WHAT YOU DON’T KNOW YOU DON’T KNOW
There is no universally “correct” answer to the straight-line versus pooled reserve question. The best choice truly depends upon the association’s specific circumstances: Condominiums, cooperatives, and HOAs may budget for reserves using either the straight-line or pooled method, provided that the reserves are properly established. There may be additional requirements set forth in a community association’s governing documents and the specific statute within Chapter 720 governing that association. Associations should always consult legal counsel before changing from the straight-line to pooled reserves or vice versa.
To gain a different perspective on the topic of reserve funding would be to consider it in the context of an investment to maintain the assets of the association. As stated earlier in part 2, the association’s primary responsibility is to preserve the assets of the corporation using the authority granted to it by the State of Florida. These assets are represented by the dollar difference in the value of any given home versus the additional value resulting from the market value of that home, given the benefit derived from being part of the association as a whole. It is this additional value for each and every home (also referred to as Members Equity) that the association is charged with preserving via the funding of our reserves. This is the investment the association continually makes over time to overcome the deterioration of these assets. Examples would be the various amenities owned by every association member, such as, a clubhouse, a golf course, a swimming pool or other items that contribute to the ambiance of that community. It is this intangible ambiance that provides the “curb appeal” of a community to prospective buyers.
There is another aspect for the use of reserve funds that may be necessary to employ if there are insufficient funds in the operating account to pay bills in a timely fashion. Instead of borrowing an amount to cover a shortfall of immediately available funds, the association members may vote, on an annual basis, to temporarily borrow funds from the reserves and thus avoid interest charges from a bank that would normally be associated with a loan.
After searching the Florida Statutes regarding the specifics of borrowing from the reserves, I have come to the conclusion that those specifics are determined by the wording of the question put forth by the board to the membership of the association. By this I mean under what framework does the membership decide whether borrowing should be permitted and when must those funds be returned to the reserves. Since the reserves are normally held in an interest-bearing account, those voting on the question of borrowing funds from the reserves to the operating account must realize that some of the interest these funds would normally earn must be sacrificed should it become necessary to maintain a positive cash flow balance in the operating account. The actual movement of those funds to the operating account is dependent upon the result of the homeowner members’ voting result, not a vote by the board of directors. Since this movement will result in loss of some interest that would have been earned, the transfer of these funds should only be done when absolutely necessary to prevent exhausting the operating account balance. In practice, while the authority to move these funds comes from the voting result of the association membership, the responsibility to execute this transfer normally rests with a coordinated effort by the board and the association management company.
EPILOGUE
In this endeavor, I have tried to provide an overview of some of the many facets of homeowner topics relating to campaigning for a board of director position and governing a homeowners’ association in Florida. It was never intended to be comprehensive treatise on the topic, but merely a very brief synopsis of what we have experienced in the past 13 years here at our Sabal Springs Golf & Racquet Club.
My hope is that I have piqued your interest and caused you to ponder various challenges that may lead you to consider a future role for yourself as a key player in the governing of our community.
Editor’s Note: A sincere thank you to Gerry for his comprehensive and thoughtful approach to educating us and providing clarity around complex concepts related to HOA board governance.
