Operating budget includes reserve expenses

I need all your help again.

I had been treasurer in permanent home HOA for years but am really confused about this.

Our rental property(SC) HOA has sent the approved budget 2 weeks in advance of annual meeting.

We had been told that a pool renovation --120K would be paid for by reserve funds and the funds were available.

Now this 120 K is in the operating budget. Of course this makes the yearly expenses much higher and has made our dues increase significantly.

To my thinking this item should not be in the operating expenses.

I also think the reserves have been underfunded for years. Now the reserve contribution has been cut in half for the 2017 budget.

Thanks for your help.

The only income shown is the monies from dues and interest-small amount which I think should be from reserve accounts.

I guess it boils down to the HOA not having sufficient funds and needing more money but this seems an odd way of achieving that.

The Reserve Fund needs to be replenished after a big chunk will be taken out, right?

Those return monies deposits will have to be made by the members and should be spread out over the next several years to build up the pool repair fund again. That MIGHT require an increase in assessments or your budget needs to show a transfer to the Reserve Fund.

How have you been funding the Reserve Funds all this time?

I concur with what the others have said.

In my community, we use our reserves the way Tim describes. Reserve deposits would be the only thing that appears in the operating budget because a percentage of assessments are designated for that. We have a separate income/expense statement for the reserves, which would show the deposits, interest earned and expenses.

If you’re the treasurer and have been for years, you should have a better idea on how your budgets work. For example, your reserves and operating budget should be separate pots of money in separate accounts, so the reserves can earn interest and you can transfer funds to pay for reserve repairs or replacements. You should also have a reserve study every 5 years that will help you estimate how much needs to be set aside in reserves every year so you’ll have enough money at the appropriate time.

Instead, this sounds like your reserves have been co-mingled with the operating budget – a huge no-no because people will be tempted to spend more money on something else instead of setting a separate account to track exactly what’s available. That would explain why the reserve contribution is being cut in half for next year – which is an awful, horrible, no good idea because I think your suspicions about underfunding is correct.

If your budget has already been approved, you will probably have to live with it for now, but you really need to take a serious look at reserves so you can begin turning things around for 2018 and beyond. Underfunding means people have been more interested in keeping assessments “low”, so I can see your assessments going up significantly – get used to it because you will probably need more to get the reserves to the level they need to be, now and in the future. Unless, of course, you and your neighbors don't mind paying more money in special assessments – depending on how underfunded you are, you may be looking at several down the line.

It would appear it’s time for a “come to Jesus” meeting with the rest of the board on what the numbers are really saying (or not). There are conversations around this website that can give you some tips on best practices, and you can also check out the community association institute (CAI) website, which has materials you can purchase to educate yourselves on reserve investments. Good luck!

Well, since you do own property in this rental HOA, I think you owe it to yourself to at least let the board know of your concerns. Be specific, offer your help since you are the treasurer in you permanent HOA - and note your concerns at the annual meeting so everyone can hear it. It's one thing to blow off one homeowner, but if some of your comments prompt others to ask questions, they'll have to address it.

I'm always sad to hear HOA boards not listening to the homeowners - some do this because they really don't know it from a hole in the ground and don't want anyone else to figure it out (although some already have!) Unfortunately, with most of the owners out of state, this leads to another sad fact - too many won't bother to pay attention (the assessments are low, so why rock the boat?) until it's too late and then they'll scream bloody murder, wondering why this happened.

If things stay the same, you may have a heavy decision to make about the property - either start saving now for the big special assessment that will surely come or sell the property and get out while you can. I hope things work out for you and your neighbors.

CECELIA
Are you saying/assuming your dues are determined each year by the Operating Budget even if a one-time item/expense is added from the Reserves? In this case, the pool repairs.

I asked this question earlier.

Please respond.

Thanks

John, this is the first time we have had a budget like this. This year they included the pool deck repair -120k and hurricane damage repair 60k in the operating budget. We were told the pool repair would be paid by the reserve fund and that the money was available in the reserve account. The hurricane damage should be paid by reserve ---rainy day ---and if there is not sufficient funds I would think a special assessment would be needed.

By having these two items in the operating budget ---without transferring the monies from reserves to the operating account the expenses of course are way higher than pervious years and for that reason a large increase in dues is necessary.

Tim, thank you for including a copy of your budget. I see how you have "transfer from reserves" as income. BTW, you have a healthy reserve.

The good news is that more owners are questioning this budget. The meeting is next week and should be interesting.

This thread is helping me a lot as I parse my HOA's monthly Profit and Loss statement. Thanks to CeceliaV, TimB4, ND, SueW6, JohnC46, SheliaH, and RichardP13 for your contributions.