More reserve questions

VC (Florida(FS 720))
Posts: 118

Posted:

1. The board decided to buy a pool table for the clubhouse and pay for it from the reserve fund. Since the table is an improvement and not a capitale *replacement*, I objected on the grounds that it would be an incorrect use of reserve funds. I was outvoted. What are my options assuming the use of the reserve fund is actually not quite legal ?

2. It seems that our irrigation maintenance costs are running rather higher than anticipated. So, again, an idea is floating around to use reserve fund money to hide cost overrun. The reserve study does indicate that some irrigation equipment is capital replacement, such as electric zone valves, ball valves and timer boxes. However, in my opinion, we should separate these from typical maintenance items, like sprinklers, sprinkler adjustments and such which are operating expenses. Is my line of thinking correct ? In other words, old zone valves/timers can be replace and paid for from the reserve fund, while smaller maintenance items like sprinklers cannot.

Thanks.

WendyM5 (North Carolina)
Posts: 1,522

Posted:

Quote:

Posted By VC on 04/14/2023 1:37 PM

1. The board decided to buy a pool table for the clubhouse and pay for it from the reserve fund. Since the table is an improvement and not a capitale *replacement*, I objected on the grounds that it would be an incorrect use of reserve funds. I was outvoted. What are my options assuming the use of the reserve fund is actually not quite legal ?

2. It seems that our irrigation maintenance costs are running rather higher than anticipated. So, again, an idea is floating around to use reserve fund money to hide cost overrun. The reserve study does indicate that some irrigation equipment is capital replacement, such as electric zone valves, ball valves and timer boxes. However, in my opinion, we should separate these from typical maintenance items, like sprinklers, sprinkler adjustments and such which are operating expenses. Is my line of thinking correct ? In other words, old zone valves/timers can be replace and paid for from the reserve fund, while smaller maintenance items like sprinklers cannot.

What do your bylaws state about capital improvements? do they need membership approval?
I think the only option is to try to get board members replaced which is a lot of work.

irrigation is a total waste, most landscaping companies will run the sprinkelers all the time so they can cut the grass more and bill the HOA more. Get a lawn care company that will put down plant growth regulator instead of fertilizer. Get them to add potassium or potash fertilizer for root growth and you willl need half as much grass cutting and watering. We are trying this now and project a 50% descrease in lawn care and water bills.
https://www.domyown.com/tnex-p-16595.html

vis ta vie

VC (Florida(FS 720))
Posts: 118

Posted:

Quote:

Posted By WendyM5 on 04/14/2023 1:44 PM

Posted By VC on 04/14/2023 1:37 PM

1. The board decided to buy a pool table for the clubhouse and pay for it from the reserve fund. Since the table is an improvement and not a capitale *replacement*, I objected on the grounds that it would be an incorrect use of reserve funds. I was outvoted. What are my options assuming the use of the reserve fund is actually not quite legal ?

2. It seems that our irrigation maintenance costs are running rather higher than anticipated. So, again, an idea is floating around to use reserve fund money to hide cost overrun. The reserve study does indicate that some irrigation equipment is capital replacement, such as electric zone valves, ball valves and timer boxes. However, in my opinion, we should separate these from typical maintenance items, like sprinklers, sprinkler adjustments and such which are operating expenses. Is my line of thinking correct ? In other words, old zone valves/timers can be replace and paid for from the reserve fund, while smaller maintenance items like sprinklers cannot.

What do your bylaws state about capital improvements? do they need membership approval?
I think the only option is to try to get board members replaced which is a lot of work.

irrigation is a total waste, most landscaping companies will run the sprinkelers all the time so they can cut the grass more and bill the HOA more. Get a lawn care company that will put down plant growth regulator instead of fertilizer. Get them to add potassium or potash fertilizer for root growth and you willl need half as much grass cutting and watering. We are trying this now and project a 50% descrease in lawn care and water bills.
https://www.domyown.com/tnex-p-16595.html

It's Florida law that use of reserves for anything else but capital replacements requires membership approval. The board just ignores this requirement. I suggested special assess the silly table to the tune of $3-4 per member, but they do not want to do that.

Yeah, irrigation is an entirely separate subject in its own right.

MichaelT21 (Arkansas)
Posts: 200

Posted:

VC,

Your thinking is correct.

A new pool table should not be paid for reserves.

Irrigation repairs can be paid from reserves, but it's better practice to pay out of operating if possible. I advocated to use reserves on our board for those things that cannot be afforded via operating, typically $5,000 or more.

ElleN (Idaho)
Posts: 4,420

Posted:

Quote:

Posted By VC on 04/14/2023 1:37 PM
1. The board decided to buy a pool table for the clubhouse and pay for it from the reserve fund. Since the table is an improvement and not a capitale *replacement*, I objected on the grounds that it would be an incorrect use of reserve funds. I was outvoted. What are my options assuming the use of the reserve fund is actually not quite legal ?

For a Florida condo (like your), it's not legal, period. From FS 718:

"Reserve funds and any interest accruing thereon shall remain in the reserve account or accounts, and may be used only for authorized reserve expenditures unless their use for other purposes is approved in advance by a majority vote at a duly called meeting of the association."

You can threaten this, from FS 718:

"Before the institution of court litigation, a party to a dispute, other than an election or recall dispute, shall either petition the division for nonbinding arbitration or initiate presuit mediation as provided in subsection (5)."

You can submit your own demand letter and then see what happens. If you want a sample letter, then ask.

If the board does not respond appropriately, IMO you will need an attorney. Whether you might get the costs of the attorney reimbursed will depend on several things.

Quote:

Posted By VC on 04/14/2023 1:37 PM
2. It seems that our irrigation maintenance costs are running rather higher than anticipated. So, again, an idea is floating around to use reserve fund money to hide cost overrun. The reserve study does indicate that some irrigation equipment is capital replacement, such as electric zone valves, ball valves and timer boxes. However, in my opinion, we should separate these from typical maintenance items, like sprinklers, sprinkler adjustments and such which are operating expenses. Is my line of thinking correct ? In other words, old zone valves/timers can be replace and paid for from the reserve fund, while smaller maintenance items like sprinklers cannot.

At this point, the questions are: What is the date of the most recent reserve study? For the irrigation system, what did the most recent study count as reserve components?

In Florida (but not all states), IMO the reserve study is going to tend to count as a contractual agreement between owners and the condo association. Meaning the Board should not be adding or removing components willy-nilly from the study or spending money from the reserve account on things not in the study.

Your best option by far is to try to throw the bums off the board and install responsible, experienced, educated people as directors. That is a tall order.

VC (Florida(FS 720))
Posts: 118

Posted:

Quote:

Posted By MichaelT21 on 04/14/2023 1:55 PM
VC,

Your thinking is correct.

A new pool table should not be paid for reserves.

Irrigation repairs can be paid from reserves, but it's better practice to pay out of operating if possible. I advocated to use reserves on our board for those things that cannot be afforded via operating, typically $5,000 or more.

Thank you, Michael.

I tried to introduce some sanity into irrigation repairs issue but failed. I quite agree that expensive valves replacement ($300-$400 plus labor => $1,200 or so)can be paid from reserves. But there's another wrinkle: the rest of the board refuses to control irrigation expenses although our very contract calls for pre-approval of any work > $1,000. So, now we know that some work has been done only postfactum, when a bill(s) arrive(s). And we get bills to the tune of $2,000-3,000 sometimes without really knowing what and where exactly was done. The rest of the board refusal to control costs is explained by some fear to spoil the "relationship" with the irrigation contractor. They also refuse to try an alternative irrigation provider presumably for the same reason.

Currently, I am a black sheep in the herd what with irrigation and the pool table and it's been only 3 months.

VC (Florida(FS 720))
Posts: 118

Posted:

Quote:

Posted By ElleN on 04/14/2023 2:01 PM

Posted By VC on 04/14/2023 1:37 PM

In Florida (but not all states), IMO the reserve study is going to tend to count as a contractual agreement between owners and the condo association. Meaning the Board should not be adding or removing components willy-nilly from the study or spending money from the reserve account on things not in the study.

Your best option by far is to try to throw the bums off the board and install responsible, experienced, educated people as directors. That is a tall order.

Ellen, thanks as always !

Our reserve study is recent: two and a half year old. Naturally, there's nothing about the pool table or any yet unknown improvements. The irrigation replacement part of the study is, unfortunately, rather vague. It gives the $$$ number seemingly eh nihilo, but only vaguely mentions zone valves and timers (the most expensive parts of the irrigation system). Funnily, enough the study emphasizes that the irrigation system should be maintained from the operating budget rather than replaced if possible. As I mentioned, I am quite open to replacing the old valves and timers, but the rest of the board wants to include everything irrigation related in order to stem/hide irrigation maintenance costs overrun.

I did mention the statute you indicated, but the response was "you are not a financial professional, the treasurer knows better"(re. the pool table).

I fear that the only option is to replace at least one one board member the next year which may be problematic.

MaxB4
Posts: 3,513

Posted:

Personally, I wouldn't worry about it as the pool table, once purchased, will become a reserve item.

There will always bigger fights to be tackled, and I don't see this being one of them.

ElleN (Idaho)
Posts: 4,420

Posted:

Quote:

Posted By VC on 04/14/2023 2:21 PM
Our reserve study is recent: two and a half year old. Naturally, there's nothing about the pool table or any yet unknown improvements. The irrigation replacement part of the study is, unfortunately, rather vague. It gives the $$$ number seemingly eh nihilo, but only vaguely mentions zone valves and timers (the most expensive parts of the irrigation system). Funnily, enough the study emphasizes that the irrigation system should be maintained from the operating budget rather than replaced if possible. As I mentioned, I am quite open to replacing the old valves and timers, but the rest of the board wants to include everything irrigation related in order to stem/hide irrigation maintenance costs overrun.

I did mention the statute you indicated, but the response was "you are not a financial professional, the treasurer knows better"(re. the pool table).

I fear that the only option is to replace at least one one board member the next year which may be problematic.

Got it. Yes you have an incompetent board majority.

You are right to be realistic about this. Given the response of the board so far, what you would spend on an attorney (hypothetically) would not make this battle worthwhile, except maybe as an expensive shot across the bow.

I have been a director on a board tasked with maintaining an irrigation system serving around 2000 homes' front yards. The system was broken into many zones, of course. On the board I maintained that the costs of repairs to the irrigation system were so erratic and so inexpensive (piece by piece, and relatively) that the system should not be a reserve item at all and yes, should be maintained per the operating budget. The board and landscaper had a decent handle on how often timers, backflow preventers and solenoid valves would break and for many years, could plan pretty decently for each year's irrigation equipment operating budget. Reading that your HOA's reserve study concluded the same thing is interesting.

Either keep pointing out the violations (politely and briefly; do not fixate), or wait in the tall grass until you have viable candidates to replace the current directors.

VC (Florida(FS 720))
Posts: 118

Posted:

Ellen,

That's my plan: "pointing out the violations (politely and briefly; do not fixate), " and waiting for better times that may never come.

I am impressed by your knowledge of irrigation systems. I used to maintain my own in the old house, so I can see an expert right away ! Usually, yes, replacement costs are not large, that's why I am surprised by the bills. The board, however, does not let me to arrange for pre-approvals if a costly replacement is anticipated despite the fact that I volunteered for that role and the irrigation contract itself calls for such an approval.

VC (Florida(FS 720))
Posts: 118

Posted:

Quote:

Posted By MaxB4 on 04/14/2023 2:21 PM
Personally, I wouldn't worry about it as the pool table, once purchased, will become a reserve item.

There will always bigger fights to be tackled, and I don't see this being one of them.

I quite agree, Irrigation costs seem a much larger problem: several pool tables a month !

ElleN (Idaho)
Posts: 4,420

Posted:

Quote:

Posted By VC on 04/14/2023 2:50 PM
Ellen,

That's my plan: "pointing out the violations (politely and briefly; do not fixate), " and waiting for better times that may never come.

I am impressed by your knowledge of irrigation systems. I used to maintain my own in the old house, so I can see an expert right away ! Usually, yes, replacement costs are not large, that's why I am surprised by the bills. The board, however, does not let me to arrange for pre-approvals if a costly replacement is anticipated despite the fact that I volunteered for that role and the irrigation contract itself calls for such an approval.

If you are something like the "board liaison for landscaping," I suggest you ask the board for the authority to approve expenses for certain more expensive irrigation parts (parts and labor) up to a certain amount. For example: If your HOA has industrial size backflow preventers, they can be darned expensive to replace. You should have the authority to approve replacement of these, IMO.

VC (Florida(FS 720))
Posts: 118

Posted:

You guessed right.

I am nominally the "board liaison with the Landscaping Committee" and did "ask the board for the authority to approve expenses for certain more expensive irrigation parts (parts and labor) up to a certain amount". And I was denied that authority for fear of "spoiling the relationship with the irrigation company". Essentially, the company has a blank check right now despite the previously mentioned contract clause asking for a pre-approval of expenses more than $1,000. Also, the irrigation company refuses to itemize expenses by parts and labor claiming that it would make their tax preparation more complicated, and the board goes along with that. It's not an enjoyable situation.

ElleN (Idaho)
Posts: 4,420

Posted:

I hear you. IIRC where I was the landscaping company had approval to spend as needed on the lower cost items, like sprinkler heads, pipe and I think even timers. The company carefully itemized all parts replaced each month. The list was long. Labor for the latter items was usually included with no extra charge, per the contract.

When a backflow preventer broke, or more intense digging was needed, the company needed approval from the board liaison, who might have to take this to the board, depending on the cost.

Setting up such a subdivision worked well for the developers, who made a lot of money. For volunteer boards, it is ridiculous. A number of people at hoatalk can talk about all the time they give to maintaining (or overseeing landscapers maintaining) extensive common area landscaping.

TimB4 (Tennessee)
Posts: 21,059

Posted:

Quote:

Posted By MaxB4 on 04/14/2023 2:21 PM
Personally, I wouldn't worry about it as the pool table, once purchased, will become a reserve item.

There will always bigger fights to be tackled, and I don't see this being one of them.

I understand the principal of using the funds for what they are intended for.
I also agree with Max, pick your battle.

Keep in mind that one can typically borrow from the reserve but there should be a resolution on how to pay it back:

Special Assessment
Increase in regular assessment
Cut back on provided services
adjust budgeted items (tree work was the budget line item we always utilized).
Excess funds from actual expenses being less then planned budget.
Loan from a bank.

Perhaps you can propose a resolution on the reserves.
It can include items that shall be included, procedures on borrowing, etc.
I have found that using the component method vs. a cash flow method in reserves helps to give more of a visual to the board on what the saved mones is really for.

KellyM3 (North Carolina)
Posts: 2,239

Posted:

Quote:

Posted By VC on 04/14/2023 1:37 PM

1. The board decided to buy a pool table for the clubhouse and pay for it from the reserve fund. Since the table is an improvement and not a capitale *replacement*, I objected on the grounds that it would be an incorrect use of reserve funds. I was outvoted. What are my options assuming the use of the reserve fund is actually not quite legal ?

2. It seems that our irrigation maintenance costs are running rather higher than anticipated. So, again, an idea is floating around to use reserve fund money to hide cost overrun. The reserve study does indicate that some irrigation equipment is capital replacement, such as electric zone valves, ball valves and timer boxes. However, in my opinion, we should separate these from typical maintenance items, like sprinklers, sprinkler adjustments and such which are operating expenses. Is my line of thinking correct ? In other words, old zone valves/timers can be replace and paid for from the reserve fund, while smaller maintenance items like sprinklers cannot.

Thanks.

Point #1 - It's best to set aside operating expenses and not touch reserves...but I can see where you'd lose the argument. At best, "borrow" from reserves and budget the replacement in next year's budget.....

Point #2 - Never hide a cost overrun by using Reserve Funds. Cost overruns, especially with monthly service costs, are very likely permanent challenges that need to addressed through better on-site management, leak detection or better operational budgeting to align with water usage.

Individual parts, if small, are expected to be "routine replacements" so those should be funded from regular operating expenses related to Site Maintenance. That's not really debatable among experience HOA directors (and I'd think most people on this forum).

VC (Florida(FS 720))
Posts: 118

Posted:

Quote:

Posted By KellyM3 on 04/15/2023 8:34 AM

Posted By VC on 04/14/2023 1:37 PM

1. The board decided to buy a pool table for the clubhouse and pay for it from the reserve fund. Since the table is an improvement and not a capitale *replacement*, I objected on the grounds that it would be an incorrect use of reserve funds. I was outvoted. What are my options assuming the use of the reserve fund is actually not quite legal ?

2. It seems that our irrigation maintenance costs are running rather higher than anticipated. So, again, an idea is floating around to use reserve fund money to hide cost overrun. The reserve study does indicate that some irrigation equipment is capital replacement, such as electric zone valves, ball valves and timer boxes. However, in my opinion, we should separate these from typical maintenance items, like sprinklers, sprinkler adjustments and such which are operating expenses. Is my line of thinking correct ? In other words, old zone valves/timers can be replace and paid for from the reserve fund, while smaller maintenance items like sprinklers cannot.

Thanks.

Point #1 - It's best to set aside operating expenses and not touch reserves...but I can see where you'd lose the argument. At best, "borrow" from reserves and budget the replacement in next year's budget.....

Point #2 - Never hide a cost overrun by using Reserve Funds. Cost overruns, especially with monthly service costs, are very likely permanent challenges that need to addressed through better on-site management, leak detection or better operational budgeting to align with water usage.

Individual parts, if small, are expected to be "routine replacements" so those should be funded from regular operating expenses related to Site Maintenance. That's not really debatable among experience HOA directors (and I'd think most people on this forum).

Well..

All are excellent points.

The problem, however, is that the rest of the board does not consider them important and is quite willing to ignore them.

KellyM3 (North Carolina)
Posts: 2,239

Posted:

In that case, your board will slowly watch its savings bleed dry.

KerryL1 (California)
Posts: 14,550

Posted:

With Max, Tim & Kelly, I’d let go of the pool table. Yes, the Board was wrong, but to get into early battles over relatively small expenditures, will NOT improve your association and will only alienate you from directors. It’s NOT just that you will suffer, a you will,it’s that your community will suffer. Always remember your #1 job aims to protect, maintain & enhance your HOA’s common areas & assists.

A good reserve study WILL list the components that should be repaired & replaced out of reserves. Look at the 4-part national test of what belongs in th study. Associations usually aren’t advised to reserve for components unless they are x% of the budget. (Can’t remember the rec).

Many little items will be in the landscaping line item(s) of your operating budget or not even individually listed. Many other items, valves, pumps, motors are reserve components.

Our high rise reserve study has 100 components and many, many are mechanical, firel/life/safety, elevators components.

KerryL1 (California)
Posts: 14,550

Posted:

With Max, Tim & Kelly, I’d let go of the pool table. Yes, the Board was wrong, but to get into early battles over relatively small expenditures, will NOT improve your association and will only alienate you from directors. It’s NOT just that you will suffer, a you will,it’s that your community will suffer. Always remember your #1 job aims to protect, maintain & enhance your HOA’s common areas & assists.

A good reserve study WILL list the components that should be repaired & replaced out of reserves. Look at the 4-part national test of what belongs in th study. Associations usually aren’t advised to reserve for components unless they are x% of the budget. (Can’t remember the rec).

Many little items will be in the landscaping line item(s) of your operating budget or not even individually listed. Many other items, valves, pumps, motors are reserve components.

Our high rise reserve study has 100 components and many, many are mechanical, firel/life/safety, elevators components.