budgeting for capital projects in a non-for-profit

Hypothetically, if we needed to raise $1,000,000 for a down payment on a new facility could we do that by creating a new budget line directly for this over the course of a few years. For example, we add a new budget line called "Building Capital Fund" at $200,000 for 5 years to build up a $1,000,000 reserve to accomplish this. I was told by some people that this would be illegal (we get most of our money from the public sector- tax money) since we would be including it in our yearly budget but not expensing it in that year and just rolling it over to the next year. I was told you can't budget a surplus into a non-for-profit budget- even if that surplus is for a future capital investment which is related to the organizations stated purpose. The facility is directly related to our stated purpose

This post was last audited: 07/11/11 11:17am PDT

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Rolaine

Allstar

07/10/11 3:14pm PDT

You can't budget a surplus, but you usually can set aside funds known as restricted, or special purpose funding to be used as a down payment for a large capital purchase such as a new building. You didn't say what state you were in, so I can not tell you for sure how your state wants you to handle this situation but a lot of non-profits do similar stuff. In many states, there is legal guidance available to non-profit agencies through the state attorney general's office designated charities oversight board. Your state Certified pulic accountants trade association would also have this information. Many lawyers and accountants will provide a small amount of guidance in topics such as this one for free. Every state website can be reached through the url

www.state.__ __.us

substitute the two letter postal abbreviation for your state, and do a search on non-profit governanace.

The link for the national cpa trade association is below

http://www.aicpa.org/Pages/Default.aspx

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RHFDTREASURER1

New Member

07/10/11 3:28pm PDT

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Thank you. The state is New York btw. I think using the word surplus was a bad choice since I didn't really mean adding excess to the operating budget that i know is not going to be expensed. What I would like to do (and i believe this is what you were talking about) is create a whole new budget line outside of "operating budget" that deals strictly with building up a reserve for a down payment on a building. So essentially i would be creating two budgets- operating (which would handle all yearly expenses) and "Building Reserve" (which would set aside money for a down payment on a building a few years down the road). The issue was I was told that total revenue cannot differ signifacantly from total expenditures in one year when it comes to a non-for profit. For instance, if i had a 1,000,000 operating budget and a $200,000 building reserve budget (total revenue being $1,200,000), at the end of the year i would show around $1,000,000 in expenditures with the excess $200,000 being kept soley to build up a reserve to put a down payment. We would not be claiming the excess $200,000 as operating surplus but as money for future capital investments.

essentially, we cannot afford a down payment just after one year of budgeting...it would need to be excessive years (around 10 most likely) of capital reserve build ups in order to afford it. I was told i cannot run such a reserve.

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