Budgt and fees

Our association has the current $ in its budget:

$ 140.000 budget for the year (10% over what was spend last year)

$ 58.000 in reserves
+
$ 425.000 in bank CDs

The board has approved a 6,6% increase of fees last year to raise the reserves.

I would appreciate if you could let me know what a reasonable reserves and CD is recommended (we are in Virginia).

Regards.

Bernard,

Below is from our Statutes. It will give you a general idea of how much your Reserve should contain. As Mary said, it all depends on what amenities and common elements the Association is responsible for. This is a "basic formula" on computing your Reserves.

e) The amount to be reserved in any account established shall be computed by means of a formula that is based upon estimated remaining useful life and estimated replacement cost or deferred maintenance expense of each reserve item. The association may adjust replacement reserve assessments annually to take into account any changes in estimates of cost or useful life of a reserve item.

(g) Funding formulas for reserves authorized by this section shall be based on either a separate analysis of each of the required assets or a pooled analysis of two or more of the required assets.

a. The total amount necessary, if any, to bring a negative component balance to zero.

b. The total estimated deferred maintenance expense or estimated replacement cost of the reserve component less the estimated balance of the reserve component as of the beginning of the period for which the budget will be in effect. The remainder, if greater than zero, shall be divided by the estimated remaining useful life of the component.

2. If the association maintains a pooled account of two or more of the required reserve assets, the amount of the contribution to the pooled reserve account as disclosed on the proposed budget shall not be less than that required to ensure that the balance on hand at the beginning of the period for which the budget will go into effect plus the projected annual cash inflows over the remaining estimated useful life of all of the assets that make up the reserve pool are equal to or greater than the projected annual cash outflows over the remaining estimated useful lives of all of the assets that make up the reserve pool, based on the current reserve analysis. The projected annual cash inflows may include estimated earnings from investment of principal. The reserve funding formula shall not include any type of balloon payments.

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Find out what State Agency governs HOAs. Then send them an email for a written copy of the laws pertaining to HOAS Then sit with your Law Firm and hash it out. But never ever forget when setting up your reserves what you have insured and what is not insured. Keeping in mind that you can vote to go to a spend rather than acrue method of funding Reserves.
Personally If I had reserves of over $485,000 dollars my members would lynch me up like a bandit.

Bernard,
You just happen to be in luck because the State of Virginia does have some HOA laws on the books. Not many but some and they are under
"CODE OF VIRGINIA" The Reserves statements are pasted below, FYI.

§ 55-514.1. Reserves for capital components.

A. Except to the extent otherwise provided in the declaration and unless the declaration imposes more stringent requirements, the board of directors shall:

1. Conduct at least once every five years a study to determine the necessity and amount of reserves required to repair, replace and restore the capital components;

2. Review the results of that study at least annually to determine if reserves are sufficient; and

3. Make any adjustments the board of directors deems necessary to maintain reserves, as appropriate.

B. To the extent that the reserve study conducted in accordance with this section indicates a need to budget for reserves, the association budget shall include, without limitation:

1. The current estimated replacement cost, estimated remaining life and estimated useful life of the capital components;

2. As of the beginning of the fiscal year for which the budget is prepared, the current amount of accumulated cash reserves set aside, to repair, replace or restore capital components and the amount of the expected contribution to the reserve fund for that year; and

3. A general statement describing the procedures used for the estimation and accumulation of cash reserves pursuant to this section and the extent to which the association is funding its reserve obligations consistent with the study currently in effect

He have an annual budget of only $62,000.

BUT - we have 12 bridges (over canals) and a water system to care for. In 2000, we put $250,000 in JUST repairing / replacing the top platforms on all the bridges and have an engineering study saying they are good for 20 years. Already it's been 8 years, and we have to have that $$ in Reserve for repairs when the time comes. That does NOT cover the wingwalls, landscaping and approachment costs.

Our bylaws state that we have a Reserve Fund and that it is to be updated every 5 years, minimum.