WHITE PAPER
SOME FUNDAMENTALS OF ISLES FINANCE
HOA finances can be confusing. It is necessary to be clear about a few fundamentals. Some of this comes from the Florida “HOA Law,” contained in Florida Statute Chapter 720.
Regular Assessments are the fees paid periodically (quarterly in The Isles) for maintenance of the common HOA property. In The Isles, an additional charge is included for “Home Landscape.” Historically, this varies according to the lot size. All other charges are applied equally. Regular Assessments are based on an Annual Budget required by state law.
Community Expenses vs. Neighborhood Expenses & Landscape Expenses: Community Expenses are those which accrue to the entire HOA, such as landscaping of common areas, and the cost of management. Neighborhood Expenses are costs that apply only to a specified group of homes. The original Declaration said every home was to be in a Neighborhood which facilitated uneven allocation of landscaping costs. The document revision completed in April, 2017. removed all Neighborhoods except the Lakeview condominiums. This had some unfortunate consequences when attempting to assess for home landscaping, so the documents were again revised in late 2017 to introduce "Landscape Expenses" and "Types of Dwellings." "Neighborhood Expenses" now refer only to charges that apply exclusively to Lakeview Condominiums.
Special Assessments can be levied to pay for unexpected or underfunded maintenance, and for new or improved facilities. They are usually not desirable because they come as a surprise to homeowners and may reflect a failure in normal financial management. The Isles has never levied a Special Assessment. It has, however, voted to use excess operating funds for capital improvements, specifically for the Pool GeoThermal heating system. This action has the same effect as a Special Assessment because it removes funds intended for common maintenance and applies them to a purpose which would otherwise require a Special Assessment. Excess operating funds have also been applied to other capital projects without formal approval. This includes painting (inside and out) and new shutters for the Town Center and expansion of the Pool Deck. At present, any Special Assessment in The Isles requires Membership approval. A proposal to allow the Board to levy Special Assessments of up to $500 per home yearly was rejected by the Membership at the 2017 Annual Meeting.
Reserves is a term often misused. It is NOT accumulated net income. It consists of funds collected with the Regular Assessment and set aside for the specific purpose of providing deferred maintenance and repairs, such as replacement of a roof or periodic painting of a common building. The amounts included in the budget are the result of a formal determination called a “Reserve Study” performed by a licensed professional. The purpose of Reserves is to avoid necessity for Special Assessments. HOAs are not legally required to establish Reserves, but once declared, they must be maintained. Once collected for a specific purpose, Reserves can not be used for any alternate purpose except by vote of the membership. The Isles has Reserve accounts for twenty different purposes.
Pooling of Reserves: It is allowable for Reserve accounts to be “pooled” into fewer accounts, even into a single account, either when the account(s) are established, or by Membership vote. Pooling provides flexibility when specific items require replacement ahead of expectations. When Reserves are kept in multiple accounts, the probable need for a Special Assessment is increased because funds from one account may not be used to satisfy the needs of another.
Operating Fund Balance: This is money accumulated over previous years as a result of not spending money collected as Regular Assessments. Because it was collected for the purpose of general maintenance, it can not be spent legally for other purposes, such as capital improvements, without Membership approval. The Isles has been using some of its Operating Fund Balance to reduce Regular Assessments. When these funds are depleted, it will be necessary to either reduce the budget or increase assessments to cover the entire budget.
BOD Discretionary Spending: While the Board and its appointed Manager are allowed and expected to spend money on budgeted expenses (See Policy) without further oversight by the Membership, there may be times when non-budgeted expenditures need to be considered. Under our documents, the Board is allowed to approve such expenditures up to a capped amount that is a percentage of current budget. Historically, this has been one percent (1%). A proposal to increase this cap to 3% (originally proposed as 5%) was rejected at the 2017 Annual Meeting.
SOME FUNDAMENTALS OF ISLES FINANCE
HOA finances can be confusing. It is necessary to be clear about a few fundamentals. Some of this comes from the Florida “HOA Law,” contained in Florida Statute Chapter 720.
Regular Assessments are the fees paid periodically (quarterly in The Isles) for maintenance of the common HOA property. In The Isles, an additional charge is included for “Home Landscape.” Historically, this varies according to the lot size. All other charges are applied equally. Regular Assessments are based on an Annual Budget required by state law.
Community Expenses vs. Neighborhood Expenses & Landscape Expenses: Community Expenses are those which accrue to the entire HOA, such as landscaping of common areas, and the cost of management. Neighborhood Expenses are costs that apply only to a specified group of homes. The original Declaration said every home was to be in a Neighborhood which facilitated uneven allocation of landscaping costs. The document revision completed in April, 2017. removed all Neighborhoods except the Lakeview condominiums. This had some unfortunate consequences when attempting to assess for home landscaping, so the documents were again revised in late 2017 to introduce "Landscape Expenses" and "Types of Dwellings." "Neighborhood Expenses" now refer only to charges that apply exclusively to Lakeview Condominiums.
Special Assessments can be levied to pay for unexpected or underfunded maintenance, and for new or improved facilities. They are usually not desirable because they come as a surprise to homeowners and may reflect a failure in normal financial management. The Isles has never levied a Special Assessment. It has, however, voted to use excess operating funds for capital improvements, specifically for the Pool GeoThermal heating system. This action has the same effect as a Special Assessment because it removes funds intended for common maintenance and applies them to a purpose which would otherwise require a Special Assessment. Excess operating funds have also been applied to other capital projects without formal approval. This includes painting (inside and out) and new shutters for the Town Center and expansion of the Pool Deck. At present, any Special Assessment in The Isles requires Membership approval. A proposal to allow the Board to levy Special Assessments of up to $500 per home yearly was rejected by the Membership at the 2017 Annual Meeting.
Reserves is a term often misused. It is NOT accumulated net income. It consists of funds collected with the Regular Assessment and set aside for the specific purpose of providing deferred maintenance and repairs, such as replacement of a roof or periodic painting of a common building. The amounts included in the budget are the result of a formal determination called a “Reserve Study” performed by a licensed professional. The purpose of Reserves is to avoid necessity for Special Assessments. HOAs are not legally required to establish Reserves, but once declared, they must be maintained. Once collected for a specific purpose, Reserves can not be used for any alternate purpose except by vote of the membership. The Isles has Reserve accounts for twenty different purposes.
Pooling of Reserves: It is allowable for Reserve accounts to be “pooled” into fewer accounts, even into a single account, either when the account(s) are established, or by Membership vote. Pooling provides flexibility when specific items require replacement ahead of expectations. When Reserves are kept in multiple accounts, the probable need for a Special Assessment is increased because funds from one account may not be used to satisfy the needs of another.
Operating Fund Balance: This is money accumulated over previous years as a result of not spending money collected as Regular Assessments. Because it was collected for the purpose of general maintenance, it can not be spent legally for other purposes, such as capital improvements, without Membership approval. The Isles has been using some of its Operating Fund Balance to reduce Regular Assessments. When these funds are depleted, it will be necessary to either reduce the budget or increase assessments to cover the entire budget.
BOD Discretionary Spending: While the Board and its appointed Manager are allowed and expected to spend money on budgeted expenses (See Policy) without further oversight by the Membership, there may be times when non-budgeted expenditures need to be considered. Under our documents, the Board is allowed to approve such expenditures up to a capped amount that is a percentage of current budget. Historically, this has been one percent (1%). A proposal to increase this cap to 3% (originally proposed as 5%) was rejected at the 2017 Annual Meeting.