Cash Accounts

Our HOA uses three “cash” accounts: operating, working capital, and reserve. In summary:

1. Operating Account

• Purpose: Covers the HOA’s day-to-day expenses and routine operational costs.
• Funding Source: Primarily funded through monthly HOA dues.
• Typical Uses:
  • Maintenance and repairs (e.g., landscaping, rot repair, painting)
  • Utility bills (e.g., water, sewer, and electricity for common elements)
  • Administrative costs (e.g., insurance, management, and legal fees)
• Liquidity: Highly liquid (checking account) as it is used frequently for regular expenses.

2. Working Capital

• Purpose: Provides buffer funds for unplanned, short-term expenses or emergencies that arise outside the scope of the regular budget. Working capital helps the HOA maintain a positive cash flow.
• Funding Sources: The Initial Sale Contribution which is the one-time payment when a new homeowner joins, late fees, and Net Income at year end (if any).
• Typical Uses:
  • Unexpected repairs or maintenance (e.g., leaks, replace dehumidifier, sump pump)
  • Cash flow assistance during periods of project management or low operating balance.
• Liquidity: A deposit account that requires general ledger entries to access (no checks).
• Comment: Acts as a cushion or emergency fund for short-term needs. Working capital helps keep operations running smoothly without drawing on reserves.

3. Reserve Fund

• Purpose: Allocated for long-term repairs and major replacements of capital assets, such as roofs, paving, storm drains, and other community infrastructure that naturally deteriorate over time.
• Funding Source: Primarily funded through a portion of homeowner dues, and it may also receive additional funds from special assessments if necessary. Starting 2025 the amount will be informed by a reserve study (SPS) that anticipates future major expenses.
• Typical Uses:
  • Capital improvements and replacements (e.g., roof replacement, repaving)
  • Large-scale projects or one-time costs, like structural remediation of framing deficiencies.
• Liquidity: Less liquid than operating or working capital funds. Currently our reserve funds are invested in a FDIC insured CD “ladder”.
• Comment: Serves a role similar to a savings account designated for future large expenses, ensuring the HOA can maintain property value without resorting to emergency measures like special assessments.

Comparison Summary

These funds work together to keep the HOA financially stable and ensure the community is well-maintained without placing unexpected financial burdens on homeowners.