contributions to reserves...

We (the board) votes every year on how much to contribute to reserves during the next year. It usually remains the same, but it's nice to have the flexibility to change the monthly contribution. In addition, reserves analysts often advise how much an HOA should contribute in their written reports. they writ how much is needed for 100% funding an perhaps plans to "catch up," if their preferred amount seems too burdensome.

Many would say that 68% funded is purty durn good, olJim.

I do agree that you should pass a resolution stating that the funds un reserves may only be used to repair or replace components listed in the reserves study. Part of this means, then, you cannot buy something new using reserves and THEN add it to your list of components. I can get you better wording if you like.

In CA we may legally borrow from reserves--petty strict process.

This is the law in CA. Do you think you might have such a law in TX?

Below is the actual CA Civil Code about both topics, Jim.

RESERVE EXPENDITURES

"Spending Restrictions. Boards may not spend reserve funds for any purpose other than the repair, restoration, replacement, or maintenance of, or litigation involving the repair, restoration, replacement, or maintenance of, major components that the association is obligated to repair, restore, replace, or maintain. (Civ. Code §5510(b).)"

"Borrowing From Reserves. Boards are allowed to borrow from reserves but are required to give notice of their intent to borrow by listing it as an item in the meeting agenda. The meeting notice must include the reason the reserve transfer is needed, some of the options for repayment, and whether a special assessment may be considered. If the board authorizes the transfer, it must issue a written finding recorded in the minutes explaining the reasons for the transfer, and describing when and how the money will be repaid to the reserves. (Civ. Code §5515.)"

Read more: Reserve Expenditures http://www.davis-stirling.com/tabid/3405/Default.aspx#ixzz3GolvTcNx
from Davis-Stirling.com by Adams Kessler PLC.
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As you can see, in CA we may not use reserve funds to buy NEW components.

I'm looking at a 3-Minute Summary of our recent Reserves Study. This analyst (& all that I'v seen before) state that re: % funded. 70% or above makes an HOA's risk of sp. assessments "Low."

Jim the OH Condo statutes actually mandate that the minimum amount a Board my set aside for reserves is 10% of the annual budget without a homeowner vote allowing for a smaller amount.

(1) Adopt and amend budgets for revenues, expenditures, and reserves in an amount adequate to repair and replace major capital items in the normal course of operations without the necessity of special assessments, provided that the amount set aside annually for reserves shall not be less than ten per cent of the budget for that year unless the reserve requirement is waived annually by the unit owners exercising not less than a majority of the voting power of the unit owners association;

Our analyst builds in inflation and interest, JohnC. In addition our study is reviewed every year by a pro who checks on many factors. But we have 147 components. In HOAs with far fewer, a pro wouldn't be needed every year.

And I've seen some on this site where even the original study is done by a homeowner or committee. I think Tim of VA did their original one, for instance. This can work well if there aren't too many components.

But, Tim, isn't tree pruning usually an operating budget line item? It is for us as it's done every year. Maybe yours are done far less often? But I agree that breaking out components helps owners see that it's not just one big pot of money--that all of it is accounted for.

By breaking components out, too, it's easy to see the various estimated lives for each. And sometime the components are broken down even further. We, for instance have a reserves line item for restrapping our poolside lounge & table chairs. WE have a different line item to replace that furniture.

We're so far behind that before I left the board, I suggested that we gradually increase the percentage to eventually reach 20%. At that time (2012) the percentage had been 9% for several years, so after we approved our reserve study (also in 2012), I suggested that we raise it to 10% for 2013 and begin adding a percentage point every year until we hit 15%, then see where we were. Hopefully, we can hold it at 15% for 5 years and then begin adding 1 percentage point again until it reaches 20%.

As to your resolution, I've heard many banks, as well as Freddie Mac,Fannie Mae and other government housing programs like to see at least 10% of the association's assessments go towards reserves, so your resolution could state that the percentage shall never go below that amount. That'll give the board some flexibility in increasing or decreasing the amount per year,depending on what else is going on.

Better yet, how about a reserves policy? Someone suggested that a few years ago on this website (don't know if it's still around - do a search). The reserves policy could address a number of issues, such as:

what type of investments reserves can be placed in so that the principal is protected
how often those investments should be evaluated
definition of a reserve component
how often reserve studies should be done
purpose of the reserve fund (it should be defined because people often think of it as some sort of slush fund where the money can be used for any damn thing)
borrowing from reserves (when can this be done, how soon it must be repaid, etc.)

By having a formal policy, the board wouldn't have to debate various issues and they would also have the flexibility to change parts of it as needed (hopefully, after they've reviewed the reserve study, consulted with banks, etc.)

What's the point in creating a resolution that tries to control how the majority board spends money? The majority board can change or ignore a resolution they don't want to obey. It's kind of like the ineffectiveness of the United States debt ceiling.

Common sense is like a reserve fund resolution--the people who need it most won't use it.

Our HOA budget lists "Reserve Fund Deposits" as an expense in our operating budget. We pay the Reserve Fund as if it were a monthly bill coming due. I'm not a fan of locking Reserve Fund money into sub-divided "compartments" that can't be managed with fluidity in times of crisis. However, the Reserve Fund should possess a list of planned priorities and offer a rough expected guideline for amenity replacement with all Reserve Fund expenditures being fully vetted in open HOA meetings.

You really cannot legislate the actions of future boards or their budget priorities by passing resolutions today. HOA board members who see the Reserve Fund as a slush fund are ignorant of the Reserve Fund process. They need simple training.

Our breakdown within our three reserves studies isn't "locked." We may use funds from one line item to bolster another or others. It isn't even "borrowing." Our reserve line items are merely a way for us, our PM and our analyst to keep track of the expected useful life of each and estimated replacement costs of each.

It's also very helpful to show H/Os when they want to know why they contribute so much each month to reserves. As someone else wrote, it's a nice "visual," and says much more than "We'll have $3M in reserves as of 1/15."

the above does not apply to new york.

Excellent comments Kelly - sure do appreciate you taking the time to give some final thoughts on this.

Great suggestions - and i think i'm gonna follow thru with all of 'em! :-)

Thanks soo much to you (and everybody else) for all the comments, suggestions and such.

oljim, in texas