Budget Development

Our HOA is beginning the Budget process for 2012. We have over 1800 homes in the community. I was just elected to the Board this year and would be interested in knowing how other conduct this process. In past years we have sometimes had 2 different budgets presented to the Board; one from the Manager/bookkeeper and the other from the Finance Committee. Often as not the Manager's version was approved and the Finance Committee work went for not. I feel the budget process should be a series of "workshops" consisting of both Manager and Finance Committee and Board representatives. There is animosity between some Board members toward the Finance Committee which consists of some very experienced people. I have great respect and appreciation for the work performed by the Manager and Bookkeeper but feel they shouldn't be driving OUR budget. Again, would like to hear the approach taken by those who have dealt this with process. Also, how much involve should the Board have in the process? Thanks.

Melissa,

Thanks. I know it the Boards responsibility to present and approve the budget. My question is who should be developing it. We have a Manager, not a management company. I think the Finance Committee should be putting this together with information received from the bookkeeper and Manager. As I said, I think the Managers have always but it together but I'd like to see this changed. However, I think this might lead to issues among us Board members. Trying to see if other communities have their managers putting together the budget or a committee.

In our association the finance committee prepares a draft budget for review and approval by the board. The board treasurer attends all of the meetings of the finance committee and so does the general manager (an employee of the association). We only contact with a management company for financial support (eg. collection of dues, bookkeeping, production of monthly financial statements, etc.).

I am the chairman of the finance committee. We see our role as staff to the board and general manager. They provide general guidance to us and we do all of the detailed data gathering. We gather requirements from the other committees such as Landscape & Grounds, Facilities Maintenance and work directly with individuals like the activities director to obtain budget requirements.

We prepare and utilize a Basis of Estimate format for each budget line item. This format contains the actual audited expenses for the line item in each of the three previous years, the current year budget and the actual expenses thru May of the current year. It has fields for the new year's budget request and the monthly phasing of those costs. There are two narrative sections: one for the assumptions and/or calculations that support the amount requested. The other is for a written justification for any increase over the prior year being requested.

Each member of the finance committee is assigned responsibility for a particular subset of the line items. That member works in concert with the relevant committee or individual to prepare the form. Any BOE submitted without an adequate basis of estimate description and justification (in the collective opinion of the committee) is not included in the draft budget. If the requirement can be substantiated later, then funds may be allocated from the operating contingency by the board. Our goal is to initially budget an operating contingency of between 10 and 15% of the annual assessments.

Other than providing supporting data such as vendor invoices or prior year accounting data, our management company plays no role in the budget preparation process.

Having a Finance or Budget Committee prepare the budget is way I think it should be done. As I noted, believe the Managers have completed the budget yearly since the community began more than 15 years ago. Like everything else, the general feeling is "if it isn't broke, don't fix it". I believe this applies in some areas but not for the budget.

Here the manager and staff put a budget together which address pay rates for employees. I know the Board can change that but it is hasn't in the past. It seems to me that the Manager should have input but their purpose is to manage the community within the confines of a budget prepared by the owners.

Thanks to those who have commented on this issue.

Our management company prepares our budget (I'd love for us to have a finance or budget committee to help with the process but we can't find homeowners willing to volunteer for ANYTHING around here - but that's another thread).

Anyway, our board reviews bids from various vendors (we send out requests for bids in August) and make our selections, which may raise or lower a line item. As treasurer, I also try to track the line items to see why some have increased or decreased and how they need to be tweaked. We also send a survey to homeowners to see what type of changes they'd like to see, which will impact the budget (even though we didn't get any responses to last year's survey, we'll try again) and have encouraged them to advise us of vendors who might want to submit a bid.

Our manager will then give us several budgets based on all these talks - one without a fee increase, another at the current fee, and perhaps two or three with fee increases at various levels, since the board can increase fees up to 5% over the current year's fee (anything higher requires homeowner approval). We debate, vote on the final version and send an itemized budget to the homeowners with payment coupons reflecting the new fee.

As for the animosity between some of your board members and the finance committee, you didn't say how many "some" is, but I would think the committee is there to make recommedations to the board, which makes the final decision. If the committee members have proven their competence, but some board members are unhappy with what they're doing, they need to be specific in their concerns. Nothing's stopping those member from sitting in on a committee meeting to see what's going on, but they need to sit quietly and LISTEN to the proceedings and let these folks do their jobs. If they want to do their own research on various issues, such as shopping around for Association insurance, that's ok, too (you may want to give them certain parameters to work under so you compare apples to apples)