much as they should be thats why the money is adding up and not being spent.

Shane, has your board done a self-directed reserve study or had one done by a paid firm? Is that where you are getting the 180 percent funding number or is that your calculation?

There may be repair and replacement expenses coming up in future years which will require the large amount of funding. It's really difficult to understand the allocation of the reserve funds without seeing the study or worksheet which incorporates all future qualifying expenses.

If your dues has been lowered, it sounds like the reserves may be overfunded.

Wow. No there's a "problem" I wish our board had! And I love Mellissa's suggestion.

Shane,

Are their items other than the common elements in the reserve?

Some Associations will also save for insurance deductibles. If they placed that money in the same account as the reserves it may appear that the reserves are over funded.

You have to understand if you do upgrades you have to maintain and upkeep those upgrades. So some upgrades aren't worth the effort to install. Concentrate on fixing what you have is the best option for the most part. An example: You want to upgrade to a Big Water fountain at the entrance. Make the entrance more "Pretty and inviting". Well you have to be able to run water and electricity to the area. That will cost money to do that and then continue paying for the water and electric it uses. There will the decision on what water fountain to purchase and buying it. What about damage and replacement costs of that item?

Yes, upgrade to things that there is no longer available older items for. Don't necessarily upgrade by adding amenities or attractions. A little bit of upkeep and modification is fine but be careful of the continued costs associated...

Shane, you wrote that your HOA isn't maintaining your common areas very well. Are homeowners' contributions each month not being divided up logically between what goes into reserves and what goes into the operating budget? I think that the reason I'm confused is that maintenance of your common areas normally would come out of your operating budget. Or, do you mean that items are old and rundown and need to be replaced?

And with so much obey, why is the Board worried about spending money?

Nuts--sorry for the double entry, which makes my typo "obey" instead of "money" look even worse!

Actually the problem is the Board is not adopting a proper budget.
Perhaps you could draft one, as it's easy to do looking at end of year financial reports.

For those who may be new to the budget process here is a short, generalized, version.

1. Identify all expected expenses for the year. For Example:

Common Area Maintenance (landscaping) - based on contract
Trash/Recycling Services - based on contract
Snow Removal Services - based on average of previous years
Tree Services - based on average of previous years & expectations of current year
Bookkeeping Services - based on contract
Administrative Costs - based on average of previous years
Insurance - based on previous premiums + 3-5%
Licenses/Taxes/Fees - based on previous years
Utilities(street lighting) - based on average of previous years
Legal/Auditing - based on previous years and expectations of current year
Miscellaneous - Unplanned minor repairs and buffer for late assessment payments and over budgeted line items.

2. Add the expected expense of planned maintenance of common elements for the year (based off of Reserve study).

3. Add the annual amount you need to transfer into the Reserves (based off of Reserve Study)

Performing steps 1,2,3 you now know your planned expenses for the year.

4. Subtract expected income from sources other than Assessments. For Example:
Disclosure Packet fees
Reserve Funds that will be used for planned maintenance of common elements

You now know the amount needed for this years assessments.

5. divide the amount of assessments needed by number of lots = annual assessment per lot.

I've attached our draft treasurers recommendation to the Board of this years budget plus the Boards recommendation to the membership as actual examples.

OK, that's what I suspected in my above, Shane. And, Tim & Kelly are on it too. Kelly especially points out that the imbalance may mean you're not in as nearly such good shape as you thought.

Sometimes Boards fail to act, in this case spend money, because they don't understand the budgets. They become paralyzed.

Here are some things you can try. You mentioned that lighting is a problem. Your lighting fixtures and everything attached to the lighting, wiring, etc. should be a reserve item. The electricity to operate the lights comes from your operating budget. Ask your board to move the lighting itself to reserves. (We replaced all of the yellowed and cracked covers on our130 footpath lights recently and it all was paid for from reserves.) You may have to wait till your next budget season, but it's not too early to start.

Our HOA doesn't reserve for trees, but we may as our premises age. If that's a part of your landscaping that's problematic, suggest to the Board that tree replacement be a reserves item. There probably are other elements in you HOA that you can/should reserve for instead of having them in your operating budget.

Shane, will you describe your HOA? # of units? # on the Board? Detached, homes or? Amenities, e.g., pool, clubhouse, etc.? Do you have an onsite property manager, or? It helps me think if I can sort of visualize the property.

Thanks for the info, Shane. I did understand your basic question at the beginning of this thread, and your most recent version. But what I and, for example, Kelly are trying to say is that however much money your'e collecting each month is not going to the "right" places in your budgets.

You have your operating budget; you need to know how much that is annually. The total 1.9 mill. of ALL your budgets doesn't tell us anything. Get the data from your PM, who probably sent it to you as required about a month before the end of your fiscal year. You have some very expensive operating budget items like the contract on your elevators in five structures (I assume). Your light bulb budget should be in your operating budget too. We have 360 flour. lights in our underground parking garage alone. Your light bulb contract is probably expensive too and, presumably your janitorial contract (our is 200k per yr.) & security officers' contract (if any). You have a PM and maybe an asset mgr. whose combined salaries undoubtedly exceed $120k per year. You probably have an engineering staff.

We have 200+ units in twin towers, which also has a commercial component owned by our developer. And our annual operating budget is about $2 mill. Your total expenses for ALL of your budgets, at $1.9 million just doesn't sound right--as in not enough. And what is this category called "savings"?

As Kelly put it, you need to fashion a proper balance between what owners are contributing to reserves and what they're contributing to the operating budget(s).

There's probably a separate reserve account budget for your commercial owner's lots, which probably is stated as comprising a % of all of the sq. footage. And another for them that's shared with the rest of you. And then the one that only residential owners pay into. In reserves, the major repair of and ultimate replacement of your elevators is a huge item. The coating materials on your garage floors also needs to be reserved for as it's very expensive and may only last you another few years. Since the develop owns the comm. area, you must be alert to the possibility that they are NOT contributing enough.

Because your HOA is so complex, there's a lot to learn, Shane.

thanks kelly. i agree totally