annual Budget

Last year the board that was in place came up with a budget. This was our first year and they were not aware of the many things that were needed to keep a community running. This year with fresh faces and everyone on the board chipping in all previous experience it has come to the attention of the board that the previous budget in no way will help to run the community. the things that were forgotten in the previous budget had to do with Legal expenses. Insurances etc. the only thing they had in the budget was landscaping and capital improvement. which totaled about 13k it looks like now the budget needs to be 27k which would increase the dues by 150 to 200 dollars a year.

Now the history with this community is that they are not aware of all the cost associated and the rebuttle from them is going to be harse they want alot of things and dont want to pay for them. our bylaws committee has just finished the bylaws and according to the preliminary things covering the community it is ok but there are still alot of things that need to go in it and we are forwarding to the attorney for final review.

all budgets have to be voted and approved but my confusion is that does it go to the board for vote or does it go to the community. there is no real clear answer in our documents. the bylaws state that after we have a budget than we can raise a max of 5% a year. How would you handle this situation. The things on this budget is very very necessary.

VP of association.

Your rules on the budget and dues raising is similar to mine. It really puts the HOA in a "pickle" when this happens. Your options may be limitted to having a "special assessment" just to catch everything up and increasing the dues the 5%. It's a hard pill to swallow but it may be necessary.
First, everyone needs to understand how a budget in a HOA is to be setup. It's not like your personal bank account. A HOA is a corporation and the members it's shareholders. The board is elected to REPRESENT the ENTIRE membership and spend the money as dictated by the needs of the HOA. The budget is set by the elected board and is to make it fulfills the obligations of the year plus some reserves.
Here's the trick you need to know and understand about the corporation budget and deciding how much to collect. THE CORPORATION MUST SPEND AS MUCH MONEY AS IT COLLECTS AS IT SPENDS. (ALLOWANCE FOR SOME RESERVE/SAVINGS FUND). Any money outside of this is TAXABLE.
When your board sets up their budget they really need to know exactly how much they spend on routine items such as landscaping, pool care, garbage pickup, and other amenities. Legal expenses vary and depend on what the items are. If your HOA keeps an attorney on retainer each year then that would be considered a routine expense. If the legal fees are for liens/foreclosures then that might be a "miscellaneous" expense since it isn't constant.
Once it is assessed as what is a constant expense then those costs must be divided EQUALLY amongst EVERY member/homeowner even if they don't pay. A budget in a HOA works like a "Poker Kitty" everyone pitches in. The winnings are then divied out to the appropriate bills. So be careful with deciding how much to special assess. It should be ONLY to cover a specific amount. You also don't raise dues just for dues raising sake either. There must be a reason and just collecting money because you think you may need it isn't one of them. Collect the money you need plus a little savings for future repairs and you should be set.

You bring up a very good point Roger. Many boards come in over budget as opposed to under budget. They never have a surplus; they always fall short. Would you mind explaining what they should do with extra funds if they happen to end up with a surplus at years end?

Thanks,

Dana

Hi Yolanda,

Since this is your HOA's first year, your bound to come up with a few problems. The first one I saw was that you're new bylaws limit the dues increase to a maximum of only 5% per year. That's not much, you should talk with the people making the bylaws about raising that to 10% maixmium. If you read around this site, you'll see many associations have maximum allowable increases of around 10%. Otherwise, you may be regularly going to the owners asking they to vote on an increae above your 5% limit.

In your case, you should send out a letter to all the owners explaining the reasons why the dues need to be increased and let them vote on it. As you said, exerything in the proposed budget is necessary, so make a newsletter explaining each item to them. They're all in the same as boat you, just getting started in a new HOA, so they probably will be understanding of the situation. The increase you're proposing is only $ 4 per month, so that's a pretty small price to pay to get your HOA off on the right foot.

Your CC&R's should explain what to do with the surplus, don't assume that you can put it into reserves; many CC&R's mandate that the surplus money be divided among the homeowners and returned to them or applied against their next year's assessment. In Ohio we were allowed by the state to add this provision to our By-Laws: Upon determination that the Association has collected a Common Surplus at the end of any Fiscal year, apply such amount toward reserves.

I want to thank everyone for there comments and sorry could not get back to you guys sooner the board had meetings all weekend and hearings for owners wanting to do structual changes. and we were so swamped that i came in an crashed after attending to the family and finishing up on my job work that i brought home for the weekend.

To answer all questions

The subidivison will have 87 homes when fully occupied currently there are 65 homes sold and considered to be occupied.

All homes are single family homes

We do not have a reserve account I am in the process of coming up with what needs to be in the budget.
The properties are no older than 2 years old the youngest property is approximately 3 months old and the builders are still building and selling. This year should be the last year they are here.

I was voted on the board because of my experience with hoa in New York. I was the present for 7 years and vp for 5 and secretary 5. So i have the most experience. The only difference is the laws in georgia vs New York.
well thats not the only difference but that is one of the main ones.

As for the preparation of the budget last year i believe the members of the board did the best they could with what they had.
Regarding the by laws they are in review with the board after the bylaws committee has suggested there ideas and terms of what should be in it. Regarding the 5% cap that will be instituted once the budget is in place. We have also addressed special assessments.

Regarding the budge issue the one thing i always advise the board is that whatever mistakes were made were done and we have to move on from there.

The news letter was something that was going to be addressed. the board was thinking about having a meeting and addressing everything at the meeting but informing everyone within the first news package presented that the budget needs to be rectified.
it looks like we will be closer to 300 a year according to the main things that need to be added to the budget. so we are looking at double the dues as apposed to the older numbers. The attorneys are in the process of looking over the information.