Fund Balance

The total amount of money held in an association's fund at a given point in time, as reported on the balance sheet. Most HOAs maintain at least two distinct fund balances: the operating fund balance (money available for day-to-day expenses) and the reserve fund balance (money saved for future capital expenditures identified in the reserve study). Some associations also maintain separate fund balances for specific purposes such as litigation, insurance deductibles, or capital improvement projects. The operating fund balance should generally equal one to three months of operating expenses to provide adequate working capital. The reserve fund balance is evaluated using the percent funded metric — the ratio of the current reserve balance to the ideal (fully funded) balance. A reserve fund balance at or above 70% funded is considered financially healthy, while below 30% is considered poorly funded. In California, the annual budget report required by Civil Code Section 5300 must disclose the current reserve fund balance, the percent funded level, and a summary of the reserve study's funding plan. Fund balances change over time as assessments are collected, expenses are paid, interest is earned, and reserve expenditures are made. Boards should monitor fund balances monthly and compare them to budgeted projections. Declining fund balances may indicate that assessments are too low, delinquency rates are too high, or spending is exceeding the budget.