LaverneB1 (Pennsylvania)
Posts: 1
Posts: 1
Posted:
Are your Reserve Funds used for Capital Improvements or do you have a separate account for Capital Improvements and where did the funds come from if you have a separate Capital Improvement Account.
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Reserve Funds
Started by LaverneB1 • 11 replies • 267 views
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CathyA3 (Ohio)
Posts: 6,299
Posts: 6,299
Posted:
We would keep them separate if we were looking at capital improvements.
Such improvements would require approval from a super-majority of our owners, for one thing - unlike reserve spending. And improvements would require additional funding since they would not be in our operating budget and are very unlikely to be included in our reserve studies.
Once the improvements have happened, then they'd be classified as reserve items and would appear in our next study.
Such improvements would require approval from a super-majority of our owners, for one thing - unlike reserve spending. And improvements would require additional funding since they would not be in our operating budget and are very unlikely to be included in our reserve studies.
Once the improvements have happened, then they'd be classified as reserve items and would appear in our next study.
CathyA3 (Ohio)
Posts: 6,299
Posts: 6,299
Posted:
Forgot to add: capital improvements would be funded either through a special assessment or a loan that would need to be repaid.
*All* of an association's money is earmarked for something. If you add a new expense that hasn't been planned for, a new funding source is needed.
If you tap funds that have already been earmarked for something else (ie. the reserves), then your reserves will almost certainly be underfunded and the money would need to be replaced. (Our state laws allow associations to tap the reserves for an emergency, but the money has to be repaid before the end of the year. The reserves can help with a temporary cash flow issue, but they won't solve an under-budgeting issue.)
*All* of an association's money is earmarked for something. If you add a new expense that hasn't been planned for, a new funding source is needed.
If you tap funds that have already been earmarked for something else (ie. the reserves), then your reserves will almost certainly be underfunded and the money would need to be replaced. (Our state laws allow associations to tap the reserves for an emergency, but the money has to be repaid before the end of the year. The reserves can help with a temporary cash flow issue, but they won't solve an under-budgeting issue.)
JohnC46 (South Carolina)
Posts: 14,265
Posts: 14,265
Posted:
Laverne
Typically an association will have a Reserve Fund(s) budget line item and a Capital Improvements budget line item. Forgetting where the money comes from, typically it will take a majority of owners approving a Capital Improvement whereas it typically does not require owner approval to replace/repair a reserve item. One area of contention can be improving/modifying a reserve item. Two items I have seen are replacing a falling down wooden fence with a cast iron fence and expanding a clubhouse during a needed remodel.
Typically an association will have a Reserve Fund(s) budget line item and a Capital Improvements budget line item. Forgetting where the money comes from, typically it will take a majority of owners approving a Capital Improvement whereas it typically does not require owner approval to replace/repair a reserve item. One area of contention can be improving/modifying a reserve item. Two items I have seen are replacing a falling down wooden fence with a cast iron fence and expanding a clubhouse during a needed remodel.
MarkM19 (Texas)
Posts: 1,459
Posts: 1,459
Posted:
Laverne,
As Cathy stated money that is in Reserve Accounts are earmarked only for replacing existing items in the HOA. The funds cannot be used for Capital Improvements. In my last community in Ca. before I was on the board the past board members decided to add a parking lot in our community. They took funds out of the Reserve account and called it an emergency. They were wrong and I called them out on it. In order to make this loan they must have a specific plan for repayment of less than 1 year and also a vote of the community that has over 2/3rds in favor. In most HOAs this is nearly impossible to get passed. Also, where would the HOA get the funds to repay the reserve loan without raising dues? This also has to pass by a Super Majority which is not likely.
This board is probably assuming no one is watching and, in many cases, they will get away with it.
As Cathy stated money that is in Reserve Accounts are earmarked only for replacing existing items in the HOA. The funds cannot be used for Capital Improvements. In my last community in Ca. before I was on the board the past board members decided to add a parking lot in our community. They took funds out of the Reserve account and called it an emergency. They were wrong and I called them out on it. In order to make this loan they must have a specific plan for repayment of less than 1 year and also a vote of the community that has over 2/3rds in favor. In most HOAs this is nearly impossible to get passed. Also, where would the HOA get the funds to repay the reserve loan without raising dues? This also has to pass by a Super Majority which is not likely.
This board is probably assuming no one is watching and, in many cases, they will get away with it.
DeanJ
Posts: 1,786
Posts: 1,786
Posted:
Reserve funds are used to maintain the community. Even if a garden structure or pool requires replacement, those fund can come out the maintenance reserve.
JohnC46 (South Carolina)
Posts: 14,265
Posts: 14,265
Posted:
Quote:
Posted By DeanJ on 06/09/2023 7:34 AM
Reserve funds are used to maintain the community. Even if a garden structure or pool requires replacement, those fund can come out the maintenance reserve.
Reserve funds are used to maintain the community. Even if a garden structure or pool requires replacement, those fund can come out the maintenance reserve.
Repair and or replacement is one issue and should be funded from the Reserves. Now building a bigger pool as a replacement is another issue.
KellyM3 (North Carolina)
Posts: 2,239
Posts: 2,239
Posted:
Quote:
Posted By JohnC46 on 06/09/2023 9:09 AM
Posted By DeanJ on 06/09/2023 7:34 AM
Reserve funds are used to maintain the community. Even if a garden structure or pool requires replacement, those fund can come out the maintenance reserve.
Reserve funds are used to maintain the community. Even if a garden structure or pool requires replacement, those fund can come out the maintenance reserve.
Repair and or replacement is one issue and should be funded from the Reserves. Now building a bigger pool as a replacement is another issue.
Well.....the Reserves would "replace" the old pool with a larger one. If an HOA (most of them anyway) could make such a decision and still have healthy budget operations, I'd say it's earned the privilege to make the investment through savings and diligence.
ElleN (Idaho)
Posts: 4,420
Posts: 4,420
Posted:
Quote:
Posted By KellyM3 on 06/14/2023 5:20 PM
Repair and or replacement is one issue and should be funded from the Reserves. Now building a bigger pool as a replacement is another issue.
Posted By JohnC46 on 06/09/2023 9:09 AM
Posted By DeanJ on 06/09/2023 7:34 AM
Reserve funds are used to maintain the community. Even if a garden structure or pool requires replacement, those fund can come out the maintenance reserve.
Reserve funds are used to maintain the community. Even if a garden structure or pool requires replacement, those fund can come out the maintenance reserve.
Repair and or replacement is one issue and should be funded from the Reserves. Now building a bigger pool as a replacement is another issue.
Well.....the Reserves would "replace" the old pool with a larger one. If an HOA (most of them anyway) could make such a decision and still have healthy budget operations, I'd say it's earned the privilege to make the investment through savings and diligence.
It's not a board decision. It's an owners' decision, to be made by a formal vote as laid out in the bylaws and state law. If the enlargement is not trivial, then 100% concurrence seems prudent.
Requiring all owners to pay for certain new expenses, to which they did not agree, might not be legally appropriate. Tyranny of the majority and all that.
JohnC46 (South Carolina)
Posts: 14,265
Posts: 14,265
Posted:
Quote:
Posted By ElleN on 06/14/2023 5:57 PM
Well.....the Reserves would "replace" the old pool with a larger one. If an HOA (most of them anyway) could make such a decision and still have healthy budget operations, I'd say it's earned the privilege to make the investment through savings and diligence.
Rather than spend more money on a larger pool, I expect some owners would prefer to have a refund of their assessments. Posted By KellyM3 on 06/14/2023 5:20 PM
Repair and or replacement is one issue and should be funded from the Reserves. Now building a bigger pool as a replacement is another issue.
Posted By JohnC46 on 06/09/2023 9:09 AM
Posted By DeanJ on 06/09/2023 7:34 AM
Reserve funds are used to maintain the community. Even if a garden structure or pool requires replacement, those fund can come out the maintenance reserve.
Reserve funds are used to maintain the community. Even if a garden structure or pool requires replacement, those fund can come out the maintenance reserve.
Repair and or replacement is one issue and should be funded from the Reserves. Now building a bigger pool as a replacement is another issue.
Well.....the Reserves would "replace" the old pool with a larger one. If an HOA (most of them anyway) could make such a decision and still have healthy budget operations, I'd say it's earned the privilege to make the investment through savings and diligence.
It's not a board decision. It's an owners' decision, to be made by a formal vote as laid out in the bylaws and state law. If the enlargement is not trivial, then 100% concurrence seems prudent.
Requiring all owners to pay for certain new expenses, to which they did not agree, might not be legally appropriate. Tyranny of the majority and all that.
Well said.
KellyM3 (North Carolina)
Posts: 2,239
Posts: 2,239
Posted:
Quote:
Posted By ElleN on 06/14/2023 5:57 PM
Well.....the Reserves would "replace" the old pool with a larger one. If an HOA (most of them anyway) could make such a decision and still have healthy budget operations, I'd say it's earned the privilege to make the investment through savings and diligence.
Rather than spend more money on a larger pool, I expect some owners would prefer to have a refund of their assessments. Posted By KellyM3 on 06/14/2023 5:20 PM
Repair and or replacement is one issue and should be funded from the Reserves. Now building a bigger pool as a replacement is another issue.
Posted By JohnC46 on 06/09/2023 9:09 AM
Posted By DeanJ on 06/09/2023 7:34 AM
Reserve funds are used to maintain the community. Even if a garden structure or pool requires replacement, those fund can come out the maintenance reserve.
Reserve funds are used to maintain the community. Even if a garden structure or pool requires replacement, those fund can come out the maintenance reserve.
Repair and or replacement is one issue and should be funded from the Reserves. Now building a bigger pool as a replacement is another issue.
Well.....the Reserves would "replace" the old pool with a larger one. If an HOA (most of them anyway) could make such a decision and still have healthy budget operations, I'd say it's earned the privilege to make the investment through savings and diligence.
It's not a board decision. It's an owners' decision, to be made by a formal vote as laid out in the bylaws and state law. If the enlargement is not trivial, then 100% concurrence seems prudent.
Requiring all owners to pay for certain new expenses, to which they did not agree, might not be legally appropriate. Tyranny of the majority and all that.
There are no refunds, just a buildup of Reserves. Replacing a pool, when the current pool is obsolete or has failed structurally, IS prudent. Being in an HOA-controlled community is never as financially efficient as living in a non-HOA community. That said, our bylaws require the maintenance of services/amenities, of which the pool is the major amenity for us.
You'll have to click coupons somewhere else to save a dime. 100 percent concurrence is ridiculous as a standard.
ElleN (Idaho)
Posts: 4,420
Posts: 4,420
Posted:
Quote:
Posted By KellyM3 on 06/15/2023 7:31 PM
There are no refunds, just a buildup of Reserves. Replacing a pool, when the current pool is obsolete or has failed structurally, IS prudent. Being in an HOA-controlled community is never as financially efficient as living in a non-HOA community. That said, our bylaws require the maintenance of services/amenities, of which the pool is the major amenity for us.
You'll have to click coupons somewhere else to save a dime. 100 percent concurrence is ridiculous as a standard.
There are no refunds, just a buildup of Reserves. Replacing a pool, when the current pool is obsolete or has failed structurally, IS prudent. Being in an HOA-controlled community is never as financially efficient as living in a non-HOA community. That said, our bylaws require the maintenance of services/amenities, of which the pool is the major amenity for us.
You'll have to click coupons somewhere else to save a dime. 100 percent concurrence is ridiculous as a standard.
The subject brought up in this hypothetical was enlarging the pool. You opined that it would be fine to do so, because the HOA (board?) might have "earned the privilege."
You seem to think enlarging a pool is always a trivial matter. I do not.
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