Sharper Management


Budget Season: Prepping for Spring

Many outdoor maintenance services are slowing down or stopping due to cold temperatures and winter being right around the corner, so now is the time to start budgeting for spring maintenance and repairs. If your board performed a property walk-through this summer, you’ll know what will need attention once the snow melts. If your roads, parking lots, or pathways weren’t in the best condition before fall came, they’ll only be worse when it warms up again. Due to the freeze-thaw effect, any cracks or potholes in the pavement will expand, causing further damage to the asphalt. Many paving companies honor 2021 pricing if your association signs now, but the work can’t be done until 2022. Proposals should also be requested for repairs to outdoor structures like fencing, decks, roofing, and siding. Winter storms may also damage structures that were in good shape before, so get in touch with a contractor immediately after to get it repaired in the spring. Big repairs aren’t the only type of maintenance that should be budgeted for—regular maintenance, such as lawn care, also requires your attention. Are you sticking with your current lawn mower contractor? Do you have a company doing landscaping and tree care, or is that also something you need for the spring? Anything that requires regular maintenance should be discussed. If budget is truly an issue for your HOA, prepare contracts for the most pressing repairs first. Review last year’s financial reports—are there other areas you can cut back in to allow for more money to go toward maintenance? When you’re budgeting this winter, don’t hesitate to reach out to Sharper Management for vendor referrals or any other questions!

Association Funds – Operating vs Reserve

As you create your HOA’s 2021 budget, make sure you plan on having more than enough money in both your reserve and operating funds. Having both funds full is important to maintain the upkeep of your community. But what is the difference between operating and reserve funds? And why can’t you just use one fund instead of two? Let’s break it down. Operating Funds are what is used for normal, day-to-day expenses such as lawn care, snow removal, repairs & maintenance, and more. The services classified as operating services are set by governing documents, so while there may be some variation as to what your HOA offers, most of them are the same. Reserve funds are funds used in an emergency, like storm damage. Most associations hire a professional to come and develop a reserve study, looking at your buildings and pavement and estimating when maintenance and replacements will need to be made. HOAs can then set a budget off of these estimates; if you will need a new roof in 2 years and new siding in 5, put more of your reserve funds into the “roof” section and less in the “siding” section since you will need your roof done sooner than your siding. Operating and reserve funds are just like checking and savings accounts. Most of your expenses will be paid via your checking account, but when there is an emergency like a major hailstorm or pavement damage, you dip into savings account. Having your money separated into these two accounts will help keep you within budget and spending money on the things that your HOA community needs to operate.

Association Funds – Operating vs Reserve

Since most association’s are on a calendar fiscal year, the Board of Directors and Management will soon begin, or have begun already, working on the 2019 Operating Budget. This budget, essentially, sets the “dues” – so we thought it would be a timely opportunity to explain the difference between the “operating budget” funds, vs the “replacement reserve” schedule and funds. Operating Budget – Each association varies, of course, but an overwhelming majority treat “operating” and “reserve” (or “capital”) funds differently. And they should.  Associations work within an operating budget to pay for necessities and recognized amenities. These items are set by the Governing Documents. Common examples include lawn care, landscaping, snow removal, insurance, management services, repairs and maintenance, utilities, amenity costs for pools or other recreation, etc.  These are the costs to run the association on a day-to-day basis. This budget makes up what becomes the homeowner’s assessment – commonly called “dues.” Little known fact – for most associations, did you know that the monthly “dues” payment is technically called an annual assessment?  The common practice is to break it up into 12 equal monthly installments and call them “dues.”  But, for most associations, the adopted operating budget and your share of those expenses (be it by ownership percentage in a condo or your equally divided share of the planned community) is legally recognized as yearly assessment. Reserve Fund – The association’s “reserve” or “capital” fund is essentially the savings account to pay for large replacement projects such as re-roofing, re-siding, concrete and asphalt replacement, etc. Most associations work off of a professionally developed “Reserve Study” that lays out the plan for which components should be replaced which year, and a funding plan to pay for those replacements. Now that you know the difference between the two funds – how do they work together?  The reserve fund is “contributed” to via an expense listed in the operating budget.  If the Reserve Study says in 2019 the association should contribute $120,000 to the Reserve Fund, typically each month the association will take $10,000 generated from the dues revenue and deposit into the Reserve Fund account. This is a set line item in the operating budget. It’s a lot like a savings and checking account.  You deposit your paycheck into your checking account which you use to pay your regular bills. It’s your “operating account.” You might also plan an amount each month you send to your savings or retirement account to pay for those big expenses down the road. It’s your “reserve account.” Hopefully this helps to explain two very different funds your association is working with.