Budgeting and financial planning are one of the most important aspects to keep the community running strong. While most homeowner associations operate with only two funds—operating and reserve—our association is well-funded and well-positioned with six funds. The six funds are the Storm Reserve Fund, Community Enhancement Fund, General Fund, Repair and Replacement (i.e. Reserve) Fund, ARB Fund, and Operating Fund.
The operating fund is used for the maintenance of the association’s assets and for the expenses associated with the day-to-day activities of the association. Most of the financial transactions occur in this fund. The reserve fund is a savings account. In this fund, the homeowners’ association saves money for costly repairs and replacements of common property.
Several years ago, the Finance Committee set up the Repair & Replacement Fund, Storm Fund, CEF Fund, and ARB Fund. The money in these funds are restricted per PDPOA’s covenants or designated by the Finance Committee and Board to pay back compliance deposits. On April 30th, these funds totaled approximately $10.1 million. The money in the Operating and General Funds are not restricted or designated. Below is a brief summary of each fund.
Storm Reserve Fund
The 2004 amendment to the covenants created the Storm Reserve Fund and the ability of PDPOA to assess property owners to contribute to this fund both before and after a natural disaster. The Storm Reserve Fund is intended, and its use is limited, to cover unbudgeted and unexpected expenses because of a storm or other natural disaster.
Once the Storm Reserve Fund achieved a level of two million dollars in collected member assessments, the right to assess ceased until the Storm Reserve Fund falls under such a level. Since the Storm Reserve Fund reached two million dollars, the balance in the Storm Reserve Fund may vary year to year based on the investment income and gain or loss in PDPOA’s investment portfolio. The income associated with this fund is investment income and the storm assessment.
The 2006 amendment to the covenants established the Community Enhancement Fee Fund. The amendment granted PDPOA the authority to assess a transfer fee on all property sales within Palmetto Dunes. The Community Enhancement Fee shall not exceed 0.5% of the gross selling price. Currently, the Board has in place a 0.5% Community Enhancement Fee. This fee is intended to address major new improvements that would enhance the overall appearance, safety, and functionality of Palmetto Dunes. The fee paid upon the transfer of title of each residential property and investment income are the projected inflows.
The General Fund is funded primarily by the net operating balance that has been generated from operations over the years. This fund can be used for all PDPOA purposes to include supporting operating shortfalls, shortfalls in other reserve funds, and any other Board approved projects. Management’s long-term goal for this fund is to maintain a balance equal to one year’s annual residential/commercial assessment. This protective reserve can sustain ongoing operations in the event of major damage to property, interruption of the collection of revenues, or another unforeseen occurrence.
Repair and Replacement Fund
The Repair and Replacement Fund collects monies to be used for the repair and replacement of specific common area components identified in the reserve study. A reserve study evaluates the condition of major assets and amenities, estimates when they will need to be repaired or replaced, and how much that will cost. PDPOA’s reserve study identifies all common area components that have a useful life of 3 to 30 plus years that are PDPOA’s responsibility to repair and replace. Ideally, a homeowners’ association wants to have a 100% funded repair and replacement fund. This means the homeowners’ association has enough money to cover all anticipated costs. However, industry experts state that having at least 60% to 70% funded is sufficient.
Since PDPOA cannot special access the members, management and the Finance Committee strive to keep the 30-year percent funded between 60% and 70%. Based off this percent funded, management recommends an annual transfer from the operating fund to the repair and replacement fund.
To prolong the life of PDPOA’s major assets, the Property Operations department tries to stay on top of the preventive maintenance for each asset and monitors the wear and tear of the assets.
This fund is used to accumulate compliance deposits collected by the Architecture Review Board.
As mentioned above, the Operating Fund is used to cover the day to day operations of PDPOA. The covenants require that PDPOA provide a permanent fund to provide services important to the development and preservation of an attractive community appearance and further, to maintain the privacy, security, and general safety of the residential communities in Palmetto Dunes. The majority of operating funds are collected early in the fiscal year for use during the remainder of the year. At the end of each calendar year, the Finance Committee will review the balances in the Operating fund and decide if any transfers should be made to other funds.
The residential assessment is accounted for in the Operating Fund. Each year, management and the Finance Committee review the residential assessment. It is difficult to compare the residential assessment for Palmetto Dunes to neighboring communities because the assessment depends on the number of homes, types of services provided, and amenities available.