Reserve funding is one of the most overlooked areas in association budgets. If an association has excess funds when preparing the annual budget, it must look to see if it has properly budgeted for reserves. Every association should be budgeting for reserves based on a reserve study. All associations should have a reserve study prepared every three to five years, preferably by a professional engineering firm. At budget time each year, the board of directors needs to review and update the reserve study, as well as the reserve funding schedule. This update should be based upon what actually happened during the past years compared to what the reserve study stipulated, so reserves can be properly budgeted. After the board has reviewed the reserve study, it may decide to perform additional repairs that can extend the life of a common element component. If the life of a common element component is extended, the board can budget less for this item going forward and instead use the excess budgeted income in the current year for repairs. An association’s annual budget should provide a designated, detailed, itemization for the allocation of its budgeted reserve funds.

If an association properly budgets to include the items mentioned above, it may not end up with any excess operating income, but

THE ICING ON THE CAKE WILL TASTE MUCH BETTER WHEN THE BUDGET IS BALANCED EVERY YEAR OR WHEN EXCESS FUNDS ARE AVAILABLE FOR THE FUTURE NEEDS OF THE ASSOCIATION.

46 | COMMON INTEREST®

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