Condo Association Management Blog

Foolish especially in Florida. Your reserves are extremely low and it would be wiser to build equity and save for the ultimate rainy day. Stable monthly fees and strong reserves also build home value especially in today's weak climate. More people are educated today and take a hard look at financial before buying. Smart up.

Part of this depends on the accounting standard used. If your association is using the accural basis, unless you are reading it correctly, there may not be a surplus. (Are all the liabilities listed? Are they correct? Often, in accrual, it is the best guess until the actual bill comes in for some expenses.) If it is a cash basis or modified cash basis, that is typically easier to read. However, it appears from your post that you are looking at monthly monies. What you should be looking at is yearly. In Operations, some months you will have a surplus becuase some months, operations are lighter. Other months, operations are probably more. As a manager, when I budget with Associations, I do a 12 month spread and some months, the income for that month is not adequate to cover reserves. It is understood that some months, you will have excess to cover teh months where it is not adequate.  
 
What I often advise is what the previous poster said - that it is better to put surplus into reserves and/or contingency funds. If your association is ahead on the planned capital/reserve expenses and has more reserves than forecasted (and you would only know that with a reserve study) then fees may be able to remain stable until such time as costs rise. 
 
There is an expense to returning money and cutting checks to homeowners and there is a cost (usually hidden) to reducing fees. Is it better to return monies or cut fees with the possibility that an unplanned event occurs or expenses suddenly rise, and you have to assess for those costs? Then people get mad and say "You should have kept the money! or You should have kept fees the same!" It is better to apply surpluses to reserves and keep the fee stable than it is to be handing out checks or cutting fees. In fact, some management companies could rightfully charge an additional fee for the additional work. After all, it is more time and effort to write out and mail checks.  
 
A large part of this is communication. The board should be explaining what it is doing and why, and if there are surpluses at the end of the fiscal year (and not just carryover for unpaid expenses) then it should be explained what the board is planning to do with those funds, such as applying it to reserves or possibly funding an improvement/upgrade to existing infrastructure that will increase curb appeal and shared values. For example, your common entrance beds. Let's say they have not been updated in 20 years and look dated. This would be a good use of a surplus - in a tough market, you improve something that attracts homebuyers to your community. 
 
68 owners, 6800 dollars - that is $100 a year. That is less than $10 a month. I'd rather keep the fee the same and when costs rise to that $6,800, not have an increase then. 
 
I know it is a lot to think about, but trust me, it works out much better in the end than cutting everyone a pittance check or lowering the fee and then turning around and having to ask for it back.

What do your documents say regarding any surplus? Read them -if they are silent on this issue write a certified letter to the the board requesting that it be an agenda item. That way it can become an issue that must be dealt with. 
 
I agree with Tony that your reserves are very small and if asked I would recommend that it be added to your general reserve.

There is only a requirement for the members to vote on whether to return a surplus to the members or carry it forward IF the HOA files the corp. tax return, 1120, instead of the HOA tax form 1120H. IMO, it's wise to take the money and put it into your reserve account, especially if yours is a condo assn. I also agree with J.Schuirmann, the board should not even be considering anything until year-end. A net profit or loss shown at any given month end can be very misleading, whether on an accrual or cash basis.

On the other hand - - excess monies in the hands of property management companies or Board Members is like giving our government excess monies. . . they will always find a way to SPEND IT.  
 
In my opinion, LOWER maintenance fees bring MORE buyers (for those trying to sell) !!! And in these tough times that makes all the difference. . .  
 
 
 

Florida has VERY SPECIFIC requirements regarding operating budgets and reserve budgets. A wise Board will NEVER look at a budget based on a single months activity, also, reserves are items expensed over years. If an annual budget is reviewed and found sufficient and the reserves budget is also in good condition, then there should be no "excess" monies. Something is wrong with your budget, something is either being overlooked and not funded and it results in an excess or your budget is to strong. In any case you should identify why there is an issue and correct it with the next annual budget; if this means applying a surplus to the next years budget, so be it! If it is incorrectly funding to some particular fund, then fix it. I am not an attorney or CPA, but I would NEVER refund money to owners, wouldn't even suggest it. Roll any access over,(done by proxy vote), and apply it to your next years budget. Basically as you might be suggesting. 
 
This might help: 
Florida Statute 718.112(2)(f) provides that condominium association budgets must be detailed and show amounts budgeted by accounts and expense classifications. Administrative Rule 61B-22.003 further specifies that an estimated condo operating budget must:  
A) State the estimated common expenses or expenditures on at least an annual basis.  
B) Disclose the beginning and ending dates of the period covered by the budget.  
C) Show the total assessment for different unit types on a monthly basis (or however assessed).  
D) Include all estimated expenditures, which must include the categories set forth in Florida Statute 718.504(21)(c). If one of these categories is not applicable, it must still be listed, but indicated to be not applicable.  
E) Include proposed reserves for capital expenditures and deferred maintenance at full funding.  
 
Proposed reserves must show a separate line item indicating: 
A) The total estimated useful life of the component.  
B) The estimated remaining useful life.  
C) The estimated replacement costs or deferred maintenance costs.  
D) The estimated fund balance at the beginning of the budget period.  
 
Additionally, if the present budget is incorrect, then in Florida, your can request a Special Meeting of the Membership to proposed a budget of your own or ask for a modification of the existing budget. This meeting is specific, Budget Only. Can't request it if budget is over 120 days old. there's lots of info at myflorida.com.

SOME OF YOU ARE MISSING MY QUESTION.0UR RESERVE FUNDS ARE FINE.I JUST WANT TO KNOW WHO DECIDES WHAT TO DO WITH SUPLUS MONEY AT THE END OF FISCAL YEAR.?MY UNDERSTANDING IS THAT THE UNIT OWNERS MAKE THUS DECISION BY MAJORITY VOTE AND NOT THE BOARD MAKING THIS DECISION THIS IS SURPLUS LEFT OVER FROM OUR OPERATING BUDGET.

Who makes the decision regarding the surplus is a function of your HOA documents. Usually, the board can increase the fee by 15% to 20% without owner approval, but I have never read any restrictions with regard to lowering the fee. 
 
 
 
More importantly, owners and board members are not communicating. You should have a financial planning meeting (nothing else on the agenda) in which you discuss and agree upon your HOA's long-term financial strategy (property managers will rarely, if ever, discuss this with you). Here is an outline of what we decided at our financial planning meeting: 
 
 
 
Operating-charge just enough to cover budgeted opertating expenses. Other income (laundry room and storage rental) represents operating profit to cover emergencies 
 
 
 
Reserves-our goal is to maintain a balance of at least 75% of the annual recommended balance per our reserve study.  
 
 
 
Contingencies-you may want to set aside money for repairs not included in the reserve study and not covered by insurance. We decided not to create such a fund. 
 
 
 
All this is documented in minutes, and a copy was given to every owner. We update our plan annually based upon personal finances, the condition of our building, an analysis of whether or not our fee is competitive with similar HOAs in our area, etc. 
 
 
 
This is an issue of communication and planning as a community, not statutes, IRS code sections, and hiring lawyers.