Flush with Cash What You Need to Know About Surplus Funding

In December 2008, the National Bureau of Economic Research announced that the United States was in a recession that had started back in December 2007. The official announcement was old news for most Americans.

Most financially savvy individuals, homeowners, property management firms, and association board members started feeling the effects of the economic downturn in 2006, when property values began falling from the record highs enjoyed in the early 2000s. The fall of housing prices cut deeply into home building and home purchases. The corresponding sharp rise in foreclosures resulted in the loss of hundreds of billions of dollars among the nation's leading banks and a tightening on credit options. Association boards and property managers faced the daunting task of keeping HOA budgets balanced in the face of drastic reserve losses and rising operating expenses.

Moving Forward

The current recession remains the longest downturn since the Great Depression of the 1930's. It has been widely accepted that the housing market slump was both a cause, and a predictor of the recession’s broader economic troubles. Those troubles are still evident despite the belief by many that the worst is behind us. Former President Bill Clinton recently stated, “Whenever you have a financial collapse and a real estate collapse, [recovery] is almost always out there at 10 years."

Using the former president’s formula, and the 2006 date as a starting point, we can place full economic recovery well in the future. So if it is too soon to relax association budget constraints, is it too soon to note a “surplus” in some HOA and COA budgets? Maybe not!

A surplus is defined as being in excess of what is needed or required, or excess receipts over expenditures, during a certain time period. While association budgeting is an ongoing effort requiring monthly reports and adjustments most HOAs work with in an annual budget time period.

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