Resesrve funding cap. Cause more money = more problems

The basic problem with my HOA is that people debate over what to do with extra money. Ideally I'd like it to be so boring that just the grass is cut, flowers are planted at the entrance and the picnic roof is replaced every 30 years and maybe the crap toddler swing set is replaced in 40 years with an A frame one. All of our amenities were not part of the original HOA they have been added by a boards with no community vote. Yeah these projects happened when board members lived near the park.

The way the finances actually work is we save a few grand every year and after 10 years people start dreaming of pet projects to add expense to the common area park, which less than 10% of the owners use.

Therefore I'm gonna propose a bylaws revision as follows:

Reserve Fund Cap
The total balance of the Reserve Fund shall not exceed the amount determined necessary by a professional Reserve Study to cover the anticipated costs of repairs and replacements for the playground and the roof of the picnic shelter over the next 20 years. This cap shall be reviewed and adjusted as needed following each Reserve Study update, ensuring the fund remains sufficient but not excessive.

Any funds in excess of this cap, as identified by the Reserve Study, shall be reallocated to the general operating budget for the next fiscal year or refunded to the homeowners as a credit toward their annual dues.

I want to keep this HOA as boring and basic as possible. Any thoughts on this are appreciated.

The problem I see with a credit is that people will BMC the following year because dues are "going up considerably". If you have a % cap on increases in your state law or governing docs, some will try to argue that applies the following year even if you still "charge" the normal amount and provide a "rebate" or "credit" towards it.

In my last association we had about 6 month operating cushion and added any surplus to reserves, even though they were way overfunded. During my time as treasurer I created much "tighter" budgets, knowing we had plenty of cushion if we had unexpected expenses.

yeah, but I'm sure you are aware that people just go with their gut most of the time and if there's nothing in writing stopping them from ridiculous over charging, they will continue to do it. Justifying it with by saying we need more reserves so we can make the playground even better, or more security or more BS that no one will be responsible for.

I've had 3 board members who don't understand the budget at all simply say that we need to increase it, even though the math said we were over funded. Asked new VP to vote on giving credit towards next year's dues and he refused cause people voted for crediting excess funds, a long time ago (8 months ago at annual meeting)

The problem with any pre-determined cap is that the economy doesn't give a rat's patoot about what an HOA's governing documents say. The cap also ties the board's hands when they need flexibility.

I've had similar criticisms about language that forces homeowner approval for any spending increase over a certain percentage. Inflation laughs at your "certain percentage". In addition, it takes the financial decisions out of the hands of the folks with a fiduciary duty to the association and puts it in the hands of those who have no such duty. It also undermines corporate governance. You can't hold the board accountable for what's happening if the board isn't calling the shots. And homeowners are not accountable except indirectly.

(It's ironic that the indirect path comes with a price tag. In condos, caps mean neglected maintenance and inadequate reserves. That's the road toward special assessments, which a number of states have also tried to legislate into oblivion. If the economy scoffs at attempts to limit its effects, human nature is similarly contemptuous of legislative ineffectiveness.)

I'm sure that lawmakers intended such caps to put a limit on boards' ability to run amok. But homeowners can already limit the board's actions even without the cap: kick the bums to the curb and elect better people.

Caps are a financial "solution" to a management problem, and they come with unintended consequences. You can't fix a problem unless you understand the nature of what you're trying to fix.

I've been watching this particular thread and thinking about the concept of capping future boards' abilities to adjust reserve funding. In this case, it's to prevent raising the amount of annual Reserve Fund deposits to lower the need for dues increases as well as eliminate "slush-type" funds.

Placing a cap on reserve funding based on a reserve study will only lead the HOA towards financial problems, particularly as inflation continues. The inflation rates that are reported are likely lower than the inflation rate of service contracts, contractors and building supplies that HOAs use. Also, budgets look forward, but this plan will require the HOA to look backward in time to set the future budget.

Above all, reserve studies can offer important guideposts to managing an HOA's capital amenities repair and replacements, but reserve studies are paper documents good for the day they are printed. They are devoid of flexibilty, cannot predict the future and certainly don't replace competent human leadership. In fact, a reserve study can double down on an incompetent board's incompetency as such boards will use them as absolute gospel, not as a general roadmap.

It's like making every single turn because your car GPS system tell you.....it's correct 95% of time, and then there's the time it guides you into the lake.

Education is the key here. I think Wendy has diagnosed a challenge in her HOA but the right "medicine" may be competent directors.

I dont' understand. if they don't want a playground and picnic shelter and want to demolish them then vote and do that. A cap on the max funding wouldn't prevent them from that action.

our reserve report has an inflation % that can be changed. no one can predict future inflation, therefore all reserve studies are just an estimate, but given the historical financial trends with inflation a pretty good estimate.

I agree with Dean and Tim. As you know it’s one thing to make decisions based on what’s in front of you right now which make sense, but you DON’T know what will happen in five or 10 years, let alone the next six months (if I knew that, I’d make a killing in the stock market and my local casino!)

Sure, your expenses are “small and consistent” (whatever that means – what is that based on?) but things can and do change. You’ve already said some of these suggestions are coming from people who have their own preferences regarding the playground and other stuff. Not only that, but you’ve also said some of your neighbors don’t seem to read the documents, community rules or anything else – what makes you think they’ll read this bylaw and comply with it?

In some of your posts, I suspect the biggest problem with your community (and I think others have pointed this out) is that some folks are making suggestions based on their pocketbooks and no one else’s. They look at those big numbers listed on the budget and think “wow, we have $100K in reserves – we can afford a splash pad on the playground!” That makes sense to them, but they may not be thinking of the installation and maintenance costs, as well as the water bills the association will run up operating said splash pad. Or future costs for the picnic shelter, increased costs for lawn care and the other stuff they usually don’t think about anyway because “that’s the board’s job.”

That’s also typical of HOA members (Lord knows I came across this thinking all the time when I was on the board). However, HOA board members don’t have that luxury of only thinking short term – they have to think short and long term, and have the guts to say no – and explain why. That doesn’t mean they won’t get mad and threaten to vote you out, but as I said in another conversation, worse things have happened. Let time see who’s right.

You’ve seen all the chaos that’s occurred in Florida and a few other places involving short sighted thinking on reserves, and if this cap turns out to be a terrible idea, you’d have to go through the procedure of drafting an amendment to the documents (again), put it to homeowners for their review and comment, make revisions and then have them vote on it.

(You still need an attorney to help with this – I know they aren’t cheap, but we’re talking legal documents and you have to do this correctly, otherwise it won’t stand up in court and you will have wasted your time).

I say do the work and educate the homeowners, including bringing in the reserve specialist for a presentation and they can have a dialogue on the pros and cons. No guarantee they'll understand or agree with you, but at least they won’t be able to say you didn’t tell them, and you can always pivot if something happens and your stance has to adjust.

Do you really, really, really have to keep your reserves at 100% all the time tho?

In a perfect world that would be fantastic. Run your numbers through your budget forecast
and see if you lowered assessments a buck or two and scale back on reserve transfers from your operating account.
Keep a little extra in your operating budget for incidentals and unforeseen happenings.