A PEER PERSPECTIVE
Creating a Financial History of Your HOA
O
ur HOA created a lengthy financial history that has provided useful information for our board and members in comparing current and future budgets, checking on reserve study data, examining special assessments, and deciding on current capital spending. The existence of organized information created from past spending data can greatly complement the monetary decisions made by your board. We all know that ‘money’ is usually a principal topic – and concern – of home owners associations, whether it is the fiscal decision-making of the board or discussions with members who must pay monthly fees and special assessments.
Why is a Financial History Important? A common problem, perhaps faced by your board, is the lack of historical data of HOA finances. When does this missing data become important? • Suppose it is time for you to adopt a budget for ‘next’ year. Hypothetically all members might remember that the budget went up 9% last year but not recall that there were no increases for the three years before that. A financial history can contain that information. • Suppose the reserve study needs to include the projected cost for the controls of the fire protection system. While your reserve study 26
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vendor can supply a cost, it would be helpful to be able to review HOA records of the actual past cost, to verify replacement date, and to review information on the vendor who last replaced the controls. A financial history can contain that information. • Suppose a member of your HOA sells their unit. Working with their tax advisor they can potentially offset taxes on the sale (assuming rising real estate prices), if they have appropriate data available on capital expenditures for common areas during the period of their ownership. They probably are aware of past special assessments; however, it is unlikely they are aware of other common area capital expenses paid from reserve funds that would, if known, be potentially useful in reducing tax obligations. A financial history can contain that information, while at the same time leaving tax questions to be answered by your member’s tax advisor.
