Homeowners Association and Voluntary reserves

Hi, I have a question about the reserves in a homeowners association in Florida (Pinellas county). As I understand it we have voluntary reserves. Can new reserve funds be allocated to wherever in the reserve categories as the membership and the board agrees? That is I see in the budget proposed the board increased the money that will go in the roof reserve in 2022. Can they if convinced by the membership allocate less there any more to another reserve account like road paving? I know we have to work to fund all areas but if too much is going to one item like the roof based on the analysis why can't more be put on another reserve item. It appears to me they are proposing changing other reserve item amounts in the budget. thank you

Hi thanks for the input. I am not sure it the reserves are pooled and I think the answer is they are not as they do list different items like the roof, painting, and paving. Also I am talking about new money to go in next year not moving existing monies in those categories. So maybe on for new money if pooled or now?

thanks for your help

Hi we are a homeowners association FS720 we are not a condo. Does this help clarify which option we may use?

thanks again

thank you Augustin, it appears that FS720 with the caveats you mention above would allow the membership to direct the money for a budget year to the reserve assets they agree needs the funds.

We have separate line items in the reserve, as we use the component method vs. cash flow method. However, we only have one physical bank account for the reserve funds.

Max,

Our HOA budget does not dissect the reserve fund according to individual property element. Honestly, we have our capital replacement plan (long term) and Murphy's Law prevents it from ever being 100% followed. Something always happens that we expect to happen, capital replacement-wise, but it's never quite on the timeline we've reasonably crafted.

If you have solutions on firing Mr. Murphy, pass it along. I'm dealing with it at this very time.

In the association where I used to live, we had one reserve study with 248 line items or components under 23 categories. We started with one reserve account and split it into 9 accounts, one for money market account and the other eight for laddered CD's. When banks were paying high interest on savings, we made close to $60K a year.

We used the component funding method and always made sure we had enough funds to cover any reserve expenses due within three years based on the assumption of the end of useful life.

I manage about 50 reserve studies and a handful of them are on the component funding method, the majority are on a cash flow method. I have never seen an account where reserves are set up in the matter Tim is describing.

My HOA maintains two reserves. General Reserves and Roofing Reserves. The reason for such is in 2019 we had a $20 per month dues increase for roof replacements which the HOA is responsible for. We promised this $20 increase would go to the Roof Reserves only so we show it as such.

Our Reserves are at two different banks. At both banks, it takes the signature of the Pres. and Treasurer to withdraw or transfer money. Our MC can deposit to both accounts but they can only deposit, not withdraw nor transfer. This is a simple method of protecting the Reserves.

Our HOA is governed by FS720. Reserves are indeed voluntary and non-restricted. We have a reserve study that we use to determine the amount of money we believe we need to cover the "scheduled" replacements each year. We determine a percentage of the monthly dues and return on investments that is needed to keep the reserve account with enough money to cover those "scheduled expenses". For example, most years we figure that 2% of the monthly dues plus investment return is enough to cover the reserve contribution. However, because interest rates were so low last year, we increased that amount to 4%. All of this is in our yearly budget and transparent to our homeowners.

I put the "scheduled expenses" in quotes because even though the reserve study may show something at end of life and in need of replacement, it doesn't always happen on schedule. For example, our roofs might show need of replacement in three years according to the reserve study, but we have a claim in with the insurance company because of hurricane damage from two years ago (long story) and we'll probably replace early. And sometimes there are things that aren't on the reserve study. Our last reserve study did not include replacing landscaping that had aged out, which happens here in Florida, but we replaced the landscaping in several areas and took the money from reserves.

We are now looking at having to replace our roads in the next few years. Thank goodness for a great treasurer, a good reserve study, and a previous boards that were willing to have modest increases in dues so that we have enough money in reserves and are not looking at large special assessments for all homeowners.

If you read the sections on reserves in FS 720, you will see there is more to this than your one-liner above suggests.
-- I am not sure you understand the math of a reserve study and how the study then dictates the amount that must be saved each year assuming a life of ___ years.

-- The proper way to adjust funding is by updating the reserve study annually.

-- BruceE1, are you on your HOA's board?

I see the formula you sent below and the caveats you mentioned. If I follow this correctly the reserve analysis provided by the management company shows that less can go the the roof in the current year so that is really the driver of what I am suggesting. also It sounded like from the second caveat you mentioned the membership could approve a change if needed to voluntary reserves

1. If the association maintains separate reserve accounts for each of the required assets, the amount of the [annual?] contribution to each reserve account is the sum of the following two calculations:
a. The total amount necessary, if any, to bring a negative component balance to zero.
b. The total estimated deferred maintenance expense or estimated replacement cost of the reserve component less the estimated balance of the reserve component as of the beginning of the period the budget will be in effect. The remainder, if greater than zero, shall be divided by the estimated remaining useful life of the component.

Hi Austin, I miss typed I am not currently on the HOA board but just an owner in the community

BruceE1, I cannot quite tell what you are proposing. Can you clean up the following and describe exactly what the last few numbers are?



I understand this part:
useful life = 25 years

remaining life = 20 years

replacement cost = $500,000 (ignore inflation guesstimating for now. Reserve studies are not an exact science anyway. Still its important to have some guidance based on the best information available.)

I do not understand this part:

yearly reserve funding January 2022 = $20,000

under funded 2022?? = $30,000 ??

470,000 is _____?

$23,500 is _____?

Maybe provide some hypothetical numbers for both the road and roof for (1) what the board currently plans; and (2) what you think would be a better plan.

Thank you for hanging in there. Communicating online is often tricky and a bit cumbersome. But your hypothetical is a good beginning to getting clarity on exactly what you want to do and determining whether it's allowed.

Does your Declaration require a reserve study?

HI Augustin I worked up an example I will send

I have to see this.

BruceE1,

First, thank you for fleshing out the hypothetical further.

Second, now only the two columns on the far right do not make sense to me. From where is the Board getting its proposed funding? From where are you getting your own proposed funding? Why aren't both the Board and you just using the formula (which is the formula nationwide), but changing some of the estimates of remaining life (as I describe further below)?

Second, I will go on the assumption that your HOA is locked into maintaining separate reserve accounts for each reserve component. This is a big assumption. I am not sure it is a good assumption. As KerryL1 pointed out, it's possible either the Board, you or both are confusing a reserve study (which always breaks down the required funding by each component) with how funding is achieved (per statute and with some caveats, this is either pooled funding or via a separate account for each component, with funding determined in part per FS 720.

Third, you originally posted:



My take on what you have posted here is that you think the roads have a shorter life than what is being assumed. If there is agreement by road professionals on this point, then the correct approach is to change the "remaining life" figure for the roads. Furthermore, if some or all roofs have been repaired recently due to hurricane damage, with the repairs paid in part by insurance, then the Board should also change the "remaining life" of the roofs.

Presumably you want the roads' remaining life to be set at a lower number, say two years and the roofs' remaining life figure to be changed to a higher number, say, 27 years. Changing the remaining lives is going to require the HOA to put more into the Roads Account and less into the Roofs Account.

By my reading, and assuming the HOA is locked into computing funding using separate accounts for each component, FS 720 allows the Board to make these changes without a vote of the owners. Though the board should only do so following consultation with the appropriate professionals in the road and roofing businesses.

Does this make sense to you?

I have no idea what FS 720, nor am I going to waste my time reading it.

None of this really makes sense. But, based on the sheet provided, here is my take.

1. Roofs having a 30 useful life, OK. The yearly reserves show $30,769, so after 4 years, there should be $123,076 in the fund balance, making it only 40% fully funded. Based on what most would do, $26,666.67 should be your annual contribution. Also, if you are doing repairs to roofs after a hurricane, unless the whole roof is replaced, the useful life does not change. Still have to account for the pulling up of tile or shingle, which is labor intensive and the most costly of the repair.

2. Road/Paving---What does Raod Paving entail. Does it mean slurry covering (about 4-5 useful life) or ashpalt removal (which has 30 plus years of useful life.They should have been putting in $5,000 per year, but are showing yearly reserve of $33,333, so why on $35,558 in the account? You are only 42% fully funded.

The proposed funding for 2022 is $50,356, while your proposal is $93,367. Where is the additional $43,011 coming from?

Are those the only two reserve items you have?

Is the numbers in column A-H acceptable. My opinion no, but what is the end game? If B, C and E were correct, where are the funds that should be in F?

Again, where are you going to get the funds for your proposal?

thank you Augustin

thank you Augustin this makes sense to me. A good explanation to the issue and this helps me and others on this site I am sure.