Best practices cash vs reserves vs CDs?

So we[1] just had our “beginning of year kickoff” meeting, took care of a lot of biz. For various reasons beyond my control[2], we ended up with a generous surplus in our accounts.

Essentially, I’m wondering if there is any common wisdom about division of money up between our Operating Fund, our Reserve Fund, and ‘investments’ (ie, laddered CDs through a CDARS program). Our approximate holdings are approximately:

Operating Fund: $200,000
Reserve Fund: $100,000
CDARS: 4 x $50,000 CDs

We have no major capital outlays scheduled for this year BUT our Reserve Study shows us paying $300,000+ over the next 8 years to keep things in repair.

Our dues are paid quarterly. Past years show us typically starting the year with about $100,000 in Operating Fund and $75,000 in Reserve Fund and $200K in CDARS.

Any thoughts or general wisdom on how to (or if) to shuffle funds around for maximum good?

I’d like to take half of the Operating Fund ($100,000) and half of the Reserve Fund ($50,000) and roll that into 3 more $50,000 CDARS. Basically, I don’t see the value of having too much cash lying around doing nothing.

Or - should we leave the Reserve Fund alone and use half of the Operating Fund for 2 $50,000 CDARS?

Or …?

My understanding is that CDARS is insured by FDIC for more than $250,000 - if I’m wrong, I’d like to know.

I was asked about other possible ways to invest HOA reserves. The thought makes me nervous - remember the S&L crisis back in the 1980s? - but are there other legal/‘safe’ options?

Thanks,

BillD

[1] I’ve been Treasurer for about 6 months. Neighborhood is ~600 single family houses w pool, playground, fences, common areas, located near Austin TX. HOA has contract with a PMC.

[2] local COVID regs led to less pool usage, lower spending on lifeguards, for one.

I know I'm not answering any of your questions, but . . .

Definitely check state HOA law and your CC&Rs in regard to this operating surplus (i.e., your income from assessments (mostly) exceeded your expenses for the year). What you are required or permitted to do with that surplus varies by state. In some states, that surplus has to be given back to members. In others, the Board may do other things with it (e.g., deposit to reserve account, etc.).

If your generous surplus is due to less pool usage (because the HOA/state/whoever restricted pool availability/usage because of pandemic) and lower lifeguard costs, then it may be more appreciated, beneficial, and appropriate to give this money back to existing homeowners (the ones who paid into the surplus) rather than dump it into reserves for future homeowners (which may or may not include current homeowners).

Another way to think about it . . . current homeowners paid for things that didn't happen and things they could not take advantage of (pool and lifeguards). They should be entitled to that money back in my opinion and not have the HOA keep that money to feed a reserve account to a greater extent than what current homeowners are already feeding it (I'm assuming part of your member assessments is a regular contribution to the reserves based upon a reserve study). And by giving it back, I don't mean you have to write a check to everyone, but perhaps everyone's 1Q assessment can be paid (or partially paid) with it.

My sentiment is generally similar to ND, although I am not a fan of an assessment reduction.

In general, I believe that the assessments collected in 2021 should be spent in 2021. I recognize they are beyond your control, but I would look hard to try to see how you take the surplus from 2021 and the assessments from 2022 and do something nice in your neighborhood. Surely there is some vegetation that doesn't look so great, or lawns that might have yellow patches in them, or asphalt surfaces that need to be resealed, or the like. (This are all made up examples, of course, I don't know your community). But take a look around and see what you can spend your money on. The purpose of an HOA is to spend money on keeping the HOA-managed components looking sharp, and surely you have some decay that could use some financial investment.

Be warned that spending money takes time. I estimate that it takes 1 hour of board time for every $1000 being spent. This was true when I was newer to the board. I've gotten more efficient with my time and now it probably only takes 1 hour of my time for every $2000 spent. But it all takes Board time to spend well.

I don't agree with refunding money to homeowners at all.

Why? If faced with the option of spending more money or refunding to homeowners, I would choose to spend more money by hiring more professional services so Board activities require less of my personal time. I'm don't spend hours and hours of my personal time on Board stuff to save my neighbors $10/month in assessments. I spend hours and hours of my personal time on Board stuff to make our community a nicer place to live.

Refunding money to homeowners doesn't make our community a nicer place to live, thus, I am not a fan of spending my free time to do this.

I have no philosophical objection to sharing actuals with homeowners. It just takes work to ensure that our bookkeeper has correctly applied expenses to the right subaccount so everything looks right. It's just board volunteer hours.

With regards to what we do to make our place a nicer place to live, we look carefully at what we are doing so we do not burden future homeowners with additional maintenance expenses. Our community happens to be the right age for a major maintenance activity so we are spending pretty much all of our discrectionary operating budget on maintenance to restore our community back to how it looked when the developer first built it. We are purposefully not installing new playgrounds or other new features that will add to the reserve cost.

Also, note that in my state there is no requirement that we spend each subaccount only on the title of that subaccount. We can spend all of our assessment revenue each year on whatever the board wants as long as it complies with the CC&RS. Just because we put "Landscaping - $92,000" as one of our subaccounts doesn't mean that we can't spend $60,000 on landscaping and $30,000 on new mailboxes. The budget is a guess as to what our expenses may be and we are not beholden to spending by it throughout the year.

It's never a bad thing to have your reserves 100% full funded, it is also never a bad thing to have your operating expenses at 4 months on hand, typically it is 3 months.
If you have that much excess, I would look at cutting monthly assessments not refunding money. As far as investments, CD's are not bad, low interest on return. Has anyone ever invested
a small portion in series EE savings bonds or T Bills?