Ratify Budget

Nancy,

Keep in mind when making statements similar to the one I cited, that laws vary from State to State. Some States don't require ratification but only that the Board adopts a budget.

First, verify that the act is applicable, NC § 47F-1-102.

Once it's determined that it is applicable, NC § 47F-3-102 specifies that one of the powers of the Association is to "Adopt and amend budgets for revenues, expenditures, and reserves and collect assessments for common expenses from lot owner."

Granted, I have not read the whole act. However, I do not see where within the North Carolina Planned Community Act, the budget requires ratification from the membership. Could you please identify that section of statute (I have provided links to the whole statute, as well as the sections I specifically mentioned)?

Did you ask the board why they hadn't ratified the budget before? What did they say when you were president? Does the Planned Community Act apply to all HOAs regardless of when they were established or does the ratification part only apply to those established after a certain date - check that portion against your documents.

You should also take a close look at the budget - how much of an increase is the Board proposing and when was the last time your fees were increased? If they haven't done it since you were president, that could be the problem. Even if you don't have amenities, there may be other services the association provides (and you'd know that since you served on the board) and those costs could have increased considerably?

Reserves could also be underfunded - if the association takes care of things like streets and sidewalks, the price of maintaining them probably went up and your reserves may be too small to take care of it. Go back through board meeting minutes for the year and see what sort of issues have come up - and if you still have questions, you absolutely should ask the board for clarification.

Shelia - I didn't get a chance to ratify the budget when I was president as I took over from another president that resigned and I was voted back in. We haven't had an increase in I don't remember when. The only thing that I can see that increased was the landscaping charges. We do not pay for roads or community electricity. Not sure what you mean by reserves could be underfunded. This Board leaves out a lot of things. They just put up a flag pole and nothing is showing in the budget as to how much was paid. Thank you for your suggestions.

Our membership meeting is in October.
We set assessments annually.
However, we still have a budget for the next year by the general membership meeting and present it there.

I see no reason why your Board couldn't do the same and have the following years budget ready in August.

You said you don't have amenities and don't pay for roads - ok, what ARE your assessments paying for? You are a former member of the board and its president and I'm amazed that you don't seem to know. At least start with the budget you had at the time and work forward from there to see if anything's been added.

Ditto for reserves. Reserves are generally used to pay for major repairs to the community's common areas such as roof replacement or road repaving. Usually the association should get a reserve study, which provides estimates as to the remaining use of the component and the cost of replacement. For example, if your association was responsible for the roads, repaving might need to be done in, say 2020, so you should be putting away money every year in reserves so the money will be there, instead of the Association having to get a loan and/or levy a special assessment on the homeowners to pay for it (or live with pothole everywhere).

Unfortunately, most associations don't fund reserves properly, often because homeowners (including board members!) think they'll be long gone by the time the roofs, roads, sidewalks or whatever need replacing, so they think they shouldn't pay for something they'll never use. In fact, you're really paying for your using up that component (e.g. driving on the road every day), so the repair costs don't get shoved onto new owners who weren't there at the time (as time goes forward their assessments will help pay for reserves and their use of the components).

And yes, you should already know this too - you were on the board and served as its president. I will assume you didn't get a chance to push ratification of the budget because it was in effect when you took over as president, but how long did you serve in that position? If the board didn't ratify the budget when you were president, why not? I'm not saying what's happened at that time up to today is all your fault, but somewhere along the line the board set a precedent.

I do understand your concern about the homeowners being able to ratify the budget if state law requires this, but from what you've said so far, I'd be concerned that no one is in a position to make an informed decision because no one's paid close attention to the money - probably because fees haven't gone up "since you don't know when." No wonder the board has "left out a lot of things" or put up a flagpole without saying how much it cost. I say this over and over again - when homeowners don't hold their boards accountable, they may be setting themselves up for some nasty surprises down the road that will take a lot of money and drama to fix.

This lack of attention could be part of what this current board is trying to address, and if so, I agree it needs to tell homeowners the truth of what's going on. But first, take a look at the budget that's been presented and start asking questions - be very worried if the board can't or won't tell you, because that may mean it's time for them to go and the homeowners elect people who are more committed to transparency. Whether that happens or not, you still need to begin educating people on where their money's going and if they want to have certain things in the future that the Association provides, they'll have to accept that assessments will have to go up to pay for it - just to keep up with inflation is reason enough.

You also said you haven't increased the assessments "in I don't know when" and that worries me because it would appear they haven't kept up with inflation (you didn't say when, so I'll assume that budget was in effect when you were elected)

I'm glad someone noted that the community must practically unite to REJECT the budget. Otherwise, it's essentially passed by the board and then presented at the Annual Meeting.

This posting can now be closed. After 7 years of trying to get our Board to ratify our budget, finally, the homeowners have been notified that there will be a meeting Feb 15, 2017 to ratify our budget. Hooray. Our new President finally got the message. Thanks again for everyone's suggestions. Nancy