Reserve Fund - Duty of Spending Correctly

Started by WilliamS1 • 7 replies • 1913 views

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WilliamS1 (South Carolina)
Posts: 113

Posted:

Last year our HOA approved an increase in fees to develop a reserve fund. We had a reputable analyst come and give us their thoughts as to amount and what needed to be done in order for the next 30 years. Our maintenance chair is disregarding the suggested order of repair and is wanting to spend some money on another project.

Situation -
A partial repair to one of our roads is requiring about $5K. Our reserve study does not allow for the repair for several more years. The reserve study suggest a coating next year and then a full replacement in 10 years. Should we step outside of the suggested order to repair this or use some of our general operating funds to patch now, coat next year and then fully replace in 10 years?

This might not be such a big deal if the order of repairs by the reserve analyst were even being considered but it seems like he is just taking the funds and considering them more money to work with on whatever he feels is important.

When we increased the fees, we did so by communicating the repairs that were suggested by the analyst (impartial outsider) and I believe that we should our best to follow through on that.

I am anxious for your thoughts.

RogerB (Colorado)
Posts: 5,067

Posted:

William, the analyst recommends but the Board makes the decisions. Whatever they decide in good faith is fullfilling their fidciary responsibility. If you are concerned offer to solicit opinions and bids from qualified contractors; or perhaps the Board has already done that.

WilliamS1 (South Carolina)
Posts: 113

Posted:

This is a new thing to this board and I don't think they understand the broad issues of getting off schedule. The maintenance chair is highly regarded by the board, and carries a good amount of influence.

To me, the reserve is intended for specific items. I am the board president, and I represented to the HOA this study in order to achieve a fair increase in our regime fees. This is our first year and so far the planned items have been completely ignored by our maintenance chair. When I bring items up that need to be quoted, the comment comes back, " We need to build some money up before we do that stuff don't we?" My reply - No the items for this year, are budgeted for this year.

I am trying to keep things positive and not be over controlling on this but am I correct is making this point.

Respectfully

JackT1 (Alaska)
Posts: 41

Posted:

How did I own 12 houses & never see the need of an HOA? We had one built where the HOA was mandatory, and bought one where there is an HOA & it was a problem in FL and is in TN.

RogerB (Colorado)
Posts: 5,067

Posted:

Yes, you are correct William. Sounds to me like your maintenance chair needs to be ordered by the Board to complete the items budgeted this year or else attend a Board meeting and explain to the Board why this committee does not feel certain items are not being done. Then it is up to the Board to make their decisions and take necessary action.

PaulM (Pennsylvania)
Posts: 1,347

Posted:

William:
You state that this is your first year. When you speak of --'the items for this year, are budgeted for this year'--are you speaking of usual maintenance for outside upkeep or long term care maintenance to come out of the capital reserve fund?
I would sincerely question the need for spending the first year on ANY long term projects. I would look at the reserve study again and question why there needs to be maintenance. I tend to lean on the side of the maintenance chairman who is held in high regard--perhaps he has some experience in engineering or bldg.?

More importantly, was the project not finished properly by the developer? If the developer fulfilled his role correctly and according to municipal code, there should be no need to fund ANY capital expense item the first year. You should NOT need a coating on the street if the coating was done properly.

You may have an ally with the land development or code officer of the local municipality. It is their responsibility to gauge capital expense projects for a time (18 months?) after the developer is 'finished'. The developer will not get his escrow returned until all is done according to code and standard.

Post some further details on what projects require maintenance.

JM2 (Oregon)
Posts: 439

Posted:

Hi William:

The Board should be in control of the spending, not the maintenance committee chair. The maintenance committee chair should be spending for ordinary maintenance from your operations budget.

If there is a need for street repair, he should be bringing this to the attention of the board; normally, the board would then investigate the situation and could choose to spend reserve money for this if needed.

Did your reserve analyst visit the site and review the reserve items? Did he have experts come out and evaluate the remaining life of items? or, was it simply an exercise in running the numbers? If there was not an onsite evaluation, it could be that some road repair is needed this year that wasn't "forseen" in the reserve study.

If that's the case, or if a problem has developed that needs repair, then you would need to spend the money this year, and the reserve analyst would need to adjust next year's figures to account for the money that was spent. There are times when this happens - for instance, your 30-year roof only lasts 28 years and you need to replace two years sooner - that you would need to dip into reserves sooner than expected.

Best of luck, I'm glad that you've set up a reserve fund...

J. Patrick Moore, CMCA

SwanB (Washington)
Posts: 199

Posted:

Reserve fund issues are tough because the items set up to be funded are oftentimes items an HOA would like to fund in the future; capital expenditures above a certain set limit; money for emergency or catastrophic occurences i.e floods or fires, etc. not included in insurance policies or deductibles.
How can a Board know which of these items are going to rear their ugly heads every year on schedule? Our Board would love to get to all the road repairs and tree removals we had placed on our 5-year capital goals/expenditure budget for 2007. However the tiling in the pool started to dissipate and the pool pump system went down sooner than the dates we, as a community, had set for them (2008). Should we just close the pool until their projected repair dates arrive on our 5-year capital goals/expenditure budget? This 5-year capital goals/expenditure budget is reviewed and passed every year by our membership at our annual general meeting. But, ultimately, the Board has the management and fiscal responsibility of running the HOA on a daily basis. If the tiles start falling from the pool and the pumps break down and need to be replaced before 2009 to bring our flow rate up to par with new County requirements, then the membership expects the Board to make those fiscal decisions.

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