Using Reserve Funds, in FL - one more time

It certainly makes your reserve fund worthless for what it is intended for if the association can just use it to cover overruns -- I don't know what the Florida law is though. Very few states seems to effectively regulate reserves. So many places play games with the reserves; for some people it is just this big enticing pot of money meant to be spent.

Alex, I am not aware of any law which requires an HOA to even maintain a reserve fund. But they should and it needs to be based on a long term (20 year) plan. So ask the CAM to provide the long range plan which supports his claim of "there's plenty of money in Reserves, no need to increase assessments."

When you ask about questionable items on financial reports, and he says "can't answer that, I'm not an accountant" that is unexceptable. Require the CAM to provide the answers. If these problems continue it is time to look for another CAM.

Wow Alex...are we sure we're not in the same place? You and I have both been questioning "rouge" presidents and "dipping into reserve funds". Sounds like we have the same property manager, too! As the treasurer of my complex I've written a "long-term outlook" to distribute to all the owners. The Reserves should not be a "slush fund" for the board. By putting it in "black and white" and describing possible costs for upcoming expenses I'm hoping more owners will be up-in-arms about our board taking THEIR money out of the reserves which is already earmarked for: paving; pool; roof; etc....capital expenses. I've even gone so far as to tell everyone what their assessments will be should the money not be in the reserves. When people see $$$thousands$$$ of dollars they'll be forced to pay, hopefully they'll speak up.

This sounds like just a different way of accounting. There's nothing wrong with it per se, it's just NOT healthy for the HOA to operate in this manner. Eventually, the Reserve Funds are going to effected, especially when a large emergency repair is needed. Your HOA won't have the money to cover it.

Your HOA can go for years like it is going now. Any under budgetted items, they can take from the Reserves Fund. It's much like how you run your own budget at home. You run out of money, you get money from your savings to cover it. Whoever is running or controlling your budget is thinking along the same terms as their home budget. It works, but for how long?

HOA's budget's are for the lighthearted or narrow minded. A HOA is only funded by it's owners for it's owner. All the money spent is everyone's money spent. The board is just in charge to represent the majority of homeowner's to make sure the budget is spent on the appropriate operational and maintenance costs of the HOA. Something many of the board members don't understand or don't do. The board often is "secretive" and "controlling" of the money and treat if it was their own. That's partially true since part of the money is theirs as owners. HOA budgets are much like opening your checkbook for everyone to review that is on the account. Not an easy thing to do for anyone.

My suggestion is to consider raising the dues. Let the people know that YES, there are reserves but they are called "Reserves" for a reason. Your HOA obvisously is taking away from these funds and NOT replenishing them. You need to STOP now. Request that the next yearly budget NO money be taken from the reserve funds. STOP the bleeding from that account. Review your documents and see how much the HOA is allowed to raise the dues yearly. Ours allow a 5% increase each year with only a board majority vote. However, with a majority vote of homeowner's that percentage can be increased or lowered. So there can be a special assessment for a raise in percentage of dues held whenever someone is ready to spearhead that project.

I will warn you. Most homeowner's aren't going to see the "big picture" as you do. They will see it as their home budget and say "okay" to keep using the reserve funds. All the other stuff may just be some kind of "fancy" bookkeeping someone wants to do... Raising the dues or doing a special assessment isn't the easiest thing to get across and passed. However, in your case, raising the dues is the solution if your costs are raising and the income isn't. Consider it a "Cost of living" raise your giving the HOA with raising the dues.

In California, the Davis-Stirling Act (which regulates HOA's) states that money borrowed from reserves must be repaid within one year or the board must explain the failure to repay to all homeowners. The Act has recently been amended to require reserves based on a 20 year reserve study and for the board to provide annual updates to all homeowners.

AlexC1:
If you refer to your 'Declaration' it should speak to Monthly Payments for Common Expenses and also segregating Capital Expenses from common operating expenses.

Has your assn. had a capital reserve study done which suggests the life expectancy and maintenance program for long-term capital expense items? Your document (Declaration/Maintenance & Repair Obligations) should speak directly to which items require the assn. to maintain and/or replace; i.e., storm water system incl. gutters/downspouts, sidewalks & streets, driveways, overflow parking areas, etc. The capital reserve fund is ongoing and built up by a portion of the assessment fee going to this account each month. The study should reveal at what year you will need to consider what repair and/or maintenance, etc.

It is extremely important for YOU to be in the know on what your documents state re responsibility of the assn. since it is always the residents who will have to 'pay' (in one way or another) to make a 'wrong' turn out right.

I am going to strongly disagree with your statements of how to use Reserve Funds. I would suggest that if you get audited by the IRS you will find a huge tax liability for all the funds you spent on normal operating expenses. Also, it may invalidate all of the HOA's ability to not pay any income on the reserve funds that you have held over. There are a number of IRS rulings that state exactly what reserve funds may be used for, period. State law has no bearing on this since IRS tax law supersedes the state. I would suggest you reevaluate your spending pattern.

RobertG, could you provide references to the "number of IRS rulings that state exactly what reserve funds may be used for, period." I am aware of an IRS guideline to maintain the operating and reserve funds in separate accounts.

I have reviewed the reference and it may not be as specific as I thought. You be the judge. The first reference is http://www.porterandcompany.com/Articles/ItCouldHappentoYou.pdf, page two middle right column which I think you have already read. The other reference which is a bit more vague, but includes the specific IRS ruling is http://www.taxlinks.com/rulings/1975/revrul75-370.htm. I would be interested to see what do you think these say?