JosephH2 (Pennsylvania)
Posts: 57
Posts: 57
Posted:
We are a new and learning HOA Board.
We are having disagreements over how to handle an operating budget deficit which, in turn, has brought up disagreements about our Reserves.
Two years ago we had a slight overrun ($1,300) of our operating budget at year’s end so we paid it out of the next years fees (some of which had already been received) and increased the fees for the new year slightly to make up the difference.
This year we have already exceeded the year’s total budgeted amount for snow removal and we think this will likely cause a bigger deficit ($9,000) at the end of the year.
Now we are having a serious disagreement over how to handle this expected deficit.
Some Board members want to levy a Special Assessment now.
Some want to wait until the end of the year to see the net deficit and do what we did before.
Some want to wait until the end of the year to see the net deficit and charge it against our Reserves.
The Board disagrees as to which is the best option and we are not sure if the last option is allowed.
Our HOA has a Reserve Account for anticipated future capital expenses based on a Reserve Study that we did last year. We do not have any other “reserve” account. So the question has come up as to whether we can/should charge operating deficits to our existing reserve account or if we can/should set up an “Operating Reserve Account”
Our Declaration says:
“The Association may establish reserve accounts to be funded through assessments over a reasonable period of time and thereafter may maintain adequate reserves for maintenance, repair and replacements of the Common Elements that are anticipated to require maintenance, repair or replacement on a periodic basis and to cover deductible amounts in property insurance policies.
Extraordinary expenditures not originally included in the annual budget that may be incurred in any year may be charged first against such reserves.
In addition, the Executive Board shall have the right to segregate all or any portion of the reserves for any specific replacement or contingency upon such conditions as the Executive Board deems appropriate.”
The Declaration uses the word “may” and seems to be talking about a Reserve Account based on a Reserve Study dedicated to funding specific, long term, capital items such as streets and sidewalks. Then it goes on to say that “extraordinary” expenses not in the annual budget can be charged against such reserves. Would this include unexpected snow removal costs?
Our Bylaws say:
“The Executive Board shall build up and maintain reasonable reserves for working capital, operations, contingencies and replacements.
Extraordinary expenditures not originally included in the annual budget which may become necessary during the year may be charged first against such reserves. If the reserves are deemed to be inadequate for any reason, including non-payment of any Unit Owner's assessments, the Executive Board may at any time levy further assessments for Common Expense which shall be assessed against the Unit Owners either according to their respective shares of the Common Expenses, and shall be payable in one or more monthly assessments as the Executive Board may determine.”
The Bylaws use the word “shall” and seem to be talking about “operating” reserves. Does this mean we must establish an “Operating Reserve” account?
I would appreciate any advice on dealing with a budget deficit. I can’t believe that this issue should be so confusing.
We are having disagreements over how to handle an operating budget deficit which, in turn, has brought up disagreements about our Reserves.
Two years ago we had a slight overrun ($1,300) of our operating budget at year’s end so we paid it out of the next years fees (some of which had already been received) and increased the fees for the new year slightly to make up the difference.
This year we have already exceeded the year’s total budgeted amount for snow removal and we think this will likely cause a bigger deficit ($9,000) at the end of the year.
Now we are having a serious disagreement over how to handle this expected deficit.
Some Board members want to levy a Special Assessment now.
Some want to wait until the end of the year to see the net deficit and do what we did before.
Some want to wait until the end of the year to see the net deficit and charge it against our Reserves.
The Board disagrees as to which is the best option and we are not sure if the last option is allowed.
Our HOA has a Reserve Account for anticipated future capital expenses based on a Reserve Study that we did last year. We do not have any other “reserve” account. So the question has come up as to whether we can/should charge operating deficits to our existing reserve account or if we can/should set up an “Operating Reserve Account”
Our Declaration says:
“The Association may establish reserve accounts to be funded through assessments over a reasonable period of time and thereafter may maintain adequate reserves for maintenance, repair and replacements of the Common Elements that are anticipated to require maintenance, repair or replacement on a periodic basis and to cover deductible amounts in property insurance policies.
Extraordinary expenditures not originally included in the annual budget that may be incurred in any year may be charged first against such reserves.
In addition, the Executive Board shall have the right to segregate all or any portion of the reserves for any specific replacement or contingency upon such conditions as the Executive Board deems appropriate.”
The Declaration uses the word “may” and seems to be talking about a Reserve Account based on a Reserve Study dedicated to funding specific, long term, capital items such as streets and sidewalks. Then it goes on to say that “extraordinary” expenses not in the annual budget can be charged against such reserves. Would this include unexpected snow removal costs?
Our Bylaws say:
“The Executive Board shall build up and maintain reasonable reserves for working capital, operations, contingencies and replacements.
Extraordinary expenditures not originally included in the annual budget which may become necessary during the year may be charged first against such reserves. If the reserves are deemed to be inadequate for any reason, including non-payment of any Unit Owner's assessments, the Executive Board may at any time levy further assessments for Common Expense which shall be assessed against the Unit Owners either according to their respective shares of the Common Expenses, and shall be payable in one or more monthly assessments as the Executive Board may determine.”
The Bylaws use the word “shall” and seem to be talking about “operating” reserves. Does this mean we must establish an “Operating Reserve” account?
I would appreciate any advice on dealing with a budget deficit. I can’t believe that this issue should be so confusing.