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27 Cards in this Set
- Front
- Back
budget
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financial plan of organization; estimate of revenue and expenses; establish what services will be provided, when and how they will be done
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federal laws and budget
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some budget items are mandated by fed or state laws; such as Fannie Mae, Freddie Mac, FHA
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revenue
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revenue = amounts of income which are appropriate for public expenses
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sources of revenue
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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) |
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expenses
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cost of goods and services used to operate and maintain property
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three types of expenses
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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 |
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replacement fund
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funds put aside, i.e. in reserve, for the replacement of major components of a community's common property (i.e. asphalt, balconies)
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reasons for maintaining a replacement fund
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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 |
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funding goals
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how much is "enough"? $100,000 may be excessive, adequate, or not enough, depending on community
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percent funded
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allows an association to measure the relative size of their reserves as compared to a 'fully funded' reserve balance
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three types of funding
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baseline
full threshold |
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baseline funding
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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 |
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full funding
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goal of attaining and maintaining reserves at or near 100% funded
conservative, characterized by higher reserve contributions and balances; least likelihood of special assessments |
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threshold funding
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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 |
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line items
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each line in a budget represents a different account or category of revenue or expense
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mandatory line items
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based on community and owner needs; they are requirements that the community is obligated to meet; i.e. income taxes, repairs, utilities and maintenance
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discretionary line items
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based on owner, board, committee desires; based on items people would like to have
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chart of accounts
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organized list of titles, descriptions and assigned numbers of all accounts
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two methods of operating budget preparation
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zero-base budgeting
historical trend budgeting |
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zero-base budgeting
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all line items set to zero and the amount of funds alloted to each must be justified
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historical trend budgeting
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begins with assumption that existing line items are needed; amount of funds allotted is adjusted for expected changes in coming year
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reserve study
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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
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consequences of not having a reserve study
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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 |
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updating reserve study
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each line item should be updated each year using new current cost, new estimated remaining life, and new funds on hand
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reserve specialist
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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 |
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calculating replacement fund budget line items
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this year's budget line item = (current replacement cost - funds on hand)/remaining useful life in years
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reserve cash flow statement
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shows amount to be funded and the amount to be expended from the replacement fund over a given period of time
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