Flush with Cash What You Need to Know About Surplus Funding

 In December 2008, the National Bureau of Economic Research announced that the  United States was in a recession that had started back in December 2007. The  official announcement was old news for most Americans.  

 Most financially savvy individuals, homeowners, property management firms, and  association board members started feeling the effects of the economic downturn  in 2006, when property values began falling from the record highs enjoyed in  the early 2000s. The fall of housing prices cut deeply into home building and  home purchases. The corresponding sharp rise in foreclosures resulted in the  loss of hundreds of billions of dollars among the nation's leading banks and a  tightening on credit options. Association boards and property managers faced  the daunting task of keeping HOA budgets balanced in the face of drastic  reserve losses and rising operating expenses.  

 Tough Times

 The bad news is that foreclosures and budgets remain a significant concern for  many homeowner associations, unit owners and managers. Despite this reality,  many boards still realize a budget surplus. Too much money is never a problem,  how best to manage it is, explains David Ferullo, CPA for the Red Bank-based  The Curchin Group. “It is not common to have large current year operating surpluses since unit  owners would begin to question the board’s budgeting and start to question the need to do annual assessment increases,” says Ferullo.  

 A number of variables could also contribute to a budget surplus. For example, a  capital improvement project budgeted from the previous year may have been  completed ahead of schedule and at a savings. Additionally, allotted monies for  snow removal might not have been used. This scenario played out last year. The  freak 2011 Halloween snowstorm prepared people for a forecasted severe 2012  winter season; however, there were hardly any other major snow events.  

 “For the last several years many associations increased their snow removal budget  and, for good reason,” says Jules Frankel, CPA with the East Brunswick accounting firm of Wilkin & Guttenplan, PC. “The problem is if a board uses that surplus for another reason and there is an  unusual amount of snow in November and December of that year, there is no money  to pay for the services requiring a possible special assessment.” Frankel adds, “It’s also important to note that it is only considered a budget surplus if the  board planned it, otherwise it is a surplus at the end of the year, which are  two different things.”  

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