Maine Alliance for Road Associations
Am interested in how Road Associations account for Surplus Funds at the end of their fiscal year. Have not seen any specific guidance in the Bylaws template or Maine law.
For HOAs, MRS Title 33, §1603-114. SURPLUS FUNDS says "Unless otherwise provided in the declaration, any surplus funds of the association remaining after payment of or provision for common expenses and any prepayment of reserves must be paid to the unit owners in proportion to their common expense liability or credited to them to reduce their future common expense assessments."
Absent any guidance in Bylaws, it would seem the prudent approach would be to set aside in a Reserve Fund separate from the Operating Budget and let the Membership determine value (e.g. target amount or maximum) use and access of these funds (e.g. discretion of the President, discretion of the Board, require Membership approval etc).
Here is an interesting article.
How To Handle HOA Surplus Funds | Clark Simson Miller
Appreciate recommendations -- thank you!
I appreciate your post on this topic, Tim. I agree with your recommendation for a reserve fund. It offers an ideal "home" for any budgetary surplus from the previous year and may be used to reduce the current year's allotment. Your references offer interesting ideas and guidance to private road associations but are applicable to Condominium and Home Owner Associations.
The Private Ways Statute, 23 M. R. S. §§ 3101-3104, is the Maine law that governs private road associations. Section 3101, 4-A. Road associations, states:
A road association under this subchapter through its commissioner or board may address present and future repair and maintenance of a private road, private way or bridge as authorized by the owners at meetings called and conducted pursuant to this section until the association is dissolved by a majority vote of its members.
I am not an attorney and suggest you run the following by your legal advisor. As you have noted, the Statute is silent on the disposal of surplus funds. Since road associations have the right to address "present and future repair and maintenance ... as authorized by the owners", I believe the Statute allows the establishment of a reserve fund for future road repair and maintenance. I suspect the courts may tolerate relatively high ceilings on the amounts permitted given the prevalence of severe weather patterns. I suggest this fund be authorized in the by-laws or by a vote of the owners at a duly called meeting of the association.
Our statutory road association approved a reserve fund several years ago to reduce the future need for large assessments to pay for major road repairs. Reserve fund allocations are part of the proposed budget voted on by owners at the Annual Meeting. Our operating funds are kept in a checking account for ready availability. The reserve funds are reported annually by the Treasurer and are kept in an associated savings account for periodic future use.
Thank you Sandy. Very helpful. I would appreciate reading your Bylaws to see how you have addressed surplus and a separate reserve account.
I don't wish to make it difficult to access the surplus or reserve accounts, especially for unforeseen and costly road repairs which could need to be addressed very quickly, but would like us to avoid thinking of surplus as an expansion of the current operating budget (where any surplus just flows into the next operating budget and is available to spend on anything).
Our road association began to include a line item in the proposed budget entitled “Reserves (Resurfacing, Infrastructure)” a year after we voted to approve the by-laws and become a statutory road association. Our by-laws, therefore, do not mention reserves. The need for reserves was apparent after we experienced a second road washout requiring consultation with an engineering firm, large twin culverts, major road repair, and a large assessment.
Our Vice-president prepared a position paper on reserve funds, detailing the reasons and recommending future funding. This report was presented to the membership prior to the annual meeting. The report was discussed and the line item above was approved by the owners with the proposed budget and has been included annually since then.
To your point about needing access to reserve funds between annual meetings ...
Our By-laws state that our 5-member Board “will have the authority to approve up to $1500 for unanticipated road maintenance expenditures between meetings.” Our annual meeting is in the fall. This allows the board to authorize funds to cover costs for most spring repairs. Also, under Article 5, Meetings, Section 4. Emergencies:
An emergency will be, but will not be limited to, untoward events causing the road to be unsafe or impassable for an unacceptable time period. The Board of Directors will declare an emergency and decide upon a course of action. When the course of action requires funds in excess of $1500, the Board will poll Members via telephone or e-mail and must obtain confirmation from a majority of the members for approval.
Under the above direction from the by-laws, the Board declared an emergency last spring to authorize funds for an unanticipated road repair expense exceeding the limit.
As to surplus funds...
Last year’s approved maintenance fees and actual expenses are clearly stated in the proposed budget. (Template may be seen on our Resources Page) This budget also includes anticipated expenses and the reserve fund allocation for the coming year. Surplus funds are not specifically identified, perhaps they should be, but all association funds are accounted for in the proposed budget to facilitate owner decision making.
Our by-laws further state:
The Treasurer will have custody of the receipts and disbursements. The funds of the Association will be held in a bank account assigning joint custody to the Treasurer and an owner member chosen by the President/Road Commissioner.
Currently, the Treasurer and I, as President, have joint custody of the bank account. We keep enough money in our checking account at all times to cover operating expenses for the coming year. Our members like to see a healthy balance in the Treasury. Any surplus funds are used to fund reserves and decrease member maintenance fees. The Vice-president, Treasurer, and I, with the awareness of other Board members, recently decided to keep the reserve funds in a separate account for ease of identification and accounting.
I agree with Sandy. Our road association has a similar take on it, except that we DO have a provision in our bylaws. It says:
F. CAPITAL IMPROVEMENT FUND
In the calendar year 2017 the FFRA will set up a separate high interest bank account for the purpose of large scale improvements to the FFRA (capital improvements ) the account will be started with $5000.00 left over from the 2016 fiscal year and for the years to come a minimum of 10% of the yearly income will be added to this account. More can be added by a vote at the annual meeting. The following items regulate this fund usage:
· The account will be set up to need two signatures to access the funds, The President and the Treasurer of the board of directors.
· The funds can only be used by a vote at the annual meeting or by a special meeting called by the board of directors.
· A 2/3 majority of those who are voting will be needed to approve the capital improvement at the annual or special meeting.
· Once this bylaw is accepted by the FFEA it will take a 2/3 majority of those who are voting to change or remove it
In the case of emergency repairs, the board of directors can access the funds up to 50% of the total account with a unanimous vote by the five member board. The board will notify the members of the FFRA by letter explaining the usage of the capital fund. A vote should be taken at the next annual meeting to determine if the funds should be replaced to the capital improvement fund out of the following years budget. A 2/3 majority will be needed not to replace the funds.
(Note - this wording was proposed by our President and accepted by the Members, but I don't know where he got the wording or if he ran it past an attorney or anyone. But it does seem to be working for us so far. Most years we have been able to vote to put extra into the fund from our surplus, beyond the required 10%.)
The Maine Alliance for Road Associations