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GwenG (Florida)
Posts: 669
Posted:
This is a FL HOA that was established in the 70's. The governing documents provide that owners must ratify an annual budget prepared by the Board after reviewing a proposed budget. The budget is voted on at the Annual Meeting and passes with a majority. The events requiring notification, discussion, amendment and voting are detailed and clear. However, our governing documents do not address what happens if the membership fails to ratify the budget!

The best answer I have found is from an attorney in another state;

What happens if budget is not ratified or is vetoed?

If the budget is vetoed or otherwise not ratified, the current budget continues until a new budget proposed by the board and subsequently ratified.

Any thoughts?
TimB4 (Tennessee)
Posts: 21,059
Posted:
That sounds like a logical answer to me.

Mind you, the current budget can still be modified by transferring from one line item to another line item, so the Board isn't without some flexibility. However, they can not go above the total dollar amount of the overall budget. This flexibility allows the Board to pay the bills that they don't have control over (utility increases, increase in trash/recycling service, etc.).

If this has to happen, typically the amount placed in reserves is the first casualty with maintenance being deferred or reduction in number of newsletters is the second causality.
TimB4 (Tennessee)
Posts: 21,059
Posted:
Gwen, Have you checked the applicable statutes for your Association? They likely indicate the same thing.
GwenG (Florida)
Posts: 669
Posted:
I checked FL s720 and it is almost entirely devoted to provisions for Reserves. I did not see anything addressing budgets for the "older" pre-1992 HOA's which are governed by the documents rather than by statute.
GwenG (Florida)
Posts: 669
Posted:
TimB4 that sounds practical and reasonable. Do you happen know the document that discusses that and the proper procedural rules for Board to follow in going back to the drawing board and coming up with another budget proposal, resubmitting to owners, new meetings, new voting etc? The governing document assumes the budget gets approved on the first pass.

I have found nothing browsing the internet that addresses a scenario where the originally proposed budget fails to be ratified and am looking for the guidance which is absent from our own document and is not discussed by FS720. Thanks for your help.
TimB4 (Tennessee)
Posts: 21,059
Posted:
Gwen,

The process for resubmitting a budget would be within your governing documents. It would be the same as initially submitting a budget.

From an article on budgets:

An HOA operating budget is a projection of the money needed by the association to cover its operating expenses and provide adequate reserves for repair and replacement of the elements of the property the HOA maintains. In practice, this means the HOA revises its budget from the previous year to take into account changes in its financial position and cost structure. The governing documents describe the manner in which the HOA budget is adopted each year.

Therefore, if the budget is presented properly (showing where the increases are and why), I think it would be unusual for a membership to reject it. To help illustrate this, I've attached one file that was provided at a board meeting to decide what we will present to the membership (shows 2013 and 2014). The other file is what we presented to the membership at the annual meeting (shows only 2014). Typically, the only time that a budget becomes questionable is when there is a huge increase in assessments (like when initially trying to properly fund the Reserves).

What I am talking about in regards to the flexibility is not in any document I am aware of. Budgets are typically guidelines. They are goals you try to meet. Actual Expenses rarely meet the amount budgeted to the penny.

For example, we set a budget line item this year for our Trash/Recycle service based on the contract costs. However, the county landfill increased fees in July. This resulted in contractor passing those costs onto us (as was authorized in the contract). Technically, because of this increase in expenses, we are over budget for that line item. However, in order to meet that additional expense (which we had no control over) we reallocated funds from a different line item to the trash/recycling contract line item. This is simply how budgets work.

Several years ago we created a line item called miscellaneous in the budget. It's money budgeted to cover unexpected minor repairs and to cover underfunded line items (like my trash/recycle example earlier). Basically, it's a cushion the Board has built into the budget to protect the Association from uncontrolled expenses.

Even if you don't have a line item for miscellaneous, there is typically some line item that is budgeted for that you know the actual expenses will be less then what was budgeted. Examples:
Legal Fees, we always budget for legal fees but normally don't come near spending the amount budgeted.
Snow Removal, if the year has a light snowfall, we will typically have money unspent from this line item.
Tree Maintenance, we budget every year for tree pruning. However, the Board makes the decision when to spend from that line item. Therefore, if needed, we can simply not prune a tree or two.

Hope this helps,

Tim
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GwenG (Florida)
Posts: 669
Posted:
Thank you TimB4 for your thorough and thoughtful response.

What you describe makes sense; to act contrary to the basic budget adoption protocol would NOT make sense. I doubt that it was anticipated by the maker of our bylaws that a situation would emerge whereby a budget was not vetted at the Town Hall meeting, appropriately amended and subsequently ratified at the Annual Meeting.

You observed that it would be unusual for a membership to reject a properly-prepared budget. Unfortunately, there is a very unusual situation in this HOA that has been developing for a couple years. As background, you might also recall from another thread I began that there is a serious issue in my HOA regarding expired Covenants.

The problem is bigger than my budget question suggests. It involves a private business which has been permitted by the Board of Directors to establish a commercial business on common property. Now, the board is sponsoring a mandate to force a new amenity (provided by that business), to every owner with the cost to be added to the budget, increasing the assessment fee.

The anticipated fee increase amount does not exceed the statutory limit on increases. The commercial business is prohibited by the Covenants but the HOA has been quietly supporting the business costs financially for years (for example, insuring the equipment). When challenged on these expenses, HOA refuses to discuss. The business is a highly discretionary service (internet signal).

To add to the mess, our Covenants on the common property (arguably) expired prior to the business establishing itself on the common property. This is currently pending litigation. And, the cherry on top: there is very likely a director or two with undisclosed but apparent financial interest in the business.

It is a very complex situation that is likely beyond the ability of the membership to handle through "normal" channels. Members are talking about saying NO to the Budget as a way to deal with it. I and others are trying to identify resources. When it was discovered that our own governing documents were silent on the question of failure to ratify the budget, and that the FS720 also did not address this, I steered here. So far, we have identified two FL HOA statutes which address the cancellation of the contract the Board is expected to execute.

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