Reserves and General Operation funds

Started by TammyC3 • 8 replies • 499 views

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TammyC3 (New Mexico)
Posts: 102

Posted:

This forum has been such an asset over the past year and the advice so valuable in supporting or correcting our interpretations.
Finally! A new treasurer has been elected. We need to get off on the right foot.
The Association's bank account is now in our state (NM). Association records too. We have a legal Resident Agent and a legal Principal Office. Losses & malfeasance are understood and have been corrected. Revenues increased and expenses decreased. The Developer's grip on this association has been severed.
I'm still at baby steps and feel huge responsibility toward setting things on a proper course going forward.
What the heck do we do now??!!
We are a frontier 'rural road maintenance' association. This is really our only job. Road maintenance. Our association owns a road grader for this purpose. It is the only equipment we own/use. Residents often use their own vehicles and equipment to 'drag' the roads during prolonged periods of snow and rain.
If we saved every penny earned each year, it would take us 10 years to afford a used grader. If something happened to our grader, we would be in a really bad spot.
Budget - The treasurer is responsible for creating the budget. I assume:
*Projected expenses are based on past years expenditures and can change from year to year.
*The projected annual budget is the responsibility of the treasurer.
Reserve account - We don't have one, we never did. We must create one. I assume:
*Reserves will hold the bulk of monies.
*Reserve accounts need to be secure. Recommendations?
*Reserve 'line items' are decisions made by the board. (i.e. $XXX for 'new' tractor, $XXX for new signs.)
General Operating funds - Determination of amount.
*Budget aside, what if: 2 Flat tires = more than budgeted for 'repairs' to grader?
*How much (formula?)excess should be held in the operating funds?

Set me straight!

Tammy

TimB4 (Tennessee)
Posts: 21,062

Posted:

Our Association has two accounts:

Checking - serves as our operational account. All income received and expenses paid are done through the checking account.

Savings - serves as our reserve account. income to the reserves are transferred from the operational fund (checking) to the reserves (savings). We treat this as an expense to the budget on the operating side. All payments for reserve items have funds transferred from the reserves back to the operational account for a check to be written.

I think I provided this to you before. If not, here it is again:

Subject: Reserve Studies/Funds 101 thread on this forum.

Personally, I would get rid of the grader and hire a company.
The grader creates added expense: upkeep, fuel, training for the driver, insurance, registration, perhaps employment taxes if the driver is an employee.

Additionally, the HOA incurs a higher liability doing the work themselves.

TimB4 (Tennessee)
Posts: 21,062

Posted:

Perhaps these will help:

Best Practices Reports From the Foundation for Community Association Research - pdf booklets on many topics of HOA/COA concerns.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

I think some of your assumptions are just that. No the Treasurer is NOT responsible for setting the budget. The setting of the budget is the ENTIRE board. This should be details in your rules.

Having a reserve fund is not a requirement. It also isn't a place to hold bulk amount of money. Reserve accounts have distinct purposes. They are usually earmarked for CAPITAL improvements such as Roof replacements, street maintenance, pool items, and other major projects. Not every HOA needs a Reserve Fund. It could use more of a savings account for emergencies.

A HOA budget is set by it's expenses. It's not a number pulled out of the sky. You are to collect as much in as you spend out on operational/maintenance costs. Not necessarily parties or snacks for meetings. Those are optional expenses that should be approved that it's an acceptable expense.

A HOA is a non-profit corporation but NOT a charitable one. So no one can just decide to donate money. The HOA needs more money for it's expenses the choices are to raise dues or have a special assessment. It can raise dues up to 5% with a board vote in many (NOT ALL) each year if necessary. Otherwise it takes the entire membership to approve.

I'd read Tim's suggestions. Don't assume anything...

Former HOA President

TammyC3 (New Mexico)
Posts: 102

Posted:

Yes Tim! You did provide these links before and I read them! I just didn't know how to find my way back! Headed back now ...
Thanks!!

TammyC3 (New Mexico)
Posts: 102

Posted:

Thank you Melissa P1,

One thing I don't assume is that our rules detail any of this. It sure would be nice though. Maybe one day...... but for now, one step at a time.

I've been back to the statues and see 'reserves' listed under: "Record Disclosure" and also under "Allocation of Association Financial Liabilities, Expenses, Reserves and Voting". I am unable to find anything that says 'Savings Account'. Tim's suggestions were helpful in clarifying this and also reminded me about the Davis Stirling resource. I will share all with the board.

We are held to a Federal Cost of Living Index Rate (last year was a high of 2.4%) when raising assessments, and we require 75% of the members to approve an assessment increase.

Actions shouldn't be predicated by/on assumption. That's why I'm here.

Thanks again.

AugustinD
Posts: 5,144

Posted:

Quote:

Posted By TammyC3 on 10/20/2019 5:06 AM
We are a frontier 'rural road maintenance' association. This is really our only job. Road maintenance. Our association owns a road grader for this purpose. It is the only equipment we own/use. Residents often use their own vehicles and equipment to 'drag' the roads during prolonged periods of snow and rain.
If we saved every penny earned each year, it would take us 10 years to afford a used grader. If something happened to our grader, we would be in a really bad spot.

Quote:

Posted By TammyC3 on 10/20/2019 7:21 AM
We are held to a Federal Cost of Living Index Rate (last year was a high of 2.4%) when raising assessments, and we require 75% of the members to approve an assessment increase.

-- What do your governing documents say about Special Assessments?

-- I think your HOA's hands are seriously tied by the federal cost of living index and the 75% approval required for an assessment increase. You're right of course to start giving this attention.

-- The other day I googled on the subject of gravel road maintenance. Something like a 30-year-life s assumed before full gravel replacement is necessary. I am betting that "30 year" figure is a very crude estimate. Online, rough estimates of maintenance are about $4000 to $8000 per mile of gravel road. I recommend the board come up with a list of questions then hire a gravel road expert to opine. Also consider consulting a Reserves expert (licensed in same) for a few hundred dollars for her or his licensed Civil Engineer (specialized in reserve planning) opinion.

-- How many members are in your HOA? What is the current annual assessment per member? What is the current budget, roughly?

-- I am curious: Who operates the grader? I promise not to go all legal on you re the latter.

-- Congratulations on your progress. This does not happen often.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

What documents are you looking at in regards for you budget? It should be in there. Maybe the Articles of Incorporation or your CC&R's. I'd find it unusual for them not to mention budget release information or collection of money.

Former HOA President

MarkW18
Posts: 1,290

Posted:

Quote:

Posted By MelissaP1 on 10/20/2019 6:08 AM
I think some of your assumptions are just that. No the Treasurer is NOT responsible for setting the budget. The setting of the budget is the ENTIRE board. This should be details in your rules.

This excerpt was taken from the Bylaws of a New Mexico HOA for the description and role of the Treasurer:

and shall be the chief officer responsible for the preparation of an annual budget and statement of income and expenditures to be presented to the Board and to the Membership at its regular annual meeting.

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