pooled reserves

Started by NitaD • 5 replies • 355 views

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NitaD (Florida)
Posts: 26

Posted:

Im a new board member, and am having problems with many things that I have noticed. First liaison and management company, some of you responded to that thread. Now I have a question about pooled reserves. My understanding is that is not a good thing, and I am trying to understand how our reserves for last year are the same as they are this year. Not a bookkeeper obviously, but if someone could explain in plain english. Previous board had separation of reserves.

SheliaH (Indiana)
Posts: 6,964

Posted:

Did you talk to the association accountant or whoever does the association's books? That's where you should start. You should also talk to the other board members - the more experienced ones should be able to give you background on the community reserves (if they don't know or understand it either, you have problems).

It's not foolproof, but sometimes you can find information by Googling it (depending on how well you pose the question). That's what I did and here's what I found from an Orlando law firm's website:

"Reserve funds are typically spoken of as being held in one of two ways: pooled reserves and non-pooled reserves. Pooled reserves are
funding for multiple assets (roofs, sidewalks, etc.) that are combined into one general account from which all expenses are paid. Non-
pooled reserves are when each asset has its own account dedicated to its repairs and upkeep. Funds cannot be transferred under a non-
pooled reserve method. Reserve accounts are often found to be underfunded significantly for the amount that could and should be done to
keep the association’s community property in good working order.

As of December 31, 2024, for items required to be included in a Structural Integrity Reserve Study, an Association
may no longer use those itemized reserve funds (or any interest accruing thereon) for other purposes, and an Association may only use
those itemized reserve funds for their designated purposes. Essentially, the use of pooled reserve funds has been eliminated by the
amendment of Florida Statutes Section 718."

Here's a link to that article if you'd like more information - https://www.theorlandolawgroup.com/blog/all/coa-reserve-funds-what-you-need-to-know-about-association-reserves/

Since you're new, a review of your community's most recent reserve study would be a good way to get acquainted with how they work and how your community should use its recommendations to set the annual budget. The Community Association Institute (CAI) also has several education materials on all sorts of HOA issues, including reserves. They're not expensive and can provide good background. There are also older conversations on this website where you can learn best practices and what to avoid - bring your questions to this conversation to ensure you get updated information because HOA life changes within a year and sometimes less. Happy reading!

If it is not right do not do it; if it is not true do not say it. Marcus Aurelius

TimB4 (Tennessee)
Posts: 21,059

Posted:

There are two ways to do a reserve study (which establishes how the reserves accounts work).

1) Component method - where x money is set aside for this and y money is set aside for that.

Example: You set aside $100 a year for a new roof and another $50 a year for a new deck. The roof needs replaced in 5 years and the deck in 10 years. At the 5 year mark you have enough money to pay for the roof and still have 50% of the money for a new deck.

2) Cash flow (aka pooled) method - where it is the amount of cash set aside is enough to pay for expected expenditures from the reserves.

Example: You need a new roof 5 years from now - so you only need to set aside $100 a year. When you replace your roof, reserves drop to zero. However, you continue setting aside $100 a year and will have enough for a new deck 5 years after the roof is replaced. Hence, the Association doesn't need to put as much into savings as it would have with the component method.

No issues if everything works out correctly. However, what if there is termite damage and both the deck and the roof needs replaced in 5 years. With the component method, you are only $250 short. In the cash flow method you would be $500 short. A special assessment would be needed in either case, but it's typically easier to come up with less money than more money.

Now, in reality, the reserves don't drop to zero as the reserve specialist will ask the board to set a number the reserve accounts should not fall below. This establishes a cushion to handle increased expenses and shorter life spans (deck and roof needing replaced at the same time).

NitaD (Florida)
Posts: 26

Posted:

Thank you both, Im reading furiously.

KellyM3 (North Carolina)
Posts: 2,239

Posted:

I prefer the cash flow method for Reserves simply because plans don't always unfold on a long pre-planned timeline. However, every HOA is unique in some way.

KerryL1 (California)
Posts: 14,550

Posted:

Do you have a reserves study done by a certified reserves specialists (RS) or analyst?

In our HOA with nearly 100 reserve items for which the HOA is responsible to maintain, repair, restore or replace, a pooled study makes sense and is what our RS's have always recommended. So, 'd say it depends a lot on how many reserves components your HOA has. And you probably have more tha you think. Your parking lots, for instance, should be in your reserves study. There may even be two line items, one which is for repairs with an estimated useful like of say, 5 years, and a different line item which estimate the cost to replace the lots' surfaces in say, 15 years. Such lots also have lighting systems that must be in your study.

A national task force of reserves experts published new guidelines for reserves studies a few months ago. For a full description, see "2023 Reserve Study Standards" [caionline.com].

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