Contingency fund

Our HOA has an operating acct. and a reserve acct.. every item in our HOA is covered with dues on both sides. If you go out 5 years we are 100% covered. Because we have a large amount of streets our dues are under funded.we have 2 income streams, a charge on resale of homes and income from investment of the reserve. I want to put the 2 incomes into a contingency account to pay for underfunded accounts annually. And also use this account to build funds for paying for the purchase of a storage building. Our financial committee disagrees.they want to direct those funds directly into the reserve to subsidize it for the streets.

Based on this snapshot:

* The income from the reserve accounts was probably calculated to be part of the reserves and thus already earmarked for future spending. Read your latest reserve study to see how this income was handled.

* Streets are a major expense, and the winters around here beat them to pulp. The increase in extreme weather events has accelerated aging of HOA assets around the country. You say that you're already underfunded.

* If the storage building isn't listed as an HOA asset, your CC&Rs will need to be amended to include this and will require an affirmative vote from the membership. You'll need to have the association attorney write the amendment. Amendments often require approval of a super-majority of owners (67% - 75%). Check your CC&Rs to see what your community requires.

* You didn't ask about this, but insurance premiums are spiking everywhere. We've heard reports of doubling premiums and even one eye-watering 700% increase. You need to have insurance.

In short, your HOA has been living beyond its means and needs to address this. I agree with the finance committee.

Adding storage building on common area is not simple or straightforward. There is insurance, maintenance, and security issues. Plus just added an expense to the budget.

I would recommend a special assessment process to pay for the shed if necessary. Otherwise have to agree with finance committee.

Are you on the Board, Mike? Has the Board even voted to purchase a storage building? How much would it cost?

I mainly agree with Cathy, except: while you may need an owners vote to improve your common areas with a storage building--depending on its cost and the board's powers, there is no need to amend your CC&Rs. The basic purpose of the HOA/board is to protect, maintain & enhance the common Areas. I can see why is storage building would be needed to accomplish all three of those obligations.

Mike,

My last association had contingency funds.

The operating contingency was the buffer in the checking account that would equal x months of normal bills (for us it was three).
So at the end of the year, we would transfer excess funds to the reserves.
Excess defined as: operating contingency less total of delinquencies plus advance payments.

In the Reserves, we identified a contingency line item. The max amount determined by the board.
A resolution stated all interest earned and excess operational funds went to the contingency line item (in addition to an amount each year set by the board).