When money can be taken from reserve

Is it normal to order pressure washing for $19,000 and then realize you dont have the money? Um, no.

Is it normal to use reserve funds for a major project like pressure washing? Yes.

If you are on the BOD or an officer, you need to take a close look at the book to see whats going on. Dues not being paid? Expenses too high? Dues too low? Etc. It is your job to manage the PM. Dont just let the PM do what ever they want and think that its normal.

Ruth - HOW was any project done without there being money for it? Was this job authorized?

You need to track down this particular job and see what the procedure was for performing a large expenditure project without the funding behind it.

Have you seen the annual budget? Is this particular job earmarked as an annual expenditure this year? If not, WHERE did the board think it was going get the funds?

Doesn't your board approve expenditures over a certain amount BEFORE they are done?

I'm confused as to how a PM can announce there is no money for a completed job.

Ruth - numbers don't lie. These expenditures are either in the annual budget or not OR there must have been some arrangment for their payment. Ye gads!!

THAT is your job to find out.

Reign in this PM who is spending money and then asking for it from the board.

Establish a Finance Committee, by motion and vote, and get to the bottom of this. Get some general members to sit on this committee. You will need fresh eyes to look at the numbers.

Good luck.

Ruth,

The fact that this job was done w/o the necessary funds available in the operating fund is a moot point. The work's been done and the bill must be paid. Pressure washing is a "prep for painting" so I can see no reason why reserve funds cannot be used especially if this painting project is a reserve item.

I'm thinking perhaps this incident will be another nail in the PM's coffin! I think the tactics you've used in handling this whole situation with the board is beginning to pay off. So, Ruth, just sit back and let the chips fall where they may. :-)

Ruth,

The PM "dismisses you"? I would first look at the contract with the PM since it appears they have breached their contract with the association. The PM should act at the direction of the board vote and not take orders from the president. Something of interest to your owners may be to learn that here in Florida we have a management company that is currently being investigated from stealing HUGE amounts from various associations. That is what happens when owner and board members don't keep tabs on their finances. Good luck and keep up the good work. I'd look at old minutes to see who approved these things.

Ruth,

Ignore any comments telling what your job is and the like. It seems clear that you are trying to do your job.

As for the use of reserve money, the intent of the reserve is to pay for things like painting that need to be done from time to time. The basic idea is that you know that you will face the expense down the road so you put aside money today. for one year of use, you put aside one year of money. Of course some years cost more then others. You don't replace the roof every year. So instead you place enough aside each year so you have the money (in the reserves) to replace the roof when needed.

I would certainly apply the same concept to painting. Since the paint should last five or more years, then it should be in the reserve. (Along with the cost to power wash in prepping for said paint.)

But you should have a reserve study. The study will list out major expenditures that you will face as time goes by. It will estimate the schedule and how much. Then give you an idea how much needs to go in the reserve fund each year. Covered items get paid from the reserves.

Hi Ruth,

I agree with others in the advice they have offered.

I recommend no to using reserve funds to cover the pressure washing cost (unless there is absolutely no other $$ available – please see below). Can $$ from other planned projects be used to cover this (and post pone the planned project until next year)? As suggested, you need to go over your financials to see where your association stands.

As noted, this should not have been contracted without having been included in the budget. Sounds to me (IMO) that the PM (& Board Pres.?) made a mistake (contracted to do pressure washing without funds planned for it) and now the PM is trying to cover it up.

BTW, any pressure washing we do (either prior to painting, or prior to sealing the wood decks or driveways/parking areas) is done and included as part of the contract for either the painting or sealing. It is done just prior to the painting or sealing as prep of the surfaces. If you are not painting this year, it will likely need to be done (again) when you do paint.

Also, perhaps we are different in this from many of you, (it is standard practice per our management company), painting (and deck sealing and driveway sealing) are considered regular maintenance items and have line items in our operating budget (although we do place $$ into those accounts every year – although I believe our current board stopped doing this recently to cut back on the assessments – but that is another “story” for another time). These expenses are not part of the Reserve Study and Reserve budget/account. We include long term expenses only in our Reserve.

Now I do have an exception – many years ago we had an unplanned for expense and did use reserve fund $$ to pay for it (we also cut other expenses as best we could, but still needed additional $$). But, for the next year budget we included an increase (just for that year) into the reserve account to “pay back” what we had “borrowed”. We explained this to the HOs when we sent the proposed budget for review. I do not recommend this as a SOP as proper budget planning should be employed. This was our wakeup call.

You are taking the right approach and I wish you success,
Bonnie

David,

FYI. . .

There is no mention of reserves in my gov docs nor is there a state statute addressing this for planned communities. The condo statutes, under "powers of the BOD" states: "Subject to the provisions of the declaration, the assn may adopt and amend budgets for revenues, expenditures and reserves. . .". That is the only mention of reserves in all the statutes. Bottom line is that not all assn gov docs or state laws address reserves. The individual BOD is left to handle reserve funding as they see fit!