RESERVE SURPLUS

FrankD2 - what are you basing the excess in reserves upon, how do you know there is too much? in answer to your question, if you have an excess, yes you can transfer it to another account. however, why not keep the excess in the account, transfer less going forward and lower your maintenance fee?

Most likely your reserve funds are in a savings account. You most likely have to transfer any reserve funds to the spending account in order to pay the bills it is designated for.
Yes, you can have "surplus" reserve funds. Non-profit corporations are setup to spend as much as they collect with a reasonable "savings/reserve fund". Anything OVER this amount, can be taxed.
So if your HOA is collecting more that it's spending out or has passed a "cap" of non-taxable reserve funds (IRS limits) it may be good to "funnel" some of that money quickly into the spending account to spend on a project/improvement. Avoid using the money for social events. That may not fall under the tax definitions on operational costs.

ROGER
OUR RESERVE REQUIRMENTS WERE OBTAINED FROM A RESERVE STUDY. FOR SOME REASON THROUGH THE YEARS A LARGE SURPLUS WAS ACCUMULATED. MOST OF THIS WAS TRANSFERED TO THE OPERATIONAL ACCOUNT. MY QUESTIONIS:
IS THIS TREATED AS A LOAN TO THE IOATIONAL ACCOUNT TO BE PAID BACK, OR IS THIS A NON-RETURNABLE TRANSFER. THE QUESTION ARISES WHEN THE AUDITOR IN THE CAS FLOW STATEMENT CALLED IT A LOAN TRANSFER

FrankD2 - It was myself that inquired as to the source of your basing the excess in reserves. A large surplus accumulated in reserves can be a result of several things, 2 of which, or a combination of both, are as follows: 1) an overly aggressive funding schedule. 2) funds not used to replace items. The later of which could be a result of items outliving their expected useful life-cycle, holding up well.

A capital reserve study should report the recommended minimum reserve balance, minimum yearly reserve transfer, cost to replace the elements, date of original construction of the elements, estimated lifespan of the elements. reserves balances accumulate each year and are then debited from the expenditures. the minimum yearly reserve transfer is usually a threshold percentage (5% or 10%) of the ERC (estimated replacement cost of all elements), OR a full fund method which is the replacement cost divided by the number of years left to fund, divided by 12 months, divided by the number of unit's that pay maintenance. Many associations choose the threshold percentage method, since the full fund method is very aggressive.

When was the last time your capital reserve study was updated, many associations update them every 3 - 5 years.

PaulM - no, not at all. not for all of the long-term items because not all items need to be replaced at the same time. the excess is temporary.

lets say reserve transfers are $50,000.00 a year. and year 1 for funding was 2006. By 2008 you'll expect to have $150,000 set aside. now lets say that in 2007 the driveways technically needed to be sealed at a cost of $30,000 but that wasn't done (for whatever reason). $150,000 was not debited by $30,000 hence an excess at that particular time.

the phenomenon that i've encountered when dealing with many boards is that they don't perform their own adequacy test by taking the yearly transfers, compound them each year and subtract the reserve expenditures projected by the transition engineer. one inadequacy i encountered was a reserve balance that fell below the transition engineer's minimum balance in year 30 of the funding schedule. the board is having a hard time accepting that they must fund now for the future, even though most if not all will be gone.

AUDITED = A QUESTION WAS RAISED BY A RESIDENT(WHO IS A CPA)

AN EXCESS SURPLUS IS TAXABLE

These statements illustrate one can not believe everything posted on this Board.

You will also want to take a quick look at your state laws (and your docs). Some states, like mine(or docs), require that funds set aside for capital repair and replacement reserves be used only for that purpose. In which case, a transfer to the operating fund would be considered a loan. Atthat point, you would reduce contributions to the reserve fund over future years by the amount being paid back by the operating fund.

Joe