Contingency Funds and Funds on Hand

Started by MarianneG • 5 replies • 2255 views

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MarianneG (Indiana)
Posts: 170

Posted:

Several months ago, I pulled some useful information from this site with respect to contingency funds, and I also found a formula for computing the level of funds on hand in a healthy HOA.

Through the new Search function, I was able to find the information about contingency funds. MaryA1 provided that 3% of the annual budget is recommended for a contingency fund. She wrote the source of that figure is the Nat'l Institute of Comm Management. (Mary I have not been able to find a website for that organization. Has the name changed or is there a way I can access information from them?)

Now I'd like to find the SOURCE of the formula for funds on hand. I copied the formula to be-- operating expenses, divided by 12, multiplied by 2. If anyone can give me the source or direct me to thread on this forum I would be appreciative. I was unable to find it through Search.
Thanks, Marianne

SusanW1 (Michigan)
Posts: 5,202

Posted:

Marianne - under notmal circumstances, following a formula would be OK for budgets.

But with the economy the way it is, it's probably better to have the board come up with a "lost revenue" figure to be prepared for the "foreclosures resulting in non collected dues" category. And then adjust your budget.

SusanW1 (Michigan)
Posts: 5,202

Posted:

MarianneG (Indiana)
Posts: 170

Posted:

Thanks, Susan,

We are probably an exception to the rule regarding the economy and foreclosures. Most of our people (55 and older) sold homes they had lived in for 30-40 years and bought outright here. Many, many do not have mortgages. Since the development began 7-8 years ago, there have been very few times a homeowner has failed to pay the monthly assoc fee, and largely those have been times when someone just forgot. A gentle reminder has always brought an apology and an immediate check. Every one of our homeowners is up-to-date on fees and in fact, many have paid 6 mos to a year ahead. However, that's not to say it couldn't happen.

I like your idea of including "lost revenue" in our reasons for a contingency fund, because it could happen. We had one incident where a trust manager fell way behind in fees, but sent a check for the full amount when the situation was explained to her.

We have not had a contingency fund of any sort, but the BOD thinks we need to establish one. We budget for 4 snowfalls, but if we have 6 snowfalls, or an insurance deductible, or if there is lost revenue (as you suggest), we need a fallback position. I asked the question because we will need to explain to our residents why we need a contingency fund and our method of arriving at the figure.

MaryA1 (Arizona)
Posts: 7,043

Posted:

Marianne,

Sorry, but I think NICM may be out of business. Their website doesn't have any contact info or any info about the org. I know the owner of the co (Ken Hyland) had some health problems and he may have retired from the business. I did find the following info on the Internet but I don't know that it's current:

National Institute of Community Management
Street: 4646 East Greenway Road
City

hoenix, az 85032-4805
Phone: (602) 381-1099

MarianneG (Indiana)
Posts: 170

Posted:

Thanks, Mary,

For some unknown reason, I translated Comm to mean Commercial. I have no idea why I would do that. Sometimes I amaze myself and wonder why I do the silly things I do and think?????? Oh well. At least I now have the correct name of the source and know that at one time the 3% was a recommendation.

I'd love to hear from anyone who has any input about contingency funds and/or fund levels an HOA should have on hand.

As an aside, with this post I've either made 100 posts or am very close.

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