pluses and minuses - membership voting on annual budget

Jim

The average owner would not understand a budget and would vote against it just because they can especially if an increase. In many states owners can vote to reject a budget but they are not asked to vote to approve it.

I am for openness, honesty, and candidness but I am against throwing it open to vote. It could become a horror show.

Our board has always created and approved our budget, but at our meeting this past week the president brought up the idea. My take was that if the membership is not happy with the budget the board approves, elections are only a month or two later, they can replace the board. Since things are running smoothly, dues increases have been minimal over the past few years, and we have the same level of apathy as most associations, I don't expect to see any wholesale replacement of the board.

Our CCRs also state that if the budget is increased more than 15%, and 10% of the members request it, a special meeting of the members will be held to consider and adopt a budget.

Jim,

Our Annual meeting is in late October.
The outgoing Board recommends a budget and presents it at the meeting.
The membership is able to give feedback and ask questions about that recommendation.
The new Board (who is elected at that meeting) actually approves a budget.

Typically they will simply adopt the recommended budget. However, they have the opportunity to make changes based on the feedback received at the meeting. The approved budget is then sent to the membership along with the payment booklets for the annual assessments.

JimR24, I think it is a good thing to have the membership RATIFY the Board approved annual budget whenever timing allows such action. That is the procedure we recommend since it allows members to have a sense that they are involved and that the Board is transparent in this important financial matter.

By law in AZ, the board may increase the budget by 20% over the previous year without seeking member approval. In my association this is kind of a moot point because the dysfunctional wimps currently on the board are too spineless to raise assessments.

To put that into perspective, my 39-acre parcel costs me $128.50 per year. That is about the average assessment. A 20% increase would raise it to a whopping $154.20 per year. The board seems to think that we will all be driven into bankruptcy by those kind of increases.

Our board can approve the budget without homeowner approval, provided the monthly assessment for the new year doesn't exceed 5% of the current year - then 75% of the homeowners have to approve. This is how it's written in our CCRs, but these days, I would say something over 10%, not 5% because many HOA fees are actually too low, given the number of services and common areas that have to be maintained. Of course, I also live in a townhouse community, so that influences my opinion.

Generally, I think the board should make the final decision on the budget, unless there's a special assessment or substantial increase in fees. That's a major part of their job and one would hope they're apply careful thought to the process, thinking both short and long term. That's why reserves are necessary, as well as keeping an eye on current costs to identify waste and cut it accordingly. There are lots of resources to help boards with this process, so it's up to them to take advantage.

I'm not a fan of homeowner approval for most budgets because too many associations have a problem with homeowner apathy as it is and there would likely be a lot of delays. Another big problem is that some (many?) homeowners don't realize that fee increases are necessary to keep up with the rate of inflation. When people scream about "too high assessments", they generally look at it in relation to their own budget, forgetting that homeownership isn't cheap and the older the house gets, the more it costs to maintain. Unfortunately, people become so obsessed with that that they shoot themselves in the foot by going with the "low cost at any cost" mindset.

Ideally, the board should ask homeowners for their take on what type of projects they'd like to see for the new year, and if it's something that will cost a considerable amount of money, homeowners need to be told that as well. This way, when the fees go up, they will understand why. They should also be told about delinquencies - how many homeowners, how much money is owed (total) and what the Board is doing to collect. When you get that "where is my money going?" complaint, the board can respond in part with "we have to use limited resources to pursue collections on those who don't pay - while everyone else has to pay more to ensure the bills are paid."

When I was board treasurer - and newsletter editor - I published a homeowner's survey around the time our budget process began so people could say what they thought and after we approved the budget and sent it out, the newsletter would have an article about projects the board was planning for the upcoming year. We also ran an itemized budget recap in the spring newsletter, so people could see exactly where the money went and which line items were over or under budget and why.

If you keep the process open and honest, I think most homeowners will appreciate what the board is trying to do, so you won't need the extra step of getting approval. They may not always agree, but that's ok - they have a right to their opinion and they're always welcome to come up with an alternative.

At our annual meeting in February, I want our owners to have a vote on rather or not to be placed under the newer NE condominium laws. (For Associations established 1984 or latter) One of these laws state that the members must vote to ratify the budget that the Board presents. This requirement is my biggest concern with going by the newer laws. We are a senior community and most seniors I am afraid would vote against ratification of any budget that involved a fee increase.

But there are other good points in the newer laws.

Also an attorney will be helping us with the pros and cons of abiding by the newer laws.