FrankD2 (New Jersey)
Posts: 58
Posts: 58
Posted:
WHAT IS THE RULING ON THE TRANSER OF FUNDS FROM THE RESERVE TO THE OPERATING FUND.
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RESERVE SURPLUS
Started by FrankD2 • 10 replies • 2117 views
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BradD2 (Florida)
Posts: 418
Posts: 418
Posted:
Depends on the State and situation. Why do you think there is a surplus?
PS: Uppercase means screaming; kindly turn off the caps lock.
PS: Uppercase means screaming; kindly turn off the caps lock.
FrankD2 (New Jersey)
Posts: 58
Posts: 58
Posted:
thanks Brad
surplus was found by a reserve study. $32m was moved to operatiing fund.
i would like to know if this is proper
surplus was found by a reserve study. $32m was moved to operatiing fund.
i would like to know if this is proper
FrankD2 (New Jersey)
Posts: 58
Posts: 58
Posted:
thanks Brad
surplus was found by a reserve study. $32m was moved to operatiing fund.
i would like to know if this is proper
surplus was found by a reserve study. $32m was moved to operatiing fund.
i would like to know if this is proper
JM2 (Oregon)
Posts: 439
Posts: 439
Posted:
Hi Frank:
Normally, what's put into the Reserve fund should only be moved to operating funds in order to pay bills on repair or replacement of reserve items.
If you have a reserve surplus, you could do some of the following:
1) Reduce reserve input for one year;
2) Reduce reserve input for several years by a smaller amount;
3) Check to see if your reserve study was done properly.
There are multiple ways of doing reserve studies; one is "full funding," where you strive to keep everything 100% funded. It's the safest way to go, but keeps the most money in the reserve fund; very little likelihood of a special assessment.
There is another method, called by various names including "straight line," and "threshold," where you look at the minimum amount needed in the reserves to adequately fund the repair and replacement of the reserve items; you can specify the "minimum" amount you'll actually keep in there (such as a $10k minimum when you re-roof or re-asphalt, whatever your largest $-cost project is). This increases the risk of a special assessment (if costs suddenly escalate when it's the year to do the project).
Then, there's a third way, where you target 100% funding but never really plan on getting there; you can specify the minimum percenage of funding; less risk of a special assessment.
If you recently changed your reserve specialist, you might have changed the funding method/calculation and therefore have a sudden "surplus," since the assumptions on how much you need in your reserves are different. If that's the case, then I would recommend that your board discuss the situation and see how they would like to deal with the "surplus," but not by spending the money. There could be some tax and/or legal implications if you do move it out of reserves into operating without using it for reserve items; talk to your HOA's accountand and/or lawyer for advice, if the Board has its heart set on such a move.
J. Patrick Moore, CMCA
Normally, what's put into the Reserve fund should only be moved to operating funds in order to pay bills on repair or replacement of reserve items.
If you have a reserve surplus, you could do some of the following:
1) Reduce reserve input for one year;
2) Reduce reserve input for several years by a smaller amount;
3) Check to see if your reserve study was done properly.
There are multiple ways of doing reserve studies; one is "full funding," where you strive to keep everything 100% funded. It's the safest way to go, but keeps the most money in the reserve fund; very little likelihood of a special assessment.
There is another method, called by various names including "straight line," and "threshold," where you look at the minimum amount needed in the reserves to adequately fund the repair and replacement of the reserve items; you can specify the "minimum" amount you'll actually keep in there (such as a $10k minimum when you re-roof or re-asphalt, whatever your largest $-cost project is). This increases the risk of a special assessment (if costs suddenly escalate when it's the year to do the project).
Then, there's a third way, where you target 100% funding but never really plan on getting there; you can specify the minimum percenage of funding; less risk of a special assessment.
If you recently changed your reserve specialist, you might have changed the funding method/calculation and therefore have a sudden "surplus," since the assumptions on how much you need in your reserves are different. If that's the case, then I would recommend that your board discuss the situation and see how they would like to deal with the "surplus," but not by spending the money. There could be some tax and/or legal implications if you do move it out of reserves into operating without using it for reserve items; talk to your HOA's accountand and/or lawyer for advice, if the Board has its heart set on such a move.
J. Patrick Moore, CMCA
JoeW1 (New York)
Posts: 728
Posts: 728
Posted:
Quote:
Posted By JM2 If you recently changed your reserve specialist, you might have changed the funding method/calculation and therefore have a sudden "surplus," since the assumptions on how much you need in your reserves are different. If that's the case, then I would recommend that your board discuss the situation and see how they would like to deal with the "surplus," but not by spending the money. There could be some tax and/or legal implications if you do move it out of reserves into operating without using it for reserve items; talk to your HOA's accountand and/or lawyer for advice, if the Board has its heart set on such a move.
J. Patrick Moore, CMCA
J. Patrick Moore, CMCA
J. Patrick, You're post above is extremelly interesting to me and I agree with it. Correct me if I'm wrong, you basically state there could be a miscalculation based upon assumptions and if that's the case...... I take the sentence as written to mean that a determination of accuracy should be made, and it's up to FrankD2 to do so. Is that what you mean?
JM2 (Oregon)
Posts: 439
Posts: 439
Posted:
Hi Joe:
No, what I'm thinking is that soneone should go over the report to see if any common elements are missing, and barring that, have the reserve specialist go over the calculations. Or, if they have a MC, have the PM go over it for them.
J. Patrick Moore, CMCA
No, what I'm thinking is that soneone should go over the report to see if any common elements are missing, and barring that, have the reserve specialist go over the calculations. Or, if they have a MC, have the PM go over it for them.
J. Patrick Moore, CMCA
JM2 (Oregon)
Posts: 439
Posts: 439
Posted:
Hi Joe:
I thought about this more last night (HOA industry must have gotten into my blood)...if the HOA changed reserve study providers, it would be worthwhile to check on the philosophy/type of reserve study calculation they do. If you changed from a company that did 100% funding to one that did straight-line calculations, it would almost automatically show a reserve surplus. If that's the case, it might make sense to do one of the following:
1) raise the minimum amount in the reserve fund to a higher amount;
2) (as suggested above) drop the amount put in over several years, ramping back up slowly to the regular amount;
3) Don't put as much money in for one year, but keep the assessments the same and do a capital project for roughly that amount;
4) Drop the assessment rate for one year, but let people know that it's a one-time deal and that assessments will be back to the original level the following year.
I actually had one community that was over-funded. The reserve study suggested dropping contributions from about $12k to about $4k and then builing the contribution back up quickly. I suggested to the Board that they drop it to $8k and build back up more gradually. They were able to drop assessments by $5 per month per household and everybody was happy, and there wasn't a big "sticker shock" later on when the contribution would have jumped over a few years. Their "overfunding" disappeared in the course of a few years, more slowly than the study had suggested.
J. Patrick Moore, CMCA
I thought about this more last night (HOA industry must have gotten into my blood)...if the HOA changed reserve study providers, it would be worthwhile to check on the philosophy/type of reserve study calculation they do. If you changed from a company that did 100% funding to one that did straight-line calculations, it would almost automatically show a reserve surplus. If that's the case, it might make sense to do one of the following:
1) raise the minimum amount in the reserve fund to a higher amount;
2) (as suggested above) drop the amount put in over several years, ramping back up slowly to the regular amount;
3) Don't put as much money in for one year, but keep the assessments the same and do a capital project for roughly that amount;
4) Drop the assessment rate for one year, but let people know that it's a one-time deal and that assessments will be back to the original level the following year.
I actually had one community that was over-funded. The reserve study suggested dropping contributions from about $12k to about $4k and then builing the contribution back up quickly. I suggested to the Board that they drop it to $8k and build back up more gradually. They were able to drop assessments by $5 per month per household and everybody was happy, and there wasn't a big "sticker shock" later on when the contribution would have jumped over a few years. Their "overfunding" disappeared in the course of a few years, more slowly than the study had suggested.
J. Patrick Moore, CMCA
FrankD2 (New Jersey)
Posts: 58
Posts: 58
Posted:
to all who responded
my questiion is ----is it legal or proper to transfer money from the
reserve to operating fund just to increase the availability of operating
funds for operating fund expenses.
my questiion is ----is it legal or proper to transfer money from the
reserve to operating fund just to increase the availability of operating
funds for operating fund expenses.
FrankD2 (New Jersey)
Posts: 58
Posts: 58
Posted:
to all who responded
my questiion is ----is it legal or proper to transfer money from the
reserve to operating fund just to increase the availability of operating
funds for operating fund expenses.
my questiion is ----is it legal or proper to transfer money from the
reserve to operating fund just to increase the availability of operating
funds for operating fund expenses.
RogerB (Colorado)
Posts: 5,067
Posts: 5,067
Posted:
Quote:
Posted By FrankD2 on 04/21/2007 1:54 PM
to all who responded
my questiion is ----is it legal or proper to transfer money from the
reserve to operating fund just to increase the availability of operating
funds for operating fund expenses.
to all who responded
my questiion is ----is it legal or proper to transfer money from the
reserve to operating fund just to increase the availability of operating
funds for operating fund expenses.
I think it is legal but would not recommend it unless there is a shortfall in operating funds.
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