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Thanks, but I AM confused about the color of money! I thought they were saying that if you segregate capital funds from regular (anything non-capital), there are benefits to the shareholders. Benefits like increasing the tax basis of their apartments so when they sell, the technical profit, and tax, will be lower. And also (maybe, I wasn't clear on this) that the building can apply for J51 credits for cap improvements. But, you have to tell shareholders up front that a portion of maintenance or the assessment, or however you're funding, is for capital improvements and then you would have keep that money separate from other funds to get the benefits (tax basis, J51 credits). And, your managing agent or accountant, would have to keep track of the maintenance or assessments earmarked for cap improvements.
If we don't have to keep it separate by account, it all becomes somewhat easier and clearer. But, if you don't keep it separate by account, you just indicate on reports which funds in the reserve are for what?
I don't mean CD but money market for an account to flow back and forth.
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You ought to have a meeting with your independent accountant to go over the best way to maximize your tax basis, etc. Also, the comptroller of your management office may provide you some guidance with regard to accounts, etc.
Your operating is kept in your checking and, sometimes, depending on collections and when you pay your bills, you may have a CD associated where you can sweep your account and call from it as required in order to maximize your interest.
Obviously, your reserves are kept separately and only tapped when necessary to do strictly capital, even in emergencies. Unless I don't know what you mean for emergencies, i.e., a major unexpected leak that forces the co-op to spend $50,000 to replace with enhancement of your parking roof (just by way of example).
Your operating budget should be as solid as possible to cover all your expenses during the year. The fact that some builidngs keep the maintenance artificially low and assess to cover deficits may be a problem if you are doing assessments to build reserves and at the same time patch deficits.
In our case, we have three accounts: the operating, a tax escrow to accummulate the surplus during those months in which we have no payments to do, then reserves. We flow monies from escrow to operating and viceversa in order to pay our taxes and insurance. However, the reserves are kept just for major emergencies and capital repairs.
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