I am a director and at a recent directors seminar the speaker said that this line item could not be placed in regular reserves but if I understood him correctly a special reserve fund could be established. Would you comment on this please?
A short lesson in budgets: The board must create three distinct budgets: the income budget, the operational budget, and the reserve budget. The income budget equals the sum of the reserve budget and the operational budget. The operational budget is the sum of all known and estimated expenses for the coming 12 months. To help boards to correctly calculate the reserve budget, the state has published a book: www.myfloridalicense.com/dbpr/lsc/documents/BudgetsandReserves.Master06092010.pdf.
It can be downloaded in a PDF file or you can call 850-488-1122 and ask for the Budget and Reserve Handbook.
As to the recommendations that you received at the seminar: I believe he was referring to a line item in the reserve budget. This would mean that each year your total collected would be placed in a separate account to be used in the event of a disaster.
Using the figures in your question, you should establish a reserve account to cover deductibles of approximately $336,000. Your $5,000 a year is totally inadequate. At only $5,000 a year, it would take more than 67 years to cover $336,000. Your owners need to be aware that in the event of an emergency, a special assessment would be needed to cover expenses.
I would further suggest that you engage professionals to assist you with budgets and that you acquire a reserve study from a professional.
While it may not appear that such common areas could be damaged, a natural or man-made disaster could rip holes in your roads and sidewalks or cause injury. If trees are planted in the common areas, they could be blown over and fall down. A wall or signage at your entrance could be damaged by a vehicle. The homeowners association needs to ensure the common areas. Obviously if your association has buildings, swimming pools, or recreation facilities, it’s even more critical to have insurance coverage.
For questions about insurance coverage, the board should seek advice from your attorney and insurance agent.
I suspect you will say that the board may need to be voted out; I fully agree. The most qualified owner to run the operation does not wish to do so. Question: what is the Florida statute that covers this issue?