BOARD DIVERTING FUNDS

Well, depending on the amount and how such a donation compares to the amount that is spent on the association's property and the overall budget it could have negative tax consequences.

Jean

I'm with Larry. Whether it is illegal is up to your own governing documents. Most are pretty vague about specifics regarding the business decisions of the Board. It's not like somebody is personally profiting directly from HOA funds, which is expressly forbidden.

One Neighborhood Association Board I was on regularly donated to the local Boys and Girls club where we held some of our larger events for free. It was a win-win and everyone was happy to do it.

That same Association lobbied hard for a beautiful picnic area and dog park right next door to our neighborhood, and when it was done, we provided free labor to flip the burgers for the grand opening barbeque which was paid for by the city. When I applied to get a grant for our bilingual website, the neighborhood policeman testified for us at the interview. One hand washes the other.

If you are a new Board member, find someone who has some institutional memory and see how these things have been handled in the past. Perhaps the Board is sure this is acceptable and you can well afford it. If it still bothers you, try to get them to take an informal (no cost) vote or poll of members.

Talk to the other Board members and to others in the community before you take a stand you may regret. If you think the HOA cannot afford the funds, perhaps you could suggest a work day where members of the community tend the grounds or help with the construction or maintenance of the park......

The long view may be this...Your neighbors will have constant use of the park at no cost, It may become almost an annex which you can use and enjoy without paying to maintain. That's nice. And if you are seen as the informal caretakers or supporters in some way, then should there arise some unsafe or undesireable situation in the park some night, a phone call from your Board may easily achieve the disciplinary action needed from local authorities. It's called local politics, Jean.

Good Luck.

Jean,

Typically the governing documents, usually the CC&Rs, specify what the Assessments are for. If the CC&Rs specify the purpose of the assessment, then that is all they can be used for. Here is what ours say:

"The assessments levied by the Association shall be used exclusively for the purpose of promoting the recreation, health, safety and welfare of the residents in the properties (including administrative and overhead expense) and in particular for the improvement and maintenance of the Common Areas, services and facilities devoted to this purpose and related to the use and enjoyment of the said Common Area."

Expecting that you have similar language, then this is what the money is to go for and, by the use of the bolded language, this is all it can go for.

With that being said, my Association does make a $100 donation every year to the volunteer fire department in return for them escorting Santa around the development. Past Boards have rationalized the expense under "promoting the recreation." Personally, I like having Santa come around. However, if anyone does raise an objection, I will be the first one to recommend dropping the donation as it falls into a grey area of authorized expenses.

Personal opinion, if I was on your Board, I would not support the donation.

Tim,

I reached a different conclusion. While you focused on "exclusively" the phrase "for the purpose of promoting .." puts a different spin on things. That would allow the board to contribute to virtually any cause that would even remotely benefit "the recreation, health, safety and welfare of the residents." This section does not limit the board to spending money exclusively for the acquisition, maintenance, repair, or improvement of real or personal property owned by the association.

BTW, our board meets in the public library in a rather isolated town of about 500 in northern Arizona. We have used that library for at least 8 years without charge. When I was on the board, one member proposed that we donate $500 to the library as they had been very accommodating to us and received nothing in return. The board, including myself, voted unanimously in favor. I have never lost a wink of sleep over that donation. That donation was equal to about 1/3 of one percent of our annual budget.

The OP also wrote that "I've done research and I've found several HOAs that have in fact sued their board for this type of scenario." I am unaware of any published opinions in Arizona on this subject.

Jean,

I am curious where your association gets funds for insurance and mailing costs if the income from assessments can be used only for repairs and maintenance of common areas. If your board wished to add an improvement to common areas, such as lighting, where would money for improvements come from? If you were to incur legal costs, where would that money come from? Every association has costs beyond simple repair and maintenance and it is hard to believe that CC&R's would be written so narrowly as to exclude all other expenses.

I would simply tell your board that there are tax ramifications involved if they donate to this park that would effect everybody and their budget. Remind them that the money is NOT their money but EVERY MEMBERS money. If they choose to donate then they should do it on their own dime and form their own private group of donators. It should NOT be from the general funds of the HOA.

Boards tend to forget the fact that the HOA's budget/money is EVERYONE'S money. They tend to want to be protective of it and spend it much like their own finances. The truth is that it's like leaving your checkbook on the dining room table for all to see. They would be the parents and the members their children on deciding how that money is to be spent.

Someone wise told me this: "It is NOT your money but EVERYONE's money. You are President to REPRESENT what the members want". That means if the members want to pain the roads "red" my job as president was to organize the project and the money to paint the road red. Captain of a sinking ship that the shipmates always wanted more rum to go their way...LOl!

Wow, John, your CCRs are pretty vague. It is interesting how different the verbiage is from HOA to HOA. I've talked to some of my neighboring HOAs; some are very specific, others basically give the BOD unrestricted power. Melissa, good points. I try to look at it from the homeowner standpoint too (since I'm a homeowner first and foremost). How happy would I be if monies were spent outside the HOA without homeowners' input? Loved the analogy about the red roads; so true!

My CC&Rs appear to be the most restrictive of those posted so far:

"The annual assessments shall be used for the maintenance, operation and repair of the Common Elements which the Association owns or has a financial obligation to maintain - including all costs of labor, materials, traffic controls, signs, electricity and other utilities, security, supervision and management costs, lighting, insurance, taxes, if any, and such fixtures and personal property as are necessary or appropriate for their enjoyment and operation, and reasonable reserves for their replacement."

In mine, there does not appear to be any justification for the types of donations discussed here. On the other hand, as Larry states, it's a matter of proportionality.

In the case of the free use of the library, let's say you met 4x per year for 8 years and it would have cost you $50 per rental if you met somewhere else - That's $1,600 that you have saved for the HOs. And if you preserve that free meeting space into the future with a $500 donation, it makes good business sense. If the HOs object, let them know that it will cost $200 per year every year for meeting rooms. If you meet 12x per year, the cost saved is $600 per year.

To me, the important thing is to disclose what you are doing and provide a financial justification if you can. Even with my narrowly defined CC&Rs, I think we could find justification for donating to the library under the circumstances described.

What has not been revealed is the size of the donation for the outside park. So it is difficult to determine the significance.

I really like what ElaineCA has to say. An argument can be made that spending money to enhance the adjacent property enhances the value of your own property (general appearance, safety, lighting, etc.) Here again, I focus on financial justifications because they make the best defense to a legal challenge on "principle." Although some have mentioned that they are aware of cases where HOAs lost, I seriously doubt that those were for the moderate expenditures probably involved here.

If on the other hand, you are concerned about the technicalities, you could ask the owners of the park to grant you an easement that will be recorded and you could pay for the easement with the amount you were going to donate. It's a technical fix that would probably work for any CC&Rs, but it probably involves expenses (lawyer drafting, filing fees) that aren't warranted for the amount of the donation.

So as always, it gets down to dollar amount, proportion of budget, and value received.

Who is the Water Board and what do they do?
How much had been collected?
How much was gifted?