Manage Association Funds Wisely
With deteriorating bank balance sheets and the lowering of the bank ratings, we are reminded that Boards of Directors have a statutory and fiduciary duty to maintain and invest community association funds wisely and safely. With the current low yields and lower assessment revenues there may be a tendency for some associations to want to forget that the Florida statutes are quite clear about commingling, investing and reporting when it comes to your association funds.
Associations are allowed to commingle funds (operating and reserve) for investment purposes only. However, these funds have to be accounted for and reported separately. Chapter 718.111(14) goes on to say “a commingled account shall not, at any time, be less than the amount identified as reserve funds.” This has become a more frequent occurrence as associations have depleted their operating accounts, savings and in some cases, borrowed from their reserves. Reserve funds are of a great importance to the association, but lacking in the statute is what happens when this occurs. I will assume that they would require the association to replace this imbalance in terms of a special assessment in order to correct the situation.
Regarding any earnings on the reserve funds, Chapter 718.112(2)(F)(3) states that “reserve funds and any interest accruing thereon shall remain in the reserve account or accounts, and shall be used only for authorized reserve expenditures unless their use for other purposes is approved in advance by a majority vote at a duly called meeting of the association.” Some associations have (by necessity) had to use those earnings for operating expenses. Remember, that unit owners will have to provide authorization for this to happen, as those earnings are classified as well as reserve funds.
Boards of Directors of homeowner associations are guided in this area as well by Chapter 720.303 (6) Budgets. This section addresses these issues in the same manner and with the same restrictions as Chapter 718.
Regarding investing for safety, associations should use good business judgment when it comes to investing. Stay away from banks that are loosing their ratings, check this with Bankrate.com here. Presently, associations are all allowed to invest up to $250,000 with FDIC Insurance. If associations have more than that to invest, spread these over several institutions in order to stay under the $250,000 threshold and also stagger their maturity dates, in case the funds have to be used, without penalty.
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