DIVERTING RESERVE CONTRIBUTIONS

Once the board has adopted a funding plan, it must follow it. However, there may be instances when there are unexpected operational expenses, such as a significant increase in insurance premiums at the time of renewal. If that occurs, some boards opt to stop funding the reserves and use that money to cover operations.

Diverting reserve contributions to other uses is the same as borrowing from reserves. Before diverting the funds, the board must provide notice of its intent to transfer funds in a noticed meeting of the board. If the board authorizes the transfer, the board must issue a written finding, recorded in the board's minutes, explaining the reasons the transfer is needed and describing when and how the moneys will be repaid to the reserve fund. Civil Code §1365.5(c)(2)

Updated by ADAMS KESSLER 11/13/2007