Risk & Business Magazine JGS Insurance Risk & Business Magazine Summer 2018 | Page 6

ASSOCIATION FUNDING
BY: ROSS E. RUTMAN, CLCS
ASSISTANT VICE PRESIDENT, JGS INSURANCE
Association Funding
I
s your Association properly funded?
Most likely it is not! Funding
Community Association operations
is the most vital responsibility of
every Association Board, yet so many
Associations struggle with this. Proper
oversight of day-to-day operations as well
as long-term projects provides peace of
mind to the owners and the Association
that there will be adequate funding to run
the community effectively. Businesses in
New Jersey are required to respond to a data
breach quickly
Board members have a fiduciary
responsibility to make sure Association
funds are properly allocated. A logical and
realistic budget must be created using actual
expenses and Reserve Study guidelines.
A Reserve Study is a report (typically
completed by a specialist or an engineer)
that takes a deep dive into all aspects of
an Association and its responsibilities,
especially large-scale issues such as roof
replacement, road paving or other large
expenditures. A Board might see a domino
effect if they fail to get a Reserve Study
in place or if the study is not followed
or updated as time goes on. Association
property runs the risk of falling into
disrepair, which may result from a Board’s
bad management or lack of oversight on the
community.
Typically, maintenance fees are allocated
to paying everyday/reoccurring expenses
or major repairs/replacements. There are
basically two types of funds you will deal
with in your Association. The day-to-day
operations should be taken care of by your
operating fund. The large-scale or long-
term projects are handled by the reserve
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fund. Consider how this setup is similar
to how you most likely use your household
checking and savings accounts. • Roof replacement or painting
of common buildings (i.e.,
condominiums, clubhouse)
Operating fund: This fund is used to pay
for the services that help carry out the day-
to-day operations of the Association. These
include but are not limited to the following: • Work on amenities, such as the
community pool
•
•
•
• New playground equipment
•
•
•
•
•
The most expensive contracted
services such as landscaping, snow
removal, property management and
lifestyle services, pool expenses,
general maintenance of common
areas, security services, and of course
insurance.
Office expenses (paper, toner, postage, etc.)
Accounting
Utilities
Legal Fees
The actual fees for one year will be a good
indication of the next year’s proposed
budget. Of course, it’s wise to keep expenses
to a minimum and focus on necessary costs
and actions.
Reserve fund: This fund is used for
large-scale or long-term projects, such as
replacement and/or repair of Association
property. This money typically has strict
criteria for how it can be used based on
Association rules and regulations and
bylaws. The best way to look at the reserve
fund is to understand that it is used to pay
for expenditures that do not occur on an
annual basis. Please keep in mind there
could be hundreds of such projects, and
every Association is unique, however, some
examples of reserve fund uses are:
Fence replacement for common areas
Major landscaping projects
Construction or major renovations for
road and sidewalk projects
Remember to check your Governing
Documents and Reserve Studies!
As a Board member you have several
important roles. But if you start with proper
funding, the other tasks will certainly come
more easily. It is important to have money
set aside for major expenditures. Although
a special assessment may still be required,
in many cases they can be avoided. Keep in
mind all the potential issues that take p