Reserve Fund Income

We have a large reserve fund accumulated. The board has invested the money in a CD so it can gain some interest. Where should the interest be used? Should it be added to the reserve to just make it bigger? Or, should the interest be used to pay normal operating expenses?

I may have not made my question clear enough. Yes, we have all the studies, we have segregated accounts, etc. However, the question is, should the interest funds ever be used for non-reserve purposes?

I went back to the reserve study document and noted an assumption for an interest calculation of 4.6%. I would think that would imply that the interest should be left in if the study dollars are to be followed.

Also, in my mind, there is a difference between saying the interest is left in the cd versus where the interest is put on the accounting sheets. The money could physically be in the reserve bank account (like in a cd), but if the statements indicate it is just regular interest and not accounted for as a reserve contribution, then the money could be spent on anything - even though the money is really in the operating account.

If we treat the reserve as regular income, then we have more to spend on day to day things and thus it makes it look like we don't need as large of an assessment or we can spend on something not budgeted. However, if we put the money into the reserve account, it is as if this money was never available to anything except the capital items in the reserve study.

It may all not make any difference, but it just seems that if the reserve funds made the profit, the reserve funds should reap the benefits. I am just trying to decide if I should press this issue or just let it go. Last month the funds were left in the reserve accounts, this month they were all moved out to the general operating accounts.

Robert, was the reserve document showing 4.6% interest? Or was this the inflation rate used for calculating each year? I never show an interest rate on a long range reserve study, but must use an annual inflation rate.

GAAP will always show interest earned as income. Where that earned interest is placed should be part of your annual operating and reserve budgets. Income of any type must be designated for either the operating or reserve fund. This is shown on the accounting reports.

I think from your last post your real concern is you want reserve interest income left in the reserve account. That is what we recommend but each Board makes their own decision.

Robert, I think there are bigger concerns. Where the Board elects to put this interest is minor compared to the choice of how to invest the reserve fund. And time and effort spent deciding on contractors, MC, insurance, etc. are much more important.

You make a good point, I guess that is why I ask the question before doing anything - Reality Check. Of course when the Board spends time changing the time a trash container can be put out the day before pickup (Sunday) from 10am to 4pm, then I am not even sure the board knows where the important topics are! But that is a whole different discussion!