Requirements of a HOA planned commnity
I have a few questions regarding a planned community HOA in AZ.
1. By law, how long must the financial records for the HOA be maintained?
2. How much money can the operating fund have in excess of the budgeted expenditures when the current year’s budget is fully funded by the current year’s assessments?
3. What % of funding must always be maintained in a reserve? What % of funding would be deemed excessive for a reserve?
4. If two assessments are paid by the HOA residents and one is tagged as Street Repair Assessment due to the expected large future outlay needed for the street repair, is a separate reserve account required to account for the monies collected for the street repair? If not, how do you insure that the street repair monies are not spent for something else and then not available when the street repair is needed? Can the HOA assess a special assessment to the same residents for street repairs when the street repair money that was collected has been spent on other things?
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You have a lot in this question. Technically the operating account is used to fund the anticipated financial needs of the association and to contribute to the necessary reserves for long term maintenance and capital expenditures. The long-term reserves can be retained in one fund or in several specific funds. If you have a street fund then you would need either one or more funds to deal with the long-term maintenance and upgrade of any other common property in the community. No reserve funds can ever be used to fund annual operating expenses. and no reserve funds can ever be used to fund any other long-term maintenance other than what the fund is designated too. You cannot use road funds to pay for repairs to other common areas.
If you have a onetime short fall in operating funds, then the board can authorize a supplemental assessment to cover the shortfall. If you end the year with a surplus in the operating account, it must either be returned to the members or used to offset assessments in the following year. All of this is in IRS regulation for these communities.
Financial records should be retained permanently as should all community documents and board meeting minutes.
The association is authorized to raise whatever money they need to run the association for a year no more and no less.
Relative to reserve funding that issue is very complicated but can best be explained in a very simple concept. You need to know what and when long term maintenance will be needed and then make sure that your raised enough money so that maintenance can be done when planned. You want to factor in inflation and interest earned on any money raised in prior years. Just in time funding is all you really need. Professional reserve study companies will draw a lot of grafts and pictures and convoluted reports and talk in terms of % funded all of which is totally meaningless and a total waste of time and money.
The association has a fiduciary responsibility to the community to preserve and protect the financial assets of the association and to have the discipline not to spend money on stuff that it was not intended to pay for. When an association board has no discipline in its spending habits is breeching its duty to the association and can be held personally liable for those actions. Liability indemnification does not extend to breach of duty by board members.