Every Association, like a household, has a checking and savings account. These accounts hold the operating and reserve funds for a community. The management company opens the operating (checking) account to collect dues and pay for the services received by an Association.
Alaska state law prohibits any management company from keeping more than three months’ worth of community funds in the operating account. Additionally, state law requires a monthly statement to be sent to a member of the Board directly from the bank, allowing for complete transparency.
The reserve (savings) account for an Association is opened and maintained by the Board of Directors. The management company does not have access to the reserve funds for a community. The purpose of this money is to pay for larger projects, called “capital projects” or “component replacement” for the Association. Capital projects include painting, roofing, fences, tree care, etc. These items differ within each community, and a listing of Association responsibilities can be found in the governing documents.
The management company for a Condominium Association will recommend that a reserve study be performed and kept up to date. The study lists all the components that an Association is responsible for maintaining and replacing when they will need to be addressed and the estimated cost for replacement. The management company can then work with the Board of Directors to develop a plan to ensure that the physical components of an Association are taken care of, preventing deferred maintenance.
In a Homeowners Association, capital projects don’t typically occur yearly, meaning they often elect to invest the reserve funds into CDs or Bonds. By choosing these investment strategies, they can grow the communities’ funds at a higher rate of return.