Special assessments and major projects

Funding a major project

A special assessment is a charge to owners beyond the regular assessment, levied for a specific purpose. Associations also borrow, through a loan or a line of credit, and repay the debt from future assessments.

Whatever the source, the board needs to be able to show where the money came from, what it was spent on, and what is left.

How special assessments are accounted for

How a special assessment is recorded depends on its stated purpose, the governing documents, and the board's resolution. An assessment levied to fund reserves is generally reported in the reserve fund. One levied to cover an operating shortfall is generally reported in the operating fund. Special assessment collections and spending can also be accounted for in a separate Special Assessment Fund.

Amounts billed but not yet collected are receivables. Amounts collected for work not yet performed may be reported as a liability until the work is done, depending on how the assessment is structured.

What the annual report must disclose

For condominiums, Rule 61B-22.006 requires the financial statements to disclose the purpose, amount, and disposition of special assessments.

SIRS funding: assessments, loans, and lines of credit

A condominium that must obtain a structural integrity reserve study (SIRS) may fund the required reserves through regular assessments, special assessments, lines of credit, or loans. A special assessment, line of credit, or loan for this purpose requires approval by a majority of the total voting interests.

The statute is specific about reporting: the special assessment, line of credit, or loan, and related details, must be included in the annual financial statement required under s. 718.111(13). The same information must be given to prospective purchasers.

Some associations are excluded from these provisions, including developer-controlled associations and associations under owner control for less than one year. Ask your association's attorney whether they apply to yours.

Tracking project spending

Clear records during the project make the year-end report simpler and more useful to owners. These are recommendations, not requirements. We recommend that you:

• Record special assessment billings and collections separately from regular assessments.
• Keep project funds in a separate bank account, or track them as a separate account in the general ledger.
• Keep the contract, change orders, and invoices for each project together. It helps to record each payment against the project.
• Compare spending with the project budget regularly. It helps to note any change to the scope or cost.
• For a loan or line of credit, keep the agreement and each statement showing draws, payments, interest, and the balance.

Keeping owners informed

Owners paying a special assessment want to know how it is being used. The annual financial report is one answer, through the disclosures above. Between reports:

• A condominium with 25 or more units, or an HOA with 100 or more parcels, must post the annual financial report and any monthly income or expense statement to be considered at a meeting on its website or app.
• Project updates at board meetings, with spending compared with the project budget, help owners follow the work.

The posting rules are summarized on Florida reporting requirements.

Effects on the report and the budget

• The level of the report. Florida bases the minimum report on total annual revenues. A large special assessment can raise revenues for the year and may move the association into a higher tier. See which report your association needs.
• Reserve balances. When a project is funded from reserves or from an assessment levied for reserves, the reserve disclosures show the money coming in and going out.
• Future budgets. Loan or line of credit payments, and any reserves rebuilt after a project, appear in the budgets that follow.

Procedures belong with counsel

Whether the board can levy a special assessment, what notice and vote are required, how it is collected, and what happens when an owner does not pay are legal questions. They depend on the statutes and your governing documents. Ask your association's attorney.

Financial reporting also does not replace the engineering work behind a project. Reserve studies, SIRS, and milestone inspections are performed by qualified professionals, not by your CPA.