Should operating bank account funds exceed annual revenue?

None should be invested.

You can take 95k out of operating account, but the HOA could also spend 95k as well. Or they could reduce dues next year and use this 95k to cover next years expenses. Or (in Washington State) they could just leave the operating account balance sky high because they want to.

Not sure about the laws in your state.

The trouble with any rule of thumb is that individual communities may have good reasons for doing things differently. You also have to look at the history of the accounts over time - a snapshot will be misleading.

For example, are you condos or are you an HOA? if you're condos and don't have an issue with delinquencies, you really don't need to keep much more than a few months worth of expenses in your operating account at any one time since the account is being replenished monthly. HOAs with assessments due annually on January 1 may have a large balance in the operating account at some point and a much lower balance at other times. Also keep in mind that a certain portion of that money will be transferred to the reserve account at some point, assuming your board is properly funding your reserves - the money isn't sitting there permanently, it will be moved and presumably invested properly.

I don't have much of an issue with investing excess operating funds over a certain amount, as long as the excess is liquid investments such as money market accounts. Even short-term CDs are OK, since you may have a month or two of wiggle room before an unexpected bill is due. Worst case scenario is that you forfeit some or all of the interest on a CD if you have to use the money - it's better than taking out a loan.

I have read 2 months.

It really depends on how much time your treasurer wants to spend looking at the amount in the operating account to be sure that all bills can be paid.

The higher the floor of the operating account, the more confidence that checks can be paid and money will be available to pay them.

We historically kept a 20% minimum balance in our operating account. This year we are dipping down to as low as 5%. I think about 15% is good for us.

I'd say having your daily checking account at 200% of your annual budget is very high and the money should be dedicated to Reserve Funds or an operating reserve fund (contingency). If you're fully funded in reserves AND have $200,000 in daily checking on a $100,000 annual budget, you don't need to raise dues for quite awhile.

I never recommend cutting rebate checks as that's how your board invites Murphy and his law to visit your community.

> How did the HOA with annual income of $100K get to an operating account of $200K? Where did the extra $100K come from?

It happened to my neighborhood. COVID (of course) disrupted our plans for the pool and lifeguards - we ended up spending way less than expected. Social activities took a hit, too.

In truth, it wasn’t *all* due to COVID - general incompetence by the Board resulted in a couple of projects simply not happening.

BillD

Please forgive me. I should have said “something like that happened to my neighborhood.”

BillD

We have a playground park with shelter worth about $100,000 says insurance company
No other ammenities
Seperate reserve account is $50k

Basically our hoa is slowly racking
up a lot of extra money. We are exempt
from NC pca law because hoa was formed before year 2000
Under nc pca law hoa s established After the year 2000 have to
return excess funds or credit them to its residence the following year

We collect semiannual dues twice a year looking at a bank statements the average balance only goes up and down a couple thousand from month to month

Thanks

MarkR21,
I would say that in these uncertain times with inflation a real concern and Supply Chain being a buzz word every vendor is or will use to raise pricing makes it easy to not make any changes to the example you have given us.

Unless you are very underfunded in your Reserve account, I would also advise not to take a large percentage from Operating account and put it in Reserves. Reserve accounts can't fund future operating shortfalls. Reserve accounts have strict uses and higher labor cost or increased costs for operating expenses are not one of them. That is if things continue to go up. If they don't you can always make extra transfers into reserves. No one can predict the future.

Another thing to take into account is how many owners Pre-Pay their HOA dues. In our community we have nearly 90K in prepayments. This money is not the HOAs. If any of these owners sell their homes we need to refund any unused dues. That can change what looks like extra funds pretty dramatically.

Mark,

Our playground required mulch every few years (reserve item), costs to replace equipment (10 to 20 year life span), costs to repair/replace picnic tables & benches. This required $2,000 to be set aside each year to fully fund. That is with 7K already set aside in the reserves.

Our bus stop shelter required power washing and sealing every few years, roofs every 15 years or so and money for a full rebuild.
About $500 each year needed to fully fund reserves. That was with 4K already set aside and a new roof having just been installed.

For reserves, don't forget about signage, any entrance monuments, etc. that the HOA has to maintain.

Do you have storm water management issues?

Lots of mature trees that need pruning and potential replacement?

You might not have as much as you think you do.

It sounds like the board doesn't have a good budget (or doesn't have someone that can make a good budget).
If you don't have a reserve study, get one of those first before determining if the Association has too much money in their accounts.

With Tim, Mark21, it's possible you have more reserve components than you realize. Along with what he lists, perhaps street or grounds lighting systems? Fencing? Street curbs? Sprinkler systems? Reserves do not just fund "amenities," but all common areas items for which the HOA is responsible.

Also note that reserves do NOT cover accidents that damage or break reserve items. You need insurance for such unexpected repairs or replacements.

You need a reserve study.

I see. So you count yourself in the "make up the rules as you go along" camp. Well those who have chosen to overcharge for assessments; not to have a reserve study; be unconcerned about the excess in the operating account; and so on are also in the "make up the rules as you go along" camp.

MarkR21,
You were elected to make decisions. All of the other owners probably do not care enough or have access to all of the information needed to make decision. I bet all or certainly most will want the dues refunded. If you end up with a shortfall and need to do a special assessment your board will become the 5 most hated members of the community.

If you polled active Board members on this board, I doubt many would agree with even considering opening this up to all owners or going thru the expense of a vote.

Mark,
The problem is the same in any business. If you let the customers tell you how to manage your business, you will never be able to run a successful business. Customer needs vary based on so many things and they do not have all of the documentation that should be at your fingertips now. Even if you were Elected or Appointed you and your fellow board members are in charge. It is your jobs to make the best choices for the HOA. You can't run an HOA by a committee that includes everyone.

They are not Customers they are members. I’m pretty sure a board can run an HOA by popular vote in fact I think it’s done quite often it’s just a matter of giving the membership information they need to make an informed decision.

It’s not like They will reduce the membership fees to $.50 it might be 10% less than what they currently are
nothing major

MarkR21,
Sounds like you have made up your mind. I have not looked back at your old posts, and I do not recall how many members you have in your HOA. I do know that Elections are not cheap. If they are run properly all of the information has to be mailed to every owner. Ballots have to be printed and the votes collected, and the results mailed to each owner legally by mail. You are talking about probably $10.00 per owner for every decision the board needs to make. The process also takes 2 months if done correctly.

Why are you asking for help here if you are going to allow your owners to make your decisions? I still think you and MichaelT21 are the same people. If not, you are twins because you both present ideas that do not make sense to the people that have been doing this for much longer than you guys.

There was one really good reply and guess what the admins deleted it because it had a generic google website link to somekeywords not even a specific website

We are required to do elections every year it’s not an additional expense

With regards to letting members vote on reducing dues:

Our association did that this year. I setup a simple poll, e-mail blasted it to all homeowners, and asked the question if homeowners wanted lower, the same, or higher dues, or had no opinion at all.

Results are still coming in but as of today, 38% want lower dues, and the remaining 62% are happy with the dues today or want them to go up. Clearly, we will not be reducing dues next year, and if anyone complains, we can simply point out that we are listening to our homeowners.

1) The operating budget should have a line item for monthly reserve transfers, which makes up the $100K annual budget.
2) As a generally rule, I like to have at least 1 1/2 to 2 months of expenses in the operating account. So, for your scenario, you have $8333.33 in expenses. I would like to have $25K for Jan 1.
3) At the end of the year, any excess using the above rule should be deposited into a separate reserve account. A reserve study should be utilized in helping to create your annual budget.

Quite frankly, what you described is a fly by the seat of your pants approach, which unfortunately, is not uncommon.

Current months plus two month reserve.

I suspect that's going to depend - at least in part and maybe a lot - on the community's demographics. People who plan to leave after a short time won't be around long enough to experience the results of poor decisions, and have a strong incentive to want lower assessments. It's the bane of many condo associations.

Also, spending needs determine the budget, not the other way around. Too many communities keep expenses artificially low to meet some assessment target (this opinion came from our attorney whose firm has seen a lot). So unless a homeowner is very well informed about the community's financials - which is a hard thing to do unless the person attends all board meetings and reviews the monthly financials in depth - it's almost impossible to make an informed decision. (I'd say it's completely impossible if discussions about delinquencies/liens/foreclosures, contracts, and legal matters are held in executive session.)

And we always come back to my comment about deferring decisions to homeowners. They have no obligation to act in the best interests of the association, and may act in their own self interest even if that self interest is harmful to the association. If the board allows homeowners to drive financial decisions in cases where their governing docs or state law don't require it, I think the board is shirking their duties by trying to shift responsibility to where it doesn't belong.

I will say that any poster who maintains multiple accounts to generate "heat" on this small forum needs to reassess things. I have suspected the same thing about accounts in the past but then realized that, too, needs to be reassessed as a "time investment" on my own part!

That said - and in all seriousness - this thread reflects a new board director who hasn't the board experience to make any allegations nor can make wise assumptions about past or present HOA board business decisions. Time cures that.

In fact, I think every new HOA board director enters service under the same perspective and I was no different when I started. "The other directors don't know what they're doing." I'm guilty and this appears the same.

I hope Mark's HOA is 100% fully funded in Reserves AND has 200% of his HOA operations budget amount in the operations account. That's pretty awesome and something I've seen in real life nor have seen this "problem" raised on this forum.

CORRECTION: It's something I've NOT seen in real life.

In a perfect world, the HOA wouldn't need to have to have any excess in the operating account. But the reality is usually different. Having 1 tp 2 months' of revenue is often adequate, but if you have much more than that then you may want to talk to an accountant about how to better manage the money.

In a perfect world, the HOA wouldn't need to have to have any excess in the operating account. But the reality is usually different. Having 1 tp 2 months' of revenue is often adequate, but if you have much more than that then you may want to talk to an accountant about how to better manage the money.

And when owners at a HOA say they want lower dues, but the carefully prepared budget indicates that the dues must rise, what should the Board say to owners then?

MarkR21's and MichaelT21's writing styles; HOA details; and reference to different state statutes (repeatedly) indicate clearly to me that no way are they the same person. Even if they were the same person, I think asserting this is gossip and a waste of space. I am likewise not interested in whether anyone using, say, the user name "BethJ53" is really someone named Beth with a last name starting with "J."

I think many newbie directors like MarkR21 and MichaelT21 often either do not turn first to the Bylaws, covenants and statutes, or do not bother with them at all for certain situations. From reading posts here, such newbie directors seem common. Populists tend to say 'Damn the rules! Listen to the people!' It seems many newbie directors are populists. They are sort of naturally dis-inclined from the hard work of understanding corporations, land development, covenants and so on.

I look at the fairly inscrutable (to like 95% of the population) federal income tax system and just about cannot blame anyone who says, "Screw it. I hate government." It seems to me that it's much (or sometimes exactly) the same for HOA/COA assessments and the system of HOA/COA governance. Folks do not understand the system. They hate it.

History is replete with populists at all levels of government, including the HOA/COA. To be constructive in responses here, I know that recognizing that populist-type thinking is common at HOAs/COAs, especially among newer directors. Said newer directors often lacking either formal education or life experience, AFAIC. I could give a damn to anyone who thinks this is snobbish. Education, formal or school or hard knocks version, is important.

Of course when it comes to populism vs. following the governing documents, it does not have to be all or nothing. For example, often an advisory vote by owners, on matters where the covenants give authority solely to the board, is a good idea.

Besides, sometimes a HOA/COA board of populists is better than no one volunteering and a court appointing a receiver to run the HOA/COA.