Reserve Funds: California HOA

Hello all,
Forgive me for what I am about to ask because I'll bet you've heard this question asked six ways to Sunday, but I did some searching on old threads and haven't found exactly what I'm looking for.

I'm a Director, and the Board and the Budget & Finance Committee are meeting a couple of weeks before our deadline to approve the budget. Last year, the Board insisted we did not raise dues, and fought tooth and nail to get our way. We did not raise dues EXCEPT for about .26 cents per household per month which the staff/B&F committee said we HAD to charge "by law" to maintain our reserve funds.

As we approach the end of our fiscal year, we have about $7.5 million total liabilities and equity/total assets, and we have about $3.6 million total in reserves. It looks like we'll have about $95 k left over in operating funds.

Last year, the board got a lot of heat for refusing to raise dues the recommended $3.00 per month per household, from the B&F people. I think we did OK without that dues hike...(insert smug smile here).

So, here's my question to fellow California Directors...
Do we really by law HAVE to raise the dues every year for the sole purpose of reserve funding REGARDLESS of how well funded our reserves are?

Do we REALLY have to raise dues at all? Do we? I'm no expert, but I am an expert at tightening my family's budget belt and feeling the pinch.

I don't want to offend or insult these fellow volunteers who work hard to make our HOA run smoothly....BUT....on the other hand, I cannot help but wonder why last year when we gave them plenty of advanced warning that we didn't want to raise dues they still came back and pretty much rubber-stamped the staff's budget recommendations and got mad at the board for being such tight-wads. They predicted disaster if we did a no-dues increase, but the sky didn't fall, and everything that needed replacing or improving got funded, the staff still got raises and their fabulous health insurance...nothing changed as far as the quality of service or benefits that our homeowners deserve as members, so what's the big deal?

It feels sometimes as if the Budget and Finance guys have an attitude of "Why do you have to be such tight-wads? What's a buck or two increase per month?" Well, maybe they are personally well-funded in their personal reserves, but I happen to be a stay at home mother to two young children and the wife of a very brave man who works his tail off to pay our mortgage and hope and pray we have money left over to buy our prescriptions and not have to tell our kids they can't have another glass of milk or there won't be enough to put in their cereal tomorrow...

I know my family can't be the only ones in our HOA who don't have personal "reserves". I know we can't be the only family scared to death about the economy. Considering that as an HOA in California, and not knowing what kind of shennanigans our Governator and our house full of drunken sailor representatives will pull on us, I think raising our HOA dues ONE RED CENT more than we absolutely have to is a slap in the face to my neighbors.

Well, I don't post on this site often, but when I do, it's a novel...if you read all the way through, thanks, and thank you in advance for your help!
Lisa

Lisa, congratulations on keeping your fees in check, especially considering the current financial crisis that seems to be hurting almost everyone; although I would not operate this way until the need to raise dues becomes acute. A moderate increase every year would IMHO be better than a massive increase or special assessment. While there is a limit on how much dues can be raised each year, I can find no mandate to do so and I would ask the person claiming there is to provide proof.

A quick search of the D-S web site states:

FEE LIMITATIONS

Boards may not impose assessments or fees that exceed the amount necessary to defray the costs for which it is levied. Civil Code §1366.1

DUTY TO FUND RESERVES

There is no statute that specifically requires associations to fund their reserves. The Legislature has repeatedly amended the reserve statute and has had many opportunities to impose funding requirements. It has not done so. Instead, it keeps increasing notice requirements. Some argue there is an indirect requirement to fund reserves because boards have a duty to impose regular and special assessments sufficient to perform their obligations under the governing documents. Civil Code §1366(a) Setting aside sufficient funds to repair and replace major components is arguably one of those duties.

Lisa,

You really need to look at the reserve study you should have. Especially the items that are scheduled for repair or replacement in the coming year. Our Association was at 80% reserved two years ago. Then we had to refinish the pool. There were unexpected additions in that process. We are now down to 49% reserved, but we have only a few minor repairs and updates scheduled for the coming year. Also according to the Davis-Sterling Act a visual inspection has to accompany the reserve study a minimum of every 3 years with annual updates.

There is not statue in California that states you need to be at point reserved, but that you need reserves.

We increased our budget this year from $47 to $50 a month per unit. This increase was mainly from increases by our suppliers, but there was about $.40 left over that we will be adding to what we put in the reserves.

Lisa,

With a projected excess of +95,000 at year end, I can't imagine why raising dues would even be a consideration. If the board feels the reserves are a bit low they can deposit the excess revenue at year end(or a portion of it) into the reserve fund. In these times of economic hardship, I don't think it's wise for an HOA to be considering raising fees unless it's absolutely necessary.

Lisa,

Would you consider moving to a small town in Texas? I would like to get you on our city council.

Believe it or not, our PM thought we should consider raising our dues. Not because we need more money. But because she thought they should keep pace with other things in life and that if the dues are too law then it would attract unwanted owners.