Funding the ongoing operations of an HOA community stands out as one of the most critical functions of an HOA board — perhaps even the most pivotal. Ensuring the smooth running of day-to-day activities and planning for the long term is key to maintaining a steady flow of funds for a community’s effective functioning.
It is also an HOA board member’s duty to responsibly allocate funds according to guidelines outlined in a reserve study. This study addresses larger issues like roof replacements, new constructions, and other significant expenses.
Let’s break down the funds: Operating and Reserve Funds
HOA fees are typically directed towards:
- Every day and recurring expenses: These cover daily operations.
- Major repairs and replacements: Reserved for more extensive, long-term projects.
Operating funds cater to day-to-day needs, while the reserve fund tackles major or prolonged projects. It’s like running a household—operating funds in a checking account for daily expenses and a savings account for unexpected events or future repairs. It’s not just wise; it’s also a civil code requirement to keep these funds separate.
Operating fund
This fund covers services for day-to-day association functions, including:
- Contracted Services: Landscaping, maintenance, property management, and security.
- Insurance and Taxes
- Utility Expenses
- Office Expenses: Postage, supplies
- Accounting and Legal Fees
Actual fees for the past year provide a reliable basis for the upcoming budget. Keep expenses minimal, focusing on essential costs and actions.
Reserve fund
This fund addresses larger-scale projects such as replacements and repairs. Strict criteria govern its use, based on community rules and regulations. Some examples include:
- Roof replacements
- New pool pump
- Playground equipment
- Fencing replacement
- Community building painting
- Major landscaping
- Construction and renovations
Climate considerations for reserves
Given the changing climate scenario, our HOAs must seriously evaluate how operating and reserve budgets account for climate-related challenges. With rising sea levels, intensifying storms, and shifting tourism patterns, a forward-looking 30-year reserve plan becomes crucial, focusing on mitigation and resilience, not just disaster recovery.
While this is just a glimpse, refer to governing documents for a comprehensive list. As an HOA board member, managing the reserve fund involves preparing for major expenses. Having money set aside is ideal, but occasional special assessments might be necessary.
Fiduciary responsibility
Maintaining the separation and well-being of these funds is at the core of an HOA board member’s fiduciary responsibility. It’s not just an aspect of your job; it could be the most crucial part. The board’s duty is to cover community expenses, utilizing operating funds for day-to-day and reserves for significant outlays. Keep these funds distinct and in good standing .
