How does the HOA budget work?
Posted on April 21, 2017 by wordpress_admin - No Comments
Every year, based on past years’ expenses, the management company draws up a proposed HOA budget for the following year. The HOA Board votes to amend and, ultimately, approve the budget. The past year’s finances are reviewed and the coming year’s budget is shared with homeowners at the Annual Meeting every December.
The HOA maintains both an operating account, for regular maintenance and planned expenses, and financial reserves, for large, planned expenses (e.g., roof replacement). In the event of large, unplanned expenses, the HOA can draw on reserve funds to avoid taking loans or levying a sudden, special assessment on homeowners. Replenishment of reserve funds then becomes a budgetary priority.
Homeowners receive a WCP monthly financial statement listing HOA income (primarily from homeowner remittances), HOA expenses (both monthly and year-to-date), and the level of the HOA’s financial reserves.
Every three years, the HOA Board performs a Reserve Study to assess the adequacy of the financial reserves. Specifically, the board establishes a committee of WCP residents, which may or may not include board members, and hires a reserve study specialist, who calculates the reserves needed to pay for major planned and unplanned maintenance. These include items such as repairs and replacement to asphalt , pool and Jacuzzi equipment, and landscape infrastructure. The calculation is based on estimates of the lifetime of a particular component and of its replacement cost. The HOA has traditionally funded reserves at 85%, effectively underweighting expenses that are projected more than a decade out.