Reserves Fund Investing - Can interest be transferred to Operating Fund

I wonder if your recent reserve study concurs with your statement being fully funded. If you had one and it does, congratulations. If, however, it's older than five years, you're working off outdated information and you need to get an updated study. It's been 13 years since you've increased assessments and everything else has gone up, so you might be surprised when you run the numbers.

Not only that, regular funding of reserves and the interest it earns is how you build the fund. Reserves aren't a slush fund or something else you can use to prop up the operating budget. Your assessments should have kept up with the rate of inflation, which is why you now find your operating budget can't cover some of the things you want. I don't understand why people forget about inflation - google "inflation calculator" and plug in a few numbers to see how much 2011 dollars need to increase to cover 2024 expenses. Extrapolate that by the costs of an HOA and then see where you are.

What you should do is what you should have been doing since 2011 - look at the last few years of income/expense statements and see which line items have jumped the most, then find out why. For example, master insurance has gone up everywhere, and in some places, insurance companies have stopped writing policies for HOAs altogether. The costs of labor, building materials and requirements to meet updated building codes have also gone up, so you may find you need to look for a new vendor. You may also need to rethink some of those projects - maybe you need to do more shopping around or reconsider the scale of the project (do some things now and the rest next year). Perhaps the projects aren't as necessary as you think they are.

Here's a reply from a major HOA law firm in CA. May apply to your state? But it does seem clear that IF your study says interest is assigned to your reserves, there they must stay.

I https://www.davis-stirling.com/HOME/I/Interest-on-Reserves

"QUESTION: How is interest on reserves treated? Can interest be transferred into the operating account or does it have to stay in the reserve account?
ANSWER: “…Governing documents generally do not address the issue … However, reserve funding plans usually allocate interest. If the funding plan assigns interest to the reserves, then it must stay in reserves. If the funding plan is silent, the board may transfer accumulated interest into the operating account."

Bill,
I think all of the comments are correct before mine. The one thing I will add is another way to do basically what you are looking for is to slightly lower your contributions into your reserves since you will get the interest which has not been this much in a decade or so. This way you do not have to worry about anything questionable. Once the funds hit the reserve accounts, I would not recommend anything other than what everyone else has said.

Bill,
Just for the record I did not say it would be good to move reserve funding interest out of that account and into the operating side. I am not sure it is legal and would not risk it. It takes money to defend a decision even if you are right and it is not worth the risk.

I also would not be that quick to blame the past PMC. Interest rates were less than 1 percent for the last 10 years or so. I am assuming you are investing in CDs and not any other higher risk types of investment. The PMC also should have not recommended anything other than CDs. The job of the board is to protect reserve funds and get the best and safest rate available.

Good idea.

And so someone thought you could run a community of 422 homes on the same amount you spent for 125? Okie-doke.

It didn't dawn on the board or anyone else that more homes equal more residents, which means more use of the common areas? We already know everyone forgot about inflation and apparently the insurance. Then you want to blame the property management for not investing the reserves properly? What makes you think they're an investment firm?

By the way, reserves have to be managed in a way to protect the principal amount in the account, which usually means the usual stocks and bonds isn't an option. Many associations put reserves in a number of CDs or similar items that mature at different times so you can earn more interest and have what you need for the common area replacement at the appropriate time. You can shop around to see what would work best for your community.

Meanwhile, it would appear the views on this conversation are split as to whether you can do this, but the bigger question is whether you should. I still say no, but I dont live in your community, so do what you like. That said, I like LetA's suggestion, which may be the best approach for now. At tg5e very least talk to the specialist who did your last study and then you can debate and vote on a resolution on this idea, as Tim suggested.