Operating v Reserve Funds

Can an HOA change the Operating Fund / Reserve Fund percentages after the year has started ?

The budget year started on January 1, 2020.

The HOA is considering a new capital project and they want to pay for this out of the operating funds.

By shifting the amount going into the reserve fund, new funds - $150.000 - to pay for the capital project would now be in the operating fund.

Thank you for your help.

Joe,
They could probably get away with it if no one is watching. I have seen it happen with my last board in Ca. before I was elected. They simply stopped the monthly transfer and used it for operating account funds that were very low due to mismanagement. This was also back in 2008 when the housing crisis hit Ca. very hard.

If they try and do it in your HOA for a capitol improvement project and it is more than 5% of the annual budget they will need voter approval if I am remembering my numbers correctly. If they try and borrow from reserves they must have a short under 1 year pay back plan.

Yes - this 'battle' is still going on.

The total funds received from monthly dues is $858,000 per year.

This is being split 51% / 49%.

5% of the $858,000 is $42,900 and the project is $150,000 - much more than 5%

An attorney is telling the board that they are free to make this move without a vote.

I believe that this is wrong.

Capital Improvements can come from the Reserve account, but it MUST be repaid within one year. Typically, capital improvements, ebing they are NEW projects are supposed to come from new funds. Once they are finished they are then added to the reserve assets for future maintenance and repairs.

Kerry,
I agree that there are not requirements for Reserve funding. If the money is in the reserves it does need to be used for reserve items though. So your suggestion is the easy way to fund the Improvement project legally.

I am not getting the percentage that was originally stated in the OP. 51% and 49% capitol verses reserves seems way out of line. The most I have ever seen any board I was on was 20% going to reserves.

You should probably re-read your CCRs. Capital improvements over the 5% threshold must be approved by the owners. They are different ways to pay for it, but owners do have rights!

As I read the OP's post, they are not taking money out of the Reserves for a Capital Improvement and if they do, this would be wrong. What I read is they want to divert money directed to Reserves and put it in Capital Improvement. That is not taking money out of the reserves.

I agree with Kerry. Just send out a new budget reflecting what they are going to do.

I finally have had time to poke around, including in my CC&Rs (though they are not Joe's CC&Rs) and see as others have pointed out previously, that to raise dues more than 5% in a year for any purpose requires a vote by Owners.

But, in this case there will be no increase at all of the assessments fo 2020 based on the overall budget that owners received notice of before this fiscal year. The total monthly, assessment will remain the same. WithIN that assessment, it all will go into the operating budget instead of about 50% of it being contributed to reserves.

In Joe's case, about $72,000 is the total assessment per month. About half -- $36,000 -- goes into reserves. The board wants to amend this contribution split so that none goes into reserves for the rest of this year to pay for a $150,000 capital improvement. Instead the entire $36,000 will be diverted or reconfigured (JohnC's good words) to the operating budget. In less than 5 months, the capital expense item can be paid for without any increase in dues. NOR is this borrowing from reserves.

I welcome any civil corrections with real citations to my reasoning.

As noted earlier, the board needs to do this mid-year "budget amendment" in an open meeting and a best practices-approach would be to hold a Town Hall meeting to explain the diversion, how long it will last, etc., to owners. The Board certainly should have the letter that goes to owners explaining the amended budget vetted by the HOA attorney who advised them already their plan was OK.

Btw, a different board, let's say one is voted in in this fall, can rescind this board decision.

With a few others, I'm puzzled why the contribution to reserves is so high, Joe. Ours is about 27%. Can you explain? Can you also tell us, Joe, what % funded your reserves are? In other words, has your HOA been paying catch-up with this unusually high funding scenario? And, so to reduce funding to reserves for several months will have a strong negative effect on your reserves?

I'm also curious as to why you object to the board's plan, Joe. Care to share?

Actually, that is incorrect. The 5% is for capital improvements and special assessments, based on a percentage of the annual gross expenses. The percentage for dues increase is >20%.

I am wondering if you feel that if your association had an extra say $250,000 laying around, would it be alright to build, say, a exercise room with all the equipment, without a vote of its members. The reason I ask is that some boards think they have that power. I think they cite Article Iii of the Constitution.

I googled and found this from a California HOA.

4.3.7 Capital Improvements. Subject to the terms of this Declaration, the Board may, on its own motion or acting on a petition signed by two-thirds (2/3rds) of the Owners, approve the construction, installation or acquisition of a particular capital improvement to the Common Area and/or the Association Property; provided however, if such Capital Improvement is for the Residential Common Area or the Recreational Facilities situated in the Association Property, then only the consent of two-thirds (2/3rds) of the Residential Condominium Owners shall be required, and if such Capital Improvement is for the Commercial Common Area, then only the consent of twothirds (2/3rds) of the Commercial Condominium Owners shall be required.

Looking up a HOA through Google is easy, although I know you are not one to do the actual research. Just put what you post into Google.

Anyways, I had already addressed his post two way.

1) As long as the budget and disclosures for 2020 were sent on time, they can change the budget. BUT,
2) If Joe's Capital Project is an improvement and not repair or replacing what's already in the reserve study, then the $150K project will need membership approval.

In you case, you stated the Board can do it, and I am guessing you mean without a vote of the member, BUT your own documents stated otherwise "Subject to the terms of this Declaration, the Board may, on its own motion or acting on a petition signed by two-thirds (2/3rds) of the Owners, approve the construction,