Management Co and Budget

Started by JeanW2 • 13 replies • 1947 views

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JeanW2 (California)
Posts: 8

Posted:

I have been a member (CFO) of our (CA) HOA Board for the past year. I have personally "hawked" every penny spent and prevented the HOA from spending one cent more than it had to as a result. Received a letter from our Management Co in the mail dated 12/5 that the "Board" approved the budget for 2007 - with no increase, because of our, "due diligence, etc. etc." No one on the Board ever saw this letter, let alone appoved it.

Can the Management Company DO THIS?!? Can the Management Company be held liable if, in fact, the dues DO need to be raised - if only 20%?"

Thanks,
Jean

BrianB (California)
Posts: 2,820

Posted:

IMO, no. the board is responsible for the budget. they can ask the management company to estimate one, provide one, etc., but the board MUST put their approval on it. Period.

And honestly, no, you can't hold the management company responsible... you can fire them, but the board is responsible for what goes on, bottom line. if they ignore that responsibiity, tough... it's still theirs. The board is the same as President Truman: the buck stops there.

GeraldT1 (<Not Specified>)
Posts: 519

Posted:

JeanW2,

The Board should have final approval of notices to owners, including but not limited to financial information. Your contract with Management should stipulate this and violation should be considered termination with cause. If you institute this, I doubt it will happen again. Reign your MC in as politely as possible, but do so in contract as well.

No increase in maintenance is foolish, IMO. Construction costs have risen a minimum of 18% in the last 3 years and rising, cost of living increase is apprx. 3.4% annually (or something like that).

Best of success!!
GeraldT1
NNJ

RogerB (Colorado)
Posts: 5,067

Posted:

Jean, what didn't the Board approve, the letter or the budget? The Manging Agent prepares the budget and the Board approves the budget. So if the Board approved the budget then your complaint is with the Board and the letter is in recognition for your efforts. If the Board did not approve the budget then the MC screwed up.

GeraldT1 (<Not Specified>)
Posts: 519

Posted:

RogerB,

Are you suggesting the MC has the right to editorialize the Board's activities?

GeraldT1
NNJ

RogerB (Colorado)
Posts: 5,067

Posted:

No Gerald, but they may have that authority depending on their Management Agreement. I'm just trying to clarify the problem: 1) receiving a letter from the MC not authorized by the Board; or 2) the MC is so ignorant that they thought they had the authority to approve the Budget.

IMO the second justifies looking for a new MC.

BradP (Kansas)
Posts: 2,640

Posted:

Jean:

You hired the MC, they don't have the authority to pass a budget if the board didn't approve it. It would be like me going to my boss and saying this is my budget for the year, doesn't work that way, he has to approve it.

RonaldW (South Carolina)
Posts: 901

Posted:

...... if, in fact, the dues DO need to be raised - if only 20%? .........

Not to change the subject, but I believe it's unwise to operate so closely to your expected revenue. There should be enough in a reserve fund to cover unexpected expenses. More importantly, dues should be high enough to pay for items that will eventually need replacement such as mechanical equipment, roofs, paving, painting, etc. (it varies with the type of association).

Example: - In our area, a condo is facing costs for major repairs to roofs walls, etc. They will need to take out a loan to do so and double the dues to pay off the loan. Many are complaining that they won't be able to afford the increse and will be forced out.

In all fairness, those who have been living in the buildings during the years the roof and walls were wearing out should have been paying into a reserve fund to cover the depreciation.

Back on subject, the management company works for the BOD, not the other way around. You tell them what to do, they do it.

Ron
SC

PatrickH (California)
Posts: 204

Posted:

Jean, I would respectfully disagree with Roger's statement that the property manager should make the budget. That should be the job of the Treasurer and the Board. If they want input from the property manager, that's fine, but they should be making the decisions for every item in the budget.

The letter from the magagement company is fine as long as the Board had already approved a new budget for 2007. If the Board hadn't approved a new budget for 2007 yet, then the manager messed up big time by sending out that letter.

As other folks posted, you should be looking at increasing the dues at least at the rate of inflation.

RogerB (Colorado)
Posts: 5,067

Posted:

Patrick, sorry but I did not say "the property manager should make the budget". I agree with your other comments except increasing the assessment. Increases only need to be done when necessary. As has previously been discussed, some associations have not increased in over ten years.

FWIW most of our management agreements require us to provide a DRAFT annual budget at least 60 days prior to the annual meeting. The Board reviews, modifies as desired, and approves the budget. The members ratify the budget, or turn it down, at the annual meeting.

GlenL (Ohio)
Posts: 5,491

Posted:

Jean, what are your dues now? A 20% increase of $10.00 is only $2.00 but a 20% increase of $200.00 is $40.00. While I agree that fees shouldn't be raised just to raise them; if you have to jump the fees by 20% it seems that you waited too long for an increase. And no the MC shouldn't have sent such a letter without the BOD's approval. If you have to raise fees this year, you are really going to have your work cut out explaining it to the homeowners. You can always tell them that the MC got your Association mixed up with another and sent the wrong letter.

Roger, you said something about having the membership vote on the budget, which from some of the other posts in the forum is not unusual or is even the law in certain states. What do you do if the homeowners won't approve one because it will raise their fees? There is only so much that can be cut before the property starts deteriorating. Or many posts lament being able to get a quorum for meetings and I would assume that you would need at least a simple majority to approve the budget.

Studies show that 5 out of 4 people have problems with fractions

RogerB (Colorado)
Posts: 5,067

Posted:

Posted By GlenL on 12/13/2006 11:41 AM
Roger, you said something about having the membership vote on the budget, which from some of the other posts in the forum is not unusual or is even the law in certain states. What do you do if the homeowners won't approve one because it will raise their fees? There is only so much that can be cut before the property starts deteriorating. Or many posts lament being able to get a quorum for meetings and I would assume that you would need at least a simple majority to approve the budget.

Glen, I have addressed this several times on this forum. First of all these problems do not exist in the HOAs we manage with the exception of getting enough proxies to have a quorum. Most budgets, when properly explained, have received unanimous approval. The only problems we have encountered occured when the previous management company did not provide sufficient information to the Board on reserve fund needs. Then it can take awhile to catch up.

If the members will not ratify the annual budget after carefully explaining each line item, then the Board needs to listen to them and prepare another budget, call a special members meeting, and get it ratified. With apathy and sufficient proxies the Board can get enough votes for a simple majority budget approval.

PatrickH (California)
Posts: 204

Posted:

Roger,

I was surprised to read that you are required to prepare draft budgets for your HOAs. My apologies.

I live in Orange County, California, where just about everyone lives in an HOA. I was a Treasurer and know several Treasurers on other Boards and we always prepared the draft budget ourselves or with another Board member. Perhaps it's not part of the standard management contract around here to have the MC prepare a draft budget.

Now, you have to share some tips as to how an association can go five or more years without raising the dues! Here in SoCal, the costs for utilities, maintenance, building materials and labor go up almost every year. Three years ago, we were paying about $ 25 per tree to have them trimmed, this year it's $ 30. Not a big difference until you multiply that by 300 trees. Our insurance costs has gone up steadily as the replacement costs for our buildings has gone from $ 14 Million in 1998 to just over $ 20 Million today.

Any "tricks of the trade" would be greatly appreciated!

RogerB (Colorado)
Posts: 5,067

Posted:

Patrick, try developing a list of quality low cost contractors. To save money we find small companies who do better work for much less money than large companies. Often the owner is with their crew doing the work.

One example was trimming trees and clearing brush from a drainage canal in a greenbelt. We found a company to do this for 20% of the cost of the contractor which the HOA Board had planned to use. In another case we found a landscaper who did a large project for less than half the price of what other companies bid. I even went to the wholesale nursery with the owner to hand pick trees. Shopping for better and cheaper insurance, management companies, etc. - there are many ways to save. We try to save each HOA we manage more than we are paid.

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