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27 Cards in this Set

  • Front
  • Back
budget
financial plan of organization; estimate of revenue and expenses; establish what services will be provided, when and how they will be done
federal laws and budget
some budget items are mandated by fed or state laws; such as Fannie Mae, Freddie Mac, FHA
revenue
revenue = amounts of income which are appropriate for public expenses
sources of revenue
1. owner assessments
2. interest (from savings and investments)
3. penalty fees (from violations, reimbursements for legal fees and lien filings, late payment fees)
4. user fees (parking space rentals, laundry mahcine use)
5. other (rent from lease, charge for resale packageS)
expenses
cost of goods and services used to operate and maintain property
three types of expenses
1. operating expenses (occur on a regular basis, i.e. utilities, contract services, repairs, personnel costs)
2. major improvement expenses (i.e. adding street lights; not required but are added to imrpove overall welfare or safety)
3. replacement fund
replacement fund
funds put aside, i.e. in reserve, for the replacement of major components of a community's common property (i.e. asphalt, balconies)
reasons for maintaining a replacement fund
meets legal, fiduciary and professional requirements (may be required by Fannie Mae/Freddie Mac, gov docs)

provides for planned replacement of major items; equalizes contributions of old and new owners; minimizes need for special assessments; enhances resale values
funding goals
how much is "enough"? $100,000 may be excessive, adequate, or not enough, depending on community
percent funded
allows an association to measure the relative size of their reserves as compared to a 'fully funded' reserve balance
three types of funding
baseline

full

threshold
baseline funding
establishing a reserve funding goal of keeping reserve cash balance above zero

most aggressive, characterized by lower reserve contributions and balances, also the riskiest/greatest potential for special assessments
full funding
goal of attaining and maintaining reserves at or near 100% funded

conservative, characterized by higher reserve contributions and balances; least likelihood of special assessments
threshold funding
goal of keeping reserve balance above a specified dollar or percent funded amount; minimum figure is chosen, below which reservew ill never drop

moderate plan
line items
each line in a budget represents a different account or category of revenue or expense
mandatory line items
based on community and owner needs; they are requirements that the community is obligated to meet; i.e. income taxes, repairs, utilities and maintenance
discretionary line items
based on owner, board, committee desires; based on items people would like to have
chart of accounts
organized list of titles, descriptions and assigned numbers of all accounts
two methods of operating budget preparation
zero-base budgeting

historical trend budgeting
zero-base budgeting
all line items set to zero and the amount of funds alloted to each must be justified
historical trend budgeting
begins with assumption that existing line items are needed; amount of funds allotted is adjusted for expected changes in coming year
reserve study
budget planning tool that considers current status of replacement fund and determines a stable/equitable funding plan to offset anticipated future major common area expenditures
consequences of not having a reserve study
underfunding - special assessments, bank loans, deferred maintenance

overfunding - paying too much for the benefit of future owners

board member liability - exposure to claims of fiscal irresponsibility
updating reserve study
each line item should be updated each year using new current cost, new estimated remaining life, and new funds on hand
reserve specialist
use an experienced, qualified person to prepare reserve study
- reduced liability exposure
- independence/no conflict of interest
-focus (allows manager/board to concentrate on running association)
-credibility/accuracy
calculating replacement fund budget line items
this year's budget line item = (current replacement cost - funds on hand)/remaining useful life in years
reserve cash flow statement
shows amount to be funded and the amount to be expended from the replacement fund over a given period of time