SENATE BILL 1742: WHY MAKE THINGS SO DIFFICULT?

As you read this, there are competing bills in the House and Senate regarding changes to Florida condominium law.  House Bill 913 – And Senate Bill 1742.

As a result of the new condo laws that require larger payments by owners for reserves, many associations will have lots of cash on hand.  The question is…….can Board members invest that money any way they want?  Stocks, bonds, real estate, penny stocks, risky investments?  Florida Statute 718 never said what was allowed, other than to say that directors owed each owner a fiduciary duty.

So, Senate Bill 1742 attempts to give some guidance as to what is allowed and what isn’t allowed when it comes to investing reserve fund money. Here is what it says:

An association shall use its best efforts to make prudent investment decisions that carefully consider risk and return in an effort to maximize returns on invested funds.  As to reserve funds…..An association, may invest reserve funds in a community bank, savings bank, commercial bank, savings and loan association, or credit union as long as the amounts deposited are low enough to be insured by the FDIC.  NOW IF THE STATUTE STOPPED THERE IT WOULD BE PERFECT.  BUT IT DOESN’T.  It goes on and on and on to say:

The board shall create an investment committee composed of at least two board members and two-unit unit owners who are not board members.

It’s already difficult to get volunteers for the board and now we need a board and 2 more volunteers.  But it doesn’t stop there.  Here is where it becomes insane:

The board shall also adopt rules for invested funds, including, but not limited to, rules requiring periodic reviews of any investment manager’s performance;

The development of an investment policy statement, and that all meetings of the investment committee be recorded and made part of the official records of the association;

The investment policy statement developed pursuant to this paragraph must, at a minimum, address risk, liquidity, and benchmark measurements;

The investment policy must address: authorized classes of investments; authorized investment mixes; limitations on authority relating to investment transactions;

Requirements for projected reserve expenditures within, at minimum, the next 24 months to be held in cash or cash equivalents; projected expenditures relating to a mandatory structural inspection performed pursuant to Florida Statute 553.899; and protocols for proxy response;

The investment committee shall recommend investment advisers to the board, and the board shall select one of the recommended investment advisers to provide services to the association.

All I can say is:  what?  And it gets even more complicated after that!!!!!  I’m just telling you the easy stuff.  The investment adviser has all sorts of obligations too.

I’m picturing the average board of directors who are non lawyers and non accountants just volunteering their time, reading this statute, reading the new multitude of obligations, and just quitting the board once they read it.  Right there right on the spot.  Who needs this?

Here’s an idea.  Why not just stop this new statute at the first paragraph and say you can invest the funds in an investment that is FDIC insured ---- and stop there?  Why is all this necessary for the average Board member to comply with?  Why make something so complicated if you can make it so simple?  Require that the funds be put in a bank so that the principal can never go down.  The reserve money will always be there whether the market goes up or down and forget everything else that’s required.

While I have no doubt that the bill is well intentioned, it is overkill times ten.  I really want to know your thoughts on this.  Board members, are you ready to comply with the above requirements or would you be satisfied with a bill that says the reserves must simply be put in an account that is FDIC insured?