What should HOA boards do with surplus funds?
BOCA RATON, Fla. – Dec. 19, 2016 – Question: I live in a homeowners' association, and I have a question concerning me: (1) what is the Board supposed to do when there is a surplus of funds at the end of the fiscal year.
Answer: Board of Directors has a few options when actual expenses are less than anticipated at the end of the fiscal year. The Board can carry over the surplus to the next fiscal year to reduce assessments, or keep them flat to offset an increase, all of which depends on the forecast of expenses for the next fiscal year.
Another option is to refund the surplus to the members. This option is usually not recommended because the Board might be forced to levy a special assessment if projected expenses for the next fiscal year are less than actual expenses.
After years of running 7 different homeowners associations, I found the above to be quite a common occurrence. Reserve funds continue to grow and I have always seen Boards struggle to know where this money should go. Another piece of advice is to put together a long term plan. ( 30 years ) and know what anticipated capital expenditures the Association will face such as roofs, staining, gutters etc.. After examining this cost, another possible option is for the members to vote on investing a portion of the reserves. Some governing docs will not allow this but to earn even 1% on a treasury bill or bond is better than the money sitting in an account doing nothing.
I also will contradict the above statement a little. If the money is not earmarked for a project and the reserves continue to grow, returning a potion of the funds to the members seems to make good sense. After all...... ITS THEIR MONEY!!!