Should a HOA stash cash for possible lean times in the future?

I strongly disagree with the homeowner - not least because the laws applying to each entity are different, and an HOA can't pass its wealth on to its heirs.

In fact, the laws that govern HOAs make it hard to accumulate any kind of funds outside of the reserves. *All* of an HOA's funds are earmarked for spending - it's just that some of the spending won't happen for a number of years.

A number of states have laws that require associations to return excess operating funds to the homeowners at the end of the year, which is the exact opposite of saving for a rainy day.

So... there are two ways to make ends meet: increase your income and/or decrease your spending. The economics of HOAs make both of those difficult or impossible in tough times. You can't increase income beyond what your budget requires, and you can't control whether or not homeowners will pay their assessments on time. Collections and foreclosures actually increase spending in the short term. Decreasing spending can sort of happen around the edges, but there are limits - neglecting maintenance actually increases costs over time (since delaying repairs leads to more damage) and the aforementioned law will make you give back unspent funds. If you don't have such a law on the books in your state and your CC&Rs are silent about it, you may be able to save some bucks by some judicious cut backs in non-essentials.

My personal preference would be to allow HOAs to have a rainy day fund to tide you over hard economic times, but I think the laws and economic realities take this decision out of the board's hands. You can't do it, except in maybe a small way. (This is one of my major gripes with community associations, whose laws were apparently designed by people who don't understand finance. If for-profit companies were forced to operate under the same constraints as community associations, they wouldn't be in business for long.)

Three years as president (and CEO, can't forget that) and you already know or should know the answer to that, don't you?

In case you need to be reminded - HOAs are non profit organizations that aren't in it go make a profit. You budget to spend exactly what you bring in reserves, no more, no less. If you have a month where income is higher than expenses, you could leave it in the operating account ( it'll get spent on something eventually) or put it in reserves. (that's what we'd do at the end of the year, depending on the numbers).

Clearly, this guy doesn't understand how budgets work, especially HOA budgets. You could tell him what you said here, and then challenge him to find a HOA similar to yours that budgets and spends money as he suggests. If he finds one, the board wil take a look,but until then, you and your colleagues will continue to apply proven money management and budgeting principles used in BUSINESS, not a household budget.

(This is why we really need decent consumer education in school - too many people font use their heads for more than a hat rack,as my dad used to say).

Or just thank him for the suggestions and move on. If he can convince others to entertain this nonsense, then address it at that time

We do have a restricted fund earmarked for hurricane cleanup. We of course have reserve funds and our operating budget, but this money was given to us as an incentive when we renewed our Comcast contract a couple of years ago (based on number of doors in the community). The previous board marked it as restricted funds to be used only for hurricane cleanup. In our area it's not a matter of if we will be hit, it's a matter of when we will be hit and it happens every few years. Even a bad tropical storm can cause a cleanup expense for downed trees, tree limbs and palm fronds. It's expensive and impossible to budget for in our regular budget. Other than that we do not stash cash - but we do have a cushion of a couple of months of operating expenses in our account to use for necessary but unbudgeted expenses during the year. If there's anything left, those funds rollover to the next year's budget so we don't have big fee increases year to year.

A good rule of thumb is to have 3-4 months operating expense on hand and 85% in reserves. If your Operating account has extra room, I would put more money in your reserves.