The Difference Between HOA Operating and Reserve Funds
Many decisions a homeowners’ association (HOA) have to make hinge on their financial state. HOAs typically operate within two kinds of budgets: operating funds and reserve funds. Budgeting and arranging finances are some of the most important duties an HOA board can have and can be the difference between a successful community and an unsuccessful one. A skilled Tampa HOA management company can help assist your HOA board with budgeting services to keep your community running strong.
The operating fund acts as a checking account for the HOA. This is money meant to cover regular expenses, either those that are expected or recurring. The amount of money in the fund is based on the needs of regular services like landscaping and security. Additionally, taxes are accounted for in the operating fund.
The board needs to prepare the budget every year including estimated revenues and expected expenses. It depends on the HOA’s governing documents whether the board will vote on the budget or if the vote includes the owners. While your HOA’s documents decide who votes, Florida law decides who is able to attend the vote. Section 720.303(2)(a) of the Florida Homeowners’ Association Act, states that any meeting must be open to all owners and the board must give notice of the meeting 14 days prior to the meeting.
The Florida Homeowners’ Association Act also provides guidelines for establishing a reserve fund but doing so is not mandatory. If your HOA has one, the reserve budget acts as a savings account for large projects that don’t happen annually. Major repairs and projects are funded through this fund. The reserve fund might be used for roof replacement, major landscaping changes, or replacing community signage.
The HOA statutory reserve fund can be established by the developer or it can be a mandatory reserve created by a vote of the HOA board. The fund may also be a non-statutory reserve account, which means it is not subject to Section 720.303(6)(d) of the Florida Homeowners’ Association Act. With either fund, voting determines what the funds are used for and if the funds can be utilized for an unexpected purpose. The funds are usually dedicated based on a formula estimating the useful life of different elements on the property and planned maintenance.
In some situations, instead of the reserve budget funding a project, a special assessment may be needed to pay for major projects.