Reserve fund

1. Is there a ballpark percentage goal for reserve fund?

In 1997 our reserve fund was 70% funded and the report stated that, while negative, it was an acceptable number.

In a 2005 update done by a board member, our reserve was at 24% of fully funded, which seems very low to me. We also have a lot of deferred maintenance that was neglected.

2. The board member who did the reserve update used our total cash as of January 1, 2005 to arrive at the 24% funded number. He said that on January 1, you take all of the operating fund and place it into the reserve fund, thereby zeroing out the operating cash for the beginning of each year.

That seems to me to be a method to artificially inflate the reserve fund. Is there a rule of thumb of how much operating funds should be kept at all times?

3. Another thing is that while we are only 24% of fully funded, the MC has us contributing less money per month to reserves for 2006. The reason stated is that there was reserve money that we did not use in 2005 so we contribute that much less in 2006.

The 2005 contribution to reserves was $18,000. Some reserve work which will cost $6000 did not get done, but still has to be done at some point. So she subtracted the deferred $6000 from the $18,000 2005 contribution to arrive at the 2006 contribution amount of $12,000.

This seems to me to be a method of making the MC look good by being able to artificially show an additional $6000 operating profit which in reality is only shorting the already underfunded reserve fund.

Let's say that we don't do that $6000 maintenance in 2006. Then at the end of 2006 that $6000 shows up on the income statement as $6000 additional operating profit. Then we subract the $6000 from the $12,000 reserve contributed in 2006 to make only a $6000 contribution in 2007.

Then for the purpose of computing our reserve fund, we zero out the operating fund on Jan 1, 2007 and add that amount to the reserve funds. So we have falsely shown another extra profit of $6000 for 2005 and for 2006, and after the income statement is complete we then show that money in the reserve fund.

At the end of 2005 the same board member voted to give the MC a Xmas bonus of 10% of the profit that the association showed. I believe we showed a $5000 profit. However, there was much maintenance work that needed to be done in 2005 that was not done. Probably over $10,000 worth of work.

Is that a way to run a business, or am I missing something?

Thanks,

Roger - I agree that that board is clueless, but it is the paid "professional" MC that is doing the funny money with the unspent reserves. I see in my tea leaves a hefty special assessment down the road for these folks. Harold

Get a professional reserve study by a reputable provider - you need some idea of where you stand before you can decide what to do next. But, based on the numbers and without knowing much in the way of facts, my guess is that you need to boost reserve fund allocations fairly substantially - and the sooner, the better.