Percent Funded per Reserve Study Results

Megan,

I don't know of a fully funded method.

I am aware of a cash flow method (probably not the right term) and the component method.

In the cash flow method the Reserve is considered one pot of money and the goal is to have the money needed to do the work when scheduled (per the study).

In the component method, each component has a line item associated with it and x amount is placed into the reserves specifically for that item.

Regardless of which method used, the report tells the Board how much they must start setting aside to be fully funded. Therefore, it doesn't matter if you were fully funded or not in the past. The Report looks at where you are at now and where you need to be in the future.

The Board or the membership decides if they desire to fully fund the Reserves or not.

Like Kerry, I'm surprised that you have amassed so much more reserves than you need, and how small your list of reserve components are.

As far as what to do with the money, I see one possible disadvantage of returning excess funds to members by lowering dues. Some governing docs limit annual dues increases to a set percentage or amount per year. If you lower dues substantially one year to "rebate" the owners the excess reserve amount, you might not be able to raise them back around the original amount the following year because of the cap.

"contrive buttons" LOL

Again, Megan, was the person who did your study an actual reserve specialist or analyst? If not, what sort of background does s/he have that encouraged your HOA to hire her or him? If at all qualified to conduct the study, that person should be the one to write a quick letter saying explaining the % funded that you have and why no additional dues should be contributed.

That's where the $72,000 would come from, after all--increases in your dues.

Are you on the Board, Megan?

Sorry about my typo--yes, $27,000. What are your HOA's annual payments into reserves right now?

Reserves analysts/specialists don't provide a % funded on a daily basis, but on an annual basis. The study we just had done, for instance, has on the first page the % funded on 1/1/17 based on what they expect we'll have in our account on that date.

If the analysts or whomever, have no idea what your analyst is called, recs $1,200/ann, why does the board want to put $27,000 in it?

Reserves studies only try to predict how long your reserves components will last, how long they will last when new, and what their estimated replacement or major repair costs will be. They do not talk about "capital expenditures."

Finally, how is it that you have $27,000 setting in your operation budget that they want to transfer to reserves? What is the size of your annual budget anyway????

There's something scrawly going on here and I have my own big budget & reserves open board meeting later today and must finish getting ready for it. Maybe someone else can chime in.

It looks like your HOA is overfunded in the reserves.. Contact your BOD and the Managing company... Nevada law states that an audit should be performed on an annual basis.
Check the laws in Colorado, It sounds like two things need to happen, the assessments need to be lowered and your HOA owes the owners a refund.

Kerry - I agree with you!

CPA's, besides reading the minutes for the year, should also read the governing docs - especially the sections that relate to the assessments. Our audit report did mention that homes had two different levels of assessments but didn't specify what this difference was for. In fact those extra dues were for specific items that were to go into a "restricted" bank account and used for no other purpose. If any of the different CPAs over the years had tested the financials using this information, we wouldn't have the huge problems we have now.

Our HOA also had excessive amounts in the Operating bank. I let the board and MC know that most of this money was misallocated and belonged in the "restricted" reserve account. But no corrections were made. The operating account balance @ 10/31/15 was $166K but has now been dwindled down to $68K @ 7/31/16. Leaving this excess cash in the operating account has allowed the board to fund their special agendas - spending over $100K in nine months that wasn't budgeted nor approved by the owners.

Megan - the first thing you have to ask yourself is where did this extra $27K come from?

Did you save a lot on other budgeted items? Did you collect on a previously written-off debt? Do you have another Reserve account that, perhaps, is underfunded? Our biggest water bills (J/J and A/S) aren't received until August and October. Are there large water bills that are coming due soon?

What is the total of your yearly operating budget?

Joyce,

The job of checks and balances belong to the membership.

As you are aware, typically, there is no State or Federal government agency that can be contacted to gain assistance. Therefore, it's up to the membership to take care of the issues themselves.

There are civil laws and criminal laws. Criminal laws are enforced by the State. Civil laws are enforced by the individuals involved and they do this through the court system.

In general, the CC&Rs (deed restrictions) are considered a civil contract between all owners of the properties that have the same deed restrictions attached. Since contracts, hoa/coa laws and corporate laws are considered civil laws, there is typically limited governmental authority to "oversee" or enforce those laws.

Sure the State corporation commission may fine for not filing the annual report on time. The IRS will certainly go after the Association for failing to file taxes. The District Attorney will prosecute if there is proof that criminal laws are broken (example embezzlement). However if the Association doesn't comply with the Bylaws or a civil law, it's up to the membership to hold the Board accountable. The easiest way would be to recall the board or not reelect them to the Board. The more expensive option is to go through the court system.

This is why it's imperative that the members remain active in the development and actually take an interest in how the Association is governed. If apathy sets in (and, unfortunately it does), it becomes that much more difficult to change things when issues are discovered.

Typically when there are issues, the best thing a member can do is read and understand the governing documents (CC&Rs, Articles of Incorporation, Bylaws, resolutions) and applicable State laws. This way they can identify if the issue is real or perceived. If the issue is real the easiest way to address it is to approach the board about it. If they are not listening, the next easiest is to vote the Directors off the board either by recall elections or at the next scheduled election.

However, if your membership is "afraid" to hold these individuals accountable by casting a vote, then the reality is it's going to be harder and more costly to fix the problem because you will need to document and have proof of the board violating the governing documents and then take them to court. Whenever you go to court it's always a 50/50 chance to lose. Even if you do win, the outcome might not be what you really wanted.

One could try to gather support by educating the membership of the governing documents and how the current board is violating them. Nothing will change overnight but overtime (could be years) things may change. If there isn't membership support (for whatever reason) to recall or not reelect the current board, then [to be honest] it may be better to sell and move elsewhere.