Budgets

Since budgets are typically not exact, there are times that the operating fund could exceed the expenses. When this happens typically one of three things could be done:

1) The Board may deposit an additional amount into the Reserves (perhaps into a contingency fund).

2) The Board may use the excess funds to offset expenses for the following year and adopt a lower assessment for that year (effectively returning the excess to the membership). Depending on the amount of the excess, I would caution doing this with a large amount as it could limit the amount assessments can be raised in future years to meet expenses (as some board are limited to a certain percentage without membership vote).

3) Do a combination of the two.

I strongly recommended for Associations to have three different funds:

a) The Operating fund - to pay the day to day expenses

b) The Reserve fund - to pay expected future maintenance and replacement of capital assets.

c) A Contingency fund (some Associations make it part of the Reserves) - to pay for budget shortfalls, cover delinquent accounts, pay deductibles on insurance policies and to make unplanned repairs.

There is no specific formula on how much to have in a contingency fund, as each Association has different circumstances. I've heard that a good starting place for the fund would be 1/12 of the annual assessments.

Tim

You may just want to give yourselves a "treat" before putting the rest into savings. It may be time to do some prevenative maintence, buy some flowers, or some small project that would benefit everyone. Do you have any non-payers? May use the money to collect.

It's rare a HOA has any extra money since it is a non-profit. Which translates ROUGHLY that it should spend as much as it gets in. Plus it can have some reserves/savings. However, if it does have extra money at the end of the year, it just may be subject to taxes. Not a big deal if it's not that much. Your not going to lose your non-profit status.

You need to be careful here and check your state laws governing condominiums. Ohio make a distinction between common "profits" and common "surplus".See below.

17. Common Profits can be retained by the Board as reserves. However, please note that "Common Profits" are not the same thing as "Common Surplus". Common Profits are the amount by which the total income received from assessments charged for special benefits to specific units, rents received from the rental of equipment or space and Common Elements, and any other fee, charge or income other than common assessments exceeds expenses allocable to the particular income, rental, fee or charge. On the contrary, Common Surplus is the amount by which common assessments collected during any period exceed Common Expenses. This Section does not give the Board the authority to take any amounts collected over and above the operating budget and place them in reserves. That may be what the Code meant to accomplish, but that is not exactly what it says.

Shocked in a good way or bad way?

Those that responded are not from IL and therefore are limited on knowledge of IL statutes.


Wouldn't the maintenance have been planned for in the Reserve funds?

Fred,

Interesting. In addition to capital reserves, we are required to maintain deferred maintenance fund for all repairs which happen less frequently than annually. This includes road resurfacing and painting, for example.

We treat new landscaping as ‘improvements to common areas’. If we want to plant ten new trees on the property the money ‘should be’ authorized by the membership. But, if existing trees are taken out by mother nature than it is a replacement or, the insurance may cover it.

Excess in the operating fund goes to ‘operating contingency fund’. We cannot transfer this money to reserve funds without the owners’ consent. Returning money to the membership may not be a good idea. Instead, we increase the percentage of the dues collected to be deposited in the reserves the following year. This automatically decreases the operating reserves while it builds up the reserve funds and no one complains as long as they know where the money is going.

I wish our HOA DID have a substantial surplus! Depending on the amount, I think we'd put some in reserves and perhaps not raise fees for the next year, but all the ideas listed here are good (especially setting up a contingency reserve fund)

It's very good.

Is there anything crazier than "volunteers" looking after other people's real estate investments without proper qualifications or enough time to do it properly ? Since the Mc is "guided" by the BOD it makes even less sense.