Reasonable limits on project overruns

We have a 10% limit on exceeding out total budget but what about individual projects? We have a small project with $400 budgeted and it is going to cost $600.
I don't want to change the bylaws abut we should have some limits for this. I am thinking any project with an overrun of 10% or $500 (whichever is smaller.) should be approved by the board. This would go into our policy and procedure manual.

How do you handle a situation like this?

Jan, can you supply the wording of the Bylaws about a 10% limit?

The wording on our by laws is as follows:
(b) Limitations on Annual Expenditures: (1) Total expenditures for Current Expenses shall not exceed the total budgeted funds in that classification by more than ten percent (10%) without the prior approval of a majority of the voting Members at an Association Meeting called for that purpose;

I made a mistake in my post. It should be the GREATER of $500 or 10%.

I don't think the terms of the contract with the vendor have anything to do with the amount approved or what we are allowed to go over.

typically those 10% limits are per year, so try to get the contractors to allow you to pay the invoice in your next fiscal year, even if it costs you a bit of interest.

Thanks for the language in your bylaws and the correction of the proposed resolution.

If this was brought to me, I would say the resolution is in conflict with the Bylaws. Therefore, the resolution is unenforceable and the Bylaws must be complied with.

Translation - adopting such a resolution could place the Association in a potential legal fight.

My suggestion, amend the Bylaws to remove the per line item language, or have the 10% removed completely, or have your proposed solution added.

Bottom line: Need to amend the Bylaws OR make better budgets

"It does say in that classification which I assume means Budget Line Item not a specific project under that Budget Line Item. If they keep with the guidelines for that Budget Line Item, not an issue. Over run aside, can I assume you were against the project from the get go and you are looking for a reason to kill it? "

I am not treating classification as budget line item. Interesting thought though. I may have research this. We are looking at "that Classification" to be "current Expenses" (See text below). We do not look at the budget over/under as individual line items. Going over "water for pool" or "electricity for gates" is a bad prediction of the future on our part and we are not going to leave the gates open 24X7 if we underestimated the cost of electricity. We will simply reduce a less vital cost like landscaping.

I am very much in favor of this project but it we have had a couple of under estimated projects. In this case, the difference is $600 vs $400 projected. We will be having some words with the folks who did the estimate but gathering the board to approve a $200 overage seems a waste of time with a $170K budget.

As promised, this is the wording in the bylaws.
(b) Limitations on Annual Expenditures: (1) Total expenditures for Current Expenses shall not exceed the total budgeted funds in that classification by more than ten percent (10%) without the prior approval of a majority of the voting Members at an Association Meeting called for that purpose;

"In that classification= current expenses not line item. It goes on to talk about capital expenditures (a different classification). I posted the entire section on limitations. I am a bit reticent to share too much but looks like I should have done so. My apologies. Still, none of this relates to my question. It looks like no one else has had this issue.

(b) Limitations on Annual Expenditures: (1) Total expenditures for Current Expenses shall not exceed the total budgeted funds in that classification by more than ten percent (10%) without the prior approval of a majority of the voting Members at an Association Meeting called for that purpose; (2) Total expenditures for Capital Improvements shall not exceed $25,000 without the prior approval of a majority of the voting Members at an Association Meeting called for that purpose; (3) No contract for creation of a debt by a loan of funds shall be made without the prior approval of two thirds of the voting Members at an Association Meeting called for that purpose; (4) No funds budgeted for projects within Current Expenses and Reserve for Deferred Maintenance and Replacement shall be expended after June 30th of the succeeding year without the prior approval of a majority of the voting Members at an Association Meeting called for that purpose, and any surplus so created shall be carried forward as directed in Paragraph 10(a) hereof; and (5) These limitations shall not be circumvented by amending the budget.

A "legal fight" over $500? Seriously?

Sorry? I could not find any reference to a legal fight anywhere in my question or the thread. I was asking for advice on a policy issue of how to deal with the situation of a project exceeding its budget. I appreciate you thought as my thought is why wait until a board meeting to approve minor overages in project spending.

I'm simply pointing out that if you pass the resolution you specify vs. amending the Bylaws there will be a conflict. Hence, if an overrun is ever challenged (and many people challenge on principal alone) it is my opinion the Association would lose in court.

>>>>>>>>>>>>>>>>>>>>

My reading of the bylaws shows no conflict. The bylaws say we cannot exceed the budget for current expenses by more than 10% in total. As many have pointed out, this is a line item issue. Line items are not addressed in the bylaws at all. As long as the total budget for current items is not exceeded, we are in compliance.

On the other hand, no one has said they have such a POLICY (not bylaw). The conversation has been helpful as being thought provoking. thanks

"
Having different interpretations on what a document says is why attorneys make money."

True but I still think my interpretation is correct and if we stay under the total budget, I doubt anyone will complain (or sue).

So...how would YOU handle the overage of a project?

Jan

If the line item overrun still keeps the budget within a 10% overrun I say nothing needs to be done. Budgets are best guesses. What matters in the Year End Financial Statement as that is what people look at. As an example we present 2017 Budget and a line item Year End Report using the same line items as the Budget. Any overs or unders we rarely get questioned on. Most are interested in did we hit the overall budget number.

We have no restrictions such as the 10%. You association is the first I have heard of having such.

We have no restrictions either, Jan, nor do we have a board policy. It's possible that "classification' means a operating budget and a reserves budget?
Our HOA has free phone calls to our HOA attorney and I might be tempted to rec that to the board. But I think our board would approve such an overage given that it would keep you under 110% We, too, have contingency line items in our op. budget and each reserve account.

>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

Thanks. The wording is pretty clear in the by laws that "this category" refers to current expenses in total and not a line item issue so I won't be suggesting any adjustments to the by laws. I finally just asked the board executive committee (President, Treasurer, Secretary) if they had any problem going over budget on this. That seems to be a good compromise between a full board vote and no notification. I will add this as an item on my treasurer's report as part of the written consent agenda for the next meeting.

All is well with the world.

Thanks

Your Bylaws specifies 10%. Therefore, adopting a resolution that allows something higher then 10% creates a conflict between the resolution and Bylaws. When a conflict exists, the higher document must be complied with and the lower documents section that is in conflict is considered invalid.

Jan,

Amending the Bylaws would be proper.

Simply adopting a Resolution (which is a formalized decision by the Board) with the wording you specify would create the conflict between the two documents.

As a reminder to all, the order of precedence is:

Federal Law
Federal Regulation
State Law
State Regulation
County Codes
City Ordinances
Deed Restrictions,which includes the Declaration of Covenants, Conditions and Restrictions
Articles of Incorporation (if the Association is incorporated)
Bylaws
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

Fortunately, my question does not create a conflict with any of these sources.

Jan,

Obviously I'm not explaining it well enough.
Hopefully others will be able to.

I wish you luck.