There are generally two areas of the annual budget:
- the Operating accounts for utilities, landscaping, legal fees, common area maintenance etc.;
- and the Reserve accounts for future (long term component) replacements such as exterior painting, re-roofing, re-paving, pool resurfacing, replacement of mechanical systems, etc. The individual assessment amount is usually determined by the number of units, homes or town homes built within a given Association. Thereafter, the Board of Directors of the Association determines the needs of the Association and the ensuing budgets (with the assistance of the property manager).
To summarize, your monthly assessment covers the operation, maintenance and repairs for which the association is obligated in accordance with the Covenants, Conditions & Restrictions (CC&Rs). Items such as insurance, taxes, water, electricity, refuse collection, landscaping, pest control, security services, janitorial, etc. are just a few items covered by the monthly assessments.
A portion of your monthly assessment should go towards funding the reserve account, which is for future repair or replacement of major components. Think of a reserve account as a savings account for a rainy day. Roof repair, pool/spa resurfacing, fencing, painting, floor covering, mechanical replacement (i.e. sump pumps), major mechanical systems repair, etc. are just a few of the long term components that are funded via the reserve account. The reserves vary for each community association.