capital improvement funds

My strict personal perspective using the notion that "Capital Improvement Funds" are the same as "Reserve Funds."

Your Capital Improvemenet Fund should be a savings account where the HOA board considers it "locked" solely for purposes of replacing amenities around your community as they need replacing and NOT REPAIRING.

CIF monies should never cover repair bills and "regular" operational costs, like bills and vendor contract payments.

Capital Improvement Funds should be tied to a list of property items (pool, clubhouse roof, fence, pavement, benches, etc) and constantly given deposits so that a property item may be replaced without a special assessment ever being necessary.

That list of items (or Reserve Study), will reasonably assess how much life span a given property item has left.....telling you, roughly by year, when you can expect to replace it and how long you have to save money - again, roughly - until your HOA will remove cash to pay for the job.

When that CIF cash is spent - and on what it is spent - will be guided by your Reserve Study schedule and timeline - making expenditures whenever they are needed. Many HOAs can basically plan their capital expenditures several months in advance.

Regarding caps on CIF accounts, usually most HOAs never save enough to worry about a cap. But, if your HOA is enough cash to literally replace everything on your property, without needed an assessment, then you should worry about overfunding the CIF.

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Residents often bicker about spending Capital Funds. If Capital Funds are not expended on a schedule, the property items get older...reaching failure (leaky roof, for example) and possibly causing greater, and more expensive, damage than if the board had voted to replace the 30 year old roof after it reached 30 years old.

So, saving money is great but never spending it is a recipe for disaster as the money piles up in the bank, the unwritten repair and replacement bills are adding up along side it, creating a financial liability that lurks quietly off the accounting books. As you spend responsibly, the amount of money you need to offset those "quiet expenses" also drops.

The easiest example of CIF philosophy is like paying cash for your new car but really getting the mileage from your old car....you pile up the miles but likely will drive it - on its last legs - to the dealership to leave with your new vehicle, where you buy with cash money from the CIF. Then you pay for the tires, oil changes and all other repairs from your regular checking account. If you wreck the new car, you carry insurance. But you only tap your CIF again when you buy your next car, several years later.

If your resident believes the "car" should be bought on loan or that the HOA shouldn't worry about saving to buy the next "car" (or pool, roof, tennis court, etc), the resident's philosophy is fundamentally flawed and he/she is putting himself in the position to harm himself financial if the board follows him.

I wish the Reserve Study schedule was set in stone. Instead, Murphy applies his law to things and forces us to address matters earlier than planned.

Jean,

I am the treasurer of our HOA. Last year, with help from our finance committee we drafted a board resolution to establish a separate Capital Improvement Fund. This fund is specifically defined as being to purchase new or enhanced amenities for the association. It is different than our Replacement Reserve Fund, which funds the replacement of existing amenities. We also drafted a detailed procedure to be used to submit, review and budget for Capital Improvement Suggestions from our other committees, staff, board and association members. Both of these documents were adopted by the board as association policies.

Since then, CIF funds have been used to drill a well to augment our irrigation system, purchase modern audio equipment for use in our Ballroom, and to construct a paved storage area for our association owned landscaping equipment. We have 12 other CIF fund requests that are being evaluated.

This has been accomplished without any increase in assessments over the last 6 years, while fully funding replacement reserves and maintaining a 20% operating contingency fund.

If you can provide a temporary email address, I can send you our CIF documents.

I think Carole is on the right tack. To me Capital Reserves are for repair, major maintenance, updating, replacing, etc. existing amenities. Capital Improvements would be for new, additions, etc.

Example: Capital Reserves to resurface an existing tennis court. Capital Improvements to build an additional tennis court. Yes there might be an overlay like get a good deal on resurfacing the old when surfacing the new.

Refinishing the existing pool is Reserves. Adding a hot tub is Improvement.

I say budget for both and use accordingly.

DavidW5

I am the president of a small North Carolina HOA, and would appreciate getting a copy of the CIF documents you referenced.

How can I provide you my contact info?

Thanks...Keith

Thanks for the heads-up Geno...