DorrinndaF (Michigan)
Posts: 17
Posts: 17
Posted:
does anyone know if it is a state law (MI) that a HOA has a contingency fund for emergencies. Just trying to find out if its a LAW???
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Contingency Fund
Started by DorrinndaF • 10 replies • 1707 views
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MelissaP1 (Alabama)
Posts: 13,836
Posts: 13,836
Posted:
What does it matter if it's a law? It's just a good business practice. That's what some reserve/savings accounts are for. If you don't have one and want one, then sounds like time for a special assessment or raise in dues.
Former HOA President
DouglasK1 (Florida)
Posts: 2,046
Posts: 2,046
Posted:
Quote:
Posted By DorrinndaF on 12/20/2016 5:53 AM
does anyone know if it is a state law (MI) that a HOA has a contingency fund for emergencies. Just trying to find out if its a LAW???
does anyone know if it is a state law (MI) that a HOA has a contingency fund for emergencies. Just trying to find out if its a LAW???
This thread is a few years old, but it suggests that MI does not have any HOA specific laws, but they do have some Condo specific laws.
http://www.hoatalk.com/Forum/tabid/55/view/topic/postid/66203/Default.aspx
With no HOA specific laws, that leaves HOAs governed by the general non profit corp laws. I don't have time to do a lot of research on MI law, but google does a good job of finding what is there.
You're not clear if you asking about a contingency line item in the annual budget, or reserve funds to cover unexpected emergencies, my best guess is that neither is required by law, but unless there are some MI posters here, finding and reading the applicable laws is probably going to be your best avenue for getting the answer you are seeking.
For comparison, FL HOA law does not require any contingencies or reserves. My county however does require certain reserves to be maintained by gated HOAs that own their own infrastructure. There are 5 specific categories that must be funded. One, for example, is a storm clean up reserve that has to contain a specified amount to deal with hurricane aftermath.
Escaped former treasurer and director of a self managed association.
KerryL1 (California)
Posts: 14,550
Posts: 14,550
Posted:
We have a contingency line item in our operating budget to handle unforeseen expenses. But It is not a law in CA or do I think it is in your state.
It's probably just basically common sense and also standard practice instead. We also have contingency line items is our three reserves accounts.
It's probably just basically common sense and also standard practice instead. We also have contingency line items is our three reserves accounts.
TimB4 (Tennessee)
Posts: 21,062
Posts: 21,062
Posted:
We have a contingency line item within our Reserve for reserve items (makes up shortfalls between expected costs and actual costs).
We have a miscellaneous line item in our operating budget to make up shortfalls and handle the small unexpected items.
We carry 1 month of normal bills in our checking account as a cushion to make up the difference between assessments received and bills due.
A proper reserve should normally address concerns of maintenance/repairs/replacement of capital components. Emergency repairs for capital components should still be paid for out of Reserves and the amount contributed to reserves adjusted as needed.
We have a miscellaneous line item in our operating budget to make up shortfalls and handle the small unexpected items.
We carry 1 month of normal bills in our checking account as a cushion to make up the difference between assessments received and bills due.
A proper reserve should normally address concerns of maintenance/repairs/replacement of capital components. Emergency repairs for capital components should still be paid for out of Reserves and the amount contributed to reserves adjusted as needed.
DorrinndaF (Michigan)
Posts: 17
Posts: 17
Posted:
How much would a reasonable amount be to have in the contingency fund - we are a HOA and dues are used for maintenance of three parks - grass cutting: picnic tables - minimal landscaping and a lake - treatment ?
Our running costs are approx $40.000 but budget approx $70.000.
Everything else apart from maintenance of the parks and lake is the homeowners responsibility -
The dues are raised anywhere between 10 - 50% each year - we do have a misc line item for each seperate catagory - lake $2000 - parks $2000 - office supplies etc etc plus we're putting yearly $5,000 in a capital improvement fund and now $8,000 into a contingency fund it all needs a little excessive to me or would this be the norm -
Our running costs are approx $40.000 but budget approx $70.000.
Everything else apart from maintenance of the parks and lake is the homeowners responsibility -
The dues are raised anywhere between 10 - 50% each year - we do have a misc line item for each seperate catagory - lake $2000 - parks $2000 - office supplies etc etc plus we're putting yearly $5,000 in a capital improvement fund and now $8,000 into a contingency fund it all needs a little excessive to me or would this be the norm -
JohnC46 (South Carolina)
Posts: 14,265
Posts: 14,265
Posted:
I assume what you are calling a contingency is what is commonly called a Reserve Fund. The amount needed in a Reserve Fund is based on a Reserve Study. Has your association had such a study done?
Overall the numbers you post seem to be in order.
Overall the numbers you post seem to be in order.
KerryL1 (California)
Posts: 14,550
Posts: 14,550
Posted:
I think JohnC is on to something, also noticed by Douglas, for a couple of reason, Dorrinda.
First, you keep writing "contingency fund" and that's not the wording that HOA budgets use. I hadn't noticed Douglas' first reply right before mine, but let's say your operating budget contains 20 line items, e.g., trash pick up, snow removal, landscaping, insurance, taxes, perhaps property mgmt., etc. In addition, the budget probably contains a contingency line item. Ours is about 3% of our annual operating budget and, this year, we'll end up right on budget. As Tim points out, it's for unexpected expenses, let's say extra snow removal due to a severe winter.
The contingency line item in your reserves would be if something that's due to be replaced/or have major repairs occurs before their estimated lifespans, you might pay for the unexpected replacement partly out of your contingency line item in your reserves account.
I suspect you're mixing up your operating budget budget and reserves account, Dorrinda, because of the following that you wrote: "...grass cutting: picnic tables - minimal landscaping and a lake - treatment"
Picnic tables would be replaced from your reserves account. If you wanted to purchase additional or extra picnic tables, you might use your operating budget's contingency line item. Then....you'd list the t additional tables on your reserves study and assigned them a replacement value and an estimated lifespan. Grass cutting is from your operating budget.
As on another thread: Are you on the board?
First, you keep writing "contingency fund" and that's not the wording that HOA budgets use. I hadn't noticed Douglas' first reply right before mine, but let's say your operating budget contains 20 line items, e.g., trash pick up, snow removal, landscaping, insurance, taxes, perhaps property mgmt., etc. In addition, the budget probably contains a contingency line item. Ours is about 3% of our annual operating budget and, this year, we'll end up right on budget. As Tim points out, it's for unexpected expenses, let's say extra snow removal due to a severe winter.
The contingency line item in your reserves would be if something that's due to be replaced/or have major repairs occurs before their estimated lifespans, you might pay for the unexpected replacement partly out of your contingency line item in your reserves account.
I suspect you're mixing up your operating budget budget and reserves account, Dorrinda, because of the following that you wrote: "...grass cutting: picnic tables - minimal landscaping and a lake - treatment"
Picnic tables would be replaced from your reserves account. If you wanted to purchase additional or extra picnic tables, you might use your operating budget's contingency line item. Then....you'd list the t additional tables on your reserves study and assigned them a replacement value and an estimated lifespan. Grass cutting is from your operating budget.
As on another thread: Are you on the board?
JohnC46 (South Carolina)
Posts: 14,265
Posts: 14,265
Posted:
Kerry explained it best. A Reserve Fund can have many budgeted line items in it for planned events such as re-roofing, painting, resurface tennis courts, reline the pool, pave streets, replace picnic tables, etc. Many budgets will have a line item (say called Contingency Funds) for the unknown things that could jump and bite you. We recently had an unplanned on problem with a retention pond fountain pump failure long before we had fully funded that item. We took from our Contingency Funds (though we called the line item Miscellaneous Reserve Funds) to replace the pump. I have seen such a line item called Emergency Funds.
SueW6 (Michigan)
Posts: 814
Posts: 814
Posted:
Our contingency fund was to cover costs of insurance deductibles, only. We cushioned that with one month's expenses.
KerryL1 (California)
Posts: 14,550
Posts: 14,550
Posted:
Try this, Dor: Visit Davis-stirling.com a website created by CA HOA attorneys. Go to Budget in their Main Index. Scroll down to five sample budgets. #2 is a good example of what it looks like when both Contingency and Reserves Contributions are included. (I didn't review 3-5)
Though written for CA HOAs, many of the topics are generalizable to HOAs in any state.
Though written for CA HOAs, many of the topics are generalizable to HOAs in any state.
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