Dealing with budget surplus monies

Nancy

Typically an improvement should be paid for from a Budgeted (funded) Line item often Called Capital Improvement. Capital Improvement usually require owner approval.

Based on another post of yours, I think your association needs to evaluate its Budget Line Item categories/title to clarify some things.

Returning any surplus money based on one or two years is a dangerous practice. As you are in WIN this means Snow Removal. It is possible (rare) to have no/light snow season where all the money allocated to Snow Removal is not used thus creating a surplus. Are you suggesting for that year the Surplus be retuned to owners? If yes. what happens next year when Snow Removal cost is twice what was budgeted? Hw would you like a Special Assessment?

I am beginning to think you might well be the type owner that fights the dues and can jeopardize your association in the long run. Hope I am not right.

Tim,
I agree with you and will just add a little more detail. Our HOA is a Large one with a Large Reserve accounts. I have been working to setup several Reserve accounts. The first one holds cash or liquid funds for projects that are imminent in the Calendar year. I also have laddered blocks of funds into CDs that are set to mature several times a year just in case of emergencies. This helps keep all accounts under the $250K FDIC insurance levels.

Agree with others. In this case, Nancy, "Association decides" means Board decisions, not membership (owner) decisions. Are you sure you cited the state statute correctly when you wrote, "...common surpluses...?

Do your own governing documents have anything to say about this topic?

I think JohnC's off a bit in that Nancy doesn't say the landscaping project is a "capital improvement ." In addition, boards often can make capital improvements without owner votes if the improvements don't exceed xxx % of the annual budget.

NpS,
I have seen it a few different ways. In Ca. I was told that the financial institutions can pay for the insurance to cover assets over the FDIC limits. We used a Broker verses a bank so not sure the differences.

I had a board member on the last board in Texas that claims each Bank has added benefits. He moved and resigned before he answered all my questions. I am certainly not an expert on all financial matters. I have a good grasp the basics of economics and love the use of Reserve accounts. I think everyone should have a Reserve Account in their personal portfolio. Trust me when things come up and they always will every HOA and owner should be prepared.

Not sure I answered your question but it is late.

Thank you for responding. Yes the docs say exacting what I typed here. The Statute itself is titled: "Common expenses and common surpluses (1) DISPOSITION OF COMMON SURPLUSES" then goes on to say what I typed previously. No where in our Declaration or Bylaws does it mention surplus monies. This is so difficult to understand.

I think you're talking about CDARS, which is a method of extending FDIC protection for accounts over $250,000. It appears to the customer that all of the money is in a single bank, but instead it is spread out so that individual banks remain under the FDIC limit.

Not all banks offer this, so you'll have to shop around. When we were looking for a second bank for our reserves, this was one factor in our choice.

https://www.cdars.com/home/faqs

Being concerned about following the law is a good thing. And learning to understand legalese can be a challenge. One thing to remember is that you have to read all relevant parts of the law (ie, don't take a single sentence as the whole story) and you can't read anything into the law that isn't there. It's not unusual to find a statement that seems very straightforward, but which also contains some kind of limiting clause such as "except as otherwise specified elsewhere".

The statement you quoted in your OP says surplus money shall be returned to the owners OR shall be used as specified in the Declaration OR shall be used for any other purpose as decided by the association. This gives your board pretty broad leeway. It would be a misreading of that statement to assume that surplus must be returned to homeowners.

Also, as someone else noted, the phrase "as the association decides" means "as the board decides" except for a few possible instances where homeowner approval is necessary. For example, in some states and in some communities, homeowners must approve annual budgets or assessment increases over a certain percentage. I don't think this is common - and I refer to such things as a license to commit financial suicide, since few owners understand association budgeting and expenses are what they are no matter how much we'd like them to be otherwise.

One thing I noticed is that your community is small (only 20 homes). Small associations have all of the complexity and legal requirements of larger ones, except for maybe no amenities. Small does not mean "simple". In fact, small associations have less wiggle room if things don't go according to plan. For instance, a single delinquent owner is 5% of your income - whereas in a large community it would be a tiny fraction of their income and easily compensated for. And a professional property manager makes no financial sense for very small associations, which means that the board needs additional knowledge, skills and free time to handle the property management side of things. So a small association will have unique challenges just because of its size.

Thank you Cathy. We just happen to be one of those condo associations where the Board must submit to the membership a proposed budget each year for the members to review it and makes any changes and then it is brought up to a vote in order for it to be passed. Sometimes we can be voting on a couple different proposed budgets to see what one the majority prefers. So the Board can bring options to us but we as the membership have the final say as to what gets passed. Same with any dues increase.

I still am confused as to the Statutes wording of the phrase, "or shall be used for any other purpose the association decides". I took it as saying, as the "membership decides" since the Statutes definition of the word "association" is "all the condominium unit owners" but it seems a number of you here are saying I'm wrong on that, right? The reason I ask is because other members would rather see the surplus money used for a different project and some want it deposited into our Savings Acct. and I just want to see this handled correctly. Thank you

Nancy,
You answers really help. I get why you do not have a reserve account. Your HOA expenses should be few and far between. I get why they are calling it a Savings account. I would still prefer it called a contingency fund so that the ankle biters won't call the board out for saving money.

Yes. The board can move unspent operations monies (I wouldn't call it a surplus, per se) into landscaping.

A smart board would likely assess things before doing such but it's not out of the norm.