Budget Question

Our HOA treasurer presented a 2019 budget, increasing the dues from $125 monthly to $135.00. There were no significant changes to expenditures; if fact, our largest line item, lawn care, actually went down a bit. It has long been known that the treasurer likes to keep a significant cash buffer in the checkbook because it makes her feel better (approx 32k after income of 7000 monthly and expenses of (+/-) 6200 monthly.

Our reserve schedule is not fully funded, leaving a 81k gap.

Now that the HOA board has approved the 2019 budget, at the annual meeting in January, 2019, the residents will either accept or reject the proposed/approved by the HOA budget. If they reject the budget what are our alternatives? Can we go back to the previous dues amount and still not fully fund the reserves?

We are in Florida in a 56 unit single family community. Despite having term limits for board members, the treasurer has served for the last 12+ years by coming off the board after two terms and job sharing with another board member. After not being "officially" on the board for a year, she runs again for another 2 2 year term and goes off the board yet holds the reins of the checkbook. This cycle has continued for some time and the concensus of the board is that no one else wants the job so our community is lucky to have her. No audit has ever been conducted prior to her first term and the many years that she has served.

I reviewed the budget and the reserves and believe that if we moved 15k from the checkbook to the already reserved funds and increased the yearly reserves to $8700 ($750 monthly), we could fully fund our reserves and keep our dues at the previous level.

Any suggestions on how to handle this situation? Your comments and suggestions are greatly appreciated.

JimH,
As a former treasurer for 4 years the numbers look in line to me. Most things I have read suggest 3 to 6 months cash in the operating account. She seems to be on the high side bit as long as the money is there it is safe. If you transfer into reserves it is to be used for reserves.

As Augustin mentioned I find it odd that the community would be able to vote on a Budget that they may not know all the details about. That is what they elect a board to do. If that is a Florida law it would be crazy.

Thanks for the response...we have 12 line items on our reserve schedule, including a pool, tennis court, centrally located mailboxes and a clubhouse with a tile roof. We also have gates, a well, a wall, extensive landscaping as well as a asphalt road.

Our reserve schedule calls for $241,600 and we have a reserve balance of $27,688. In our schedule we are short funded approx 68000 and some change.

The new budget increase the monthly reserves deposit to $550 when in reality to fully fund it should be close to $725.00 month.

I have no problem with a $10.00 dues increase but see nothing worthwhile other than to increase the amount of free cash. If we could fully fund the reserves that would be icing on the cake and easier to accept.

Sounds like you're making progress. But some reserves components should be separate because they have differing useful lives. Your gates may have a useful life of 20 years, but your motors only 7, for instance. Gates may be on e line item for "repair," and a different line item for "replace." Gates cost one amount and their motors a different amount.

Similarly, with your pool, there are pumps and motors that should separate line items from resurfacing it every 8-10 years. The pool deck and drainage (perhaps) around it also should be separate items. And then, of course, the poolside furniture has a different useful life than some of the other components involving the pool. There are ladders too, and perhaps lighting. Is the pool enclosed with screening? Is your HOA responsible for no exterior lights--grounds or streets, maybe??

Your clubhouse alone comprises several line items: carpeting/flooring/window coverings; furniture; window upgrades?, kitchen appliances, etc. And tennis courts???

Look, and we're a high rise, but we have over 80 reserves items.

I think you need the opinion of a certified reserves analyst to establish realistic useful lives, replacements costs and remaining useful lives. the analysts will tell what your % funded really is and set you on a path to become fully (70-100%) funded. It doesn't seem you know what it is.

For a fairly small HOA, you have a ton of amenities. I can't do math, but it appears to me that your dues are way too low to adequately fund your reserves.

Some HOAs set aside funds in reserves for landscaping, some don't at all, and some just for large items like mature trees. Much of your landscaping might be in your operating budget instead of in reserves.

Do you mean that the total cost of replacing all your capital assets in today's dollars is $241,600?

Are you saying that the reserve schedule (usually a spreadsheet) states the HOA should have about $95,688 (= $27,688 + $68,000) in its reserves at this point in time but has only $27,688? If so, then your HOA's percent funded figure is $27,688 / $95,688 =~ 29%.

If you count the roughly $32,000 that the treasurer uses as an operating account cushion, then your HOA's percent funded figure is about ($32,000 + $27,688) / $95,688 =~ 62%. A percent funded figure below about 70%, like yours is, is a cause for concern and argues for a dues increase.

Like Kerry and Mark suggested: Have you had a professional reserve study done, by certified professionals? It is worth it. Respectfully, I am not quite sure you are up to speed on how reserve funding is handled.