Budget approval requirement

RobertG, I would allow the Board to approve a budget which is no more than 5% greater than the previous year. A greater budget may be approved by the majority of the members present in person or by proxy (when allowed) at a members meeting duly called with the Board's proposed budget provided to all owners with the notice of meeting.

Preferably this restriction should be in the CC&Rs. If it is not feasible to amend the CC&Rs, then amend the By-laws or establish Rules and Regulations on Budgets.

Yes RobertG, 5% more than the total operating budget for the previous year.

No Robert, I state said the budget the Board can approve can only be raised 5% and it would take approval of members to raise it more. Remember that a is an attempt to predetermine to the degree possible the income and expenses. The actual income and/or expenses may be more or less than budgeted for various justifiable reasons.

RobertG - I believe what RogerB is suggesting is that if the 2007 budget is 100,000 then the board can raise the budget in 2008 to 105,000 without a community vote. A community vote on the excess is required. For example, say the board would like the 2008 budget to be 106,000. The excess 1,000 needs to be voted upon.

As a non-profit corporation the HOA has to spend exactly what it makes. (It can have a reserve fund). Whatever the budget they set at the begginning of the year, should be spent at the end of the year. Sometimes there are conditions in which there may be an extra $5K or so that wasn't spent by the end of the year. You will suddenly find the board making a large purchase to spend this money quickly. That's because any extra money could be subject to taxes if not spent.

A HOA's budget is NOT setup like your home budget. You can't run it that way at all. Do you have to spend ALL the money you make by the end of the year on your maintenance and upkeep ONLY? Most likely not. A HOA has to be setup to support it's maintenance and upkeep only each year. Sometimes if there is enough money, the HOA can even spend money on improvements! Now that's a treat!

I managed a HOA for 3 years. You have to learn the number one thing about HOA budgets. The money is NOT your own. It's EVERYBODY's. That means the majority of participating owners tend to get their way. Is that fair? NO. Is it illegal? Not necessarily.

You should run as a board member next election. I really do think it would open your eyes to many factors your not seeing. There are ALOT of things that go into a decision you don't see. That's just the way business goes.

RobertG, in your example the Board could increase the budget 5%, i.e., from $100,000 to $105,00 the next year. If they wanted to increase it more than 5% ($5,000) it would require the approval of the majority of the members voting at a duly called members meeting.

Next since no one can predict the actual expenditure it behooves the Board to create a budget within which they can live. The members can hold the Board members accountable for expenditures greater than the total budgeted. A good Board will reviewing the previous years actual income and expenditures and explain significant variances. This is often done when reviewing the previous year's activities at an annual meeting; and should be done before presenting the upcoming year's budget or proposed budget.

A well managed HOA will come in underbudget. All income does not have to be spent and certainly should never be spent just because there is extra money in the budget!!!

There are no taxes on excess net income when using IRS form 1120-H. The only taxable income for most HOAs is interest income and income from sources exterior to the HOA.

I see your issue. You don't see the full picture of your HOA's budget. Your just focusing on ONE aspect of the overall budget. I could easily pickout a project that our HOA BOD spent alot of money on that may or may not have been needed. EVERY HOA can. It's what happens when a group of people are responsible for making a decision. Sometimes you get backing for some projects while others don't get done at all.

Overall, I don't see an issue with your HOA spending the money on a sign for the front area. Eventually, a sign would have to be purchased. They don't last forever. It just seems that this was the time for that to happen for a variety of reasons that collided. Get over it. There's soo much more going on and this one aspect isn't going to make or break your HOA. It's just another issue that's on a LOOONG list of issues HOA's have not only with their budgets but with their management as well.

If you don't like it... Then JOIN it!!! Run for a position and then come back and tell me what you think when you have to deal with someone like you. Good luck!

Robert:

If the board went over budget 10k without homeowner approval then I would think several things could happen from involvement with state AG, you could file suit against them, or simply have them removed from office. If they don't have approval to spend and do anyway it seems like almost a criminal offense to me.

Robert, I understand your frustration and also agree with many here - to control this process you need to get involved in the HOA's managment, as a board-member.

While it may seem like the longest point between to places, in terms of travel, it is the only way to effect solid change in an HOA.

If your board over-spent their budget by that amount ($10k) the money had to come from somewhere (reserve funds, moving from another budget line item, etc), and should have triggered a vote, or some form of documentation of the board's intentions. Again board-members are elected to manage the HOA's funds and business relationships - and they do so as volunteers, in the best manner possible (when done with fiduciary duty). Not going to defend an errant/rogue board that does not follow the most basic of HOA governance principles.

I think that involving any level of law enforcement (Attorney's General, Ombudsman, etc) should ONLY be done when the action, or expenditure involves fraud on some level. However if your board did vote on this, while not "smart" it may not be worth the legal expense (DOL Insurance premiums, legal fees, etc) to handle in that manner.

Robert, I really would prefer a fixed amount that they could not go over without prior approval. My problem is say you have a line item for $500, would you really care that much if $575 was spent? It seems like it is too much micro-managing. For us, if we don't have much snow, and know we are going to come out ahead, we might plant more trees or do some sort of unusual tree maintenance that we had put off. I have no problems with that. I think you want to permit the board to do that kind of fiddling around -- better word is flexibility I guess. Roger mentioned that usually associations come in under budget (we did for years although this year the group planned on a $40K deficit!), if they are coming in under budget surely they should be allowed some flexibility.

Correct. The closet thing that might be related is under the duties of the board and it reads:

"The duties of the Board shall include, without limitation:
...
(f) preparing and adopting a budget for the Association prior to the commencement of each fiscal year and set the Regular Assessment for each Assessable Lot;"

To me this just states that the board the authority to adopt a budget, not a requirement to do so.

Again, if this does mean it has to adopt a budget, it doesn't mean it can't overspend the budget it adopts.

I don't to sound negative, but how many times do I need to say that emergencies are not an issue. Your $12K water repair is not a problem. If you get hit with a double increase in insurance, then either something is really wrong or the budget was way out of whack. Shouldn't homeowners have some say in what to do in that case?

I definitely don't believe in a Contingency Fund. That to me is another term for Slush Fund. If you can't budget for it, then you probably shouldn't spend it, at least without visibility. You could easily put in a huge contingency fund that would make all expenses meet the budget, but spend items that no one ever envisioned.

Isn't that what my motion says?

I am still not sure I would agree that our rules state the budget must be adopted. I am just not sure how to interpret the duties of the board versus a requirement to adopt a budget.

Also, I just realized I should have made the topic subject "Spending Approval".

Robert, I also believe that in situations like this, we often treat the "symptom" rather than the "disease." What I mean by that is that you mentioned "two years of a board that did/does not follow normal/standard accounting/expenditure" requirements. While many issues of an HOA can be traced back to an errant, or mis-educated board, we often start the "solution" process in the middle, rather than at the beginning. I fully undrestand that sometimes decisions/actions must be taken "on the ground" when needed; but I also believe that having well-intentioned and educated board-members is critical to changing any HOA's management procedures.

I agree that surplus, and over/under budget items should be FULLY disclosed to the membership. However I believe that the "cautions" issued here (posters) is that you often have "HOA Apathy" to deal with owners who do not attend meetings, or even simply read, log-on to websites/newsletters. Then when you have over/under budget funds, it comes as a serious shock to them. Either way (over/under) owners not involved make assumptions about how funds should, or should not be spent, and often unrelated to the full "pie" of the HOA's financial obligations. Either way (again) it becomes the elected board-members to make the unpopular decisions - because ultimately the business of the HOA continues on.

Jadedone4 - I could give you the litany of all the things that have gone on that indicate the board is not necessarily serving the community well, but I won't bore you with them. I do believe that many of the actions that have been taken over the objections of homeowners or without consulting homeowners has lead to the apathy that now lets the board do anything they want. It is a real catch 22 situation.

With the financial issues, it is really hard to get enough homeowner interest during the year to get involved and yet not hear the outcry when assessments are raised because so much was spent during the year. Unfortunately since this is just the second year of the HOA and questionable techniques have been used, I feel the rules should be put in place to prevent such actions to continue. At some later time, maybe the rules can be removed.

I will readily admit I have given up even trying to work with this board. The homeowners have been told they are not welcome to give their advice and actions have shown any advice given is not taken.

Perhaps the attachment may be useful to you. Years ago I monitored expenses of $millions/month. To effectively do it I developed a cash flow/budget chart. We now provide a modified version to our HOA clients each month as one of the financial reports. Board members find it very useful. Note that different fonts -regular, bold, and italics are used (various colors can be used); and the budget is broken down by month.

RobertB - Based upon the spreadsheet you provided, does it show that the Assoc. was $10,988 over budget?

Is the year up already for this budget? Just because there are no legal costs now doesn't mean there won't be tomorrow. HOA's budgets aren's so cut and dry. A HOA's budget set at the beginning of the year is a FORECAST it isn't written in stone.

For example: Most of the bills my HOA pays are the normal monthly bills of utilities, water, garbage pickup, and recycling. Typical home bills. You think that these expenses can be adhered to all year long and forecasted? NO.

Our HOA has a pool and a clubhouse. Each year the amount the HOA rents the clubhouse varies. That means the utilities we pay for that clubhouse varies month to month. I had a person rent the clubhouse and turned up the air conditioning to the max. They left the doors open during the party and failed to turn the air back up until I found it a week later. There was actual ice forming on the windows! That utility bill skyrocketed. However, we couldn't charge damages to the renter either. It was the clubhouse committee's responsibility to check up after the parties. They didn't do it. So the costs got passed on in the dues.

We have a Pool care person who ALWAYS leaves the water to the pool on after she leaves. The water connection has a leak. I usually find the water on a few hours later and turn it off. The kids at the pool know where the turn off valve is and often use the hose on each other. So that means our water bill sky rockets during the summer months. (I did install a timer saving us some money after I got board approval).

Our expenses aren't always predictable each year. One year it was decided we needed to get into the "Christmas Spirit". The new board voted to install Christmas lights at the front entrance. However, they forgot to budget in the fact that makes the Utility bills rise. That's not in the budget!

So you may make up an ideal budget for your HOA, but there's no way to keep in that budget. I couldn't tell who was going to fall behind on their dues, who was going to pay up on their dues, and when I was going to have file a lien. Big budget concerns that have to be factored in every year as well. A HOA's budget isn't black and white. If it has money to spend on a needed project, it may have to act right then to get it done. There's no telling when the next oportune time to spend or save money is ever going to happen.

I think this depends on where you live. In FL you're not allowed to guesstimate high. If you're insurance goes up, you do an assessment. We're allowed to assess a certain amount without membership approval. If insurance goes down, as ours did this year, the money goes into common surplus, which can be returned or drawn upon for future assessments.

Plus the budget can be redone in the middle of the year and the monthly assessment adjusted. If its less than 10% then no vote is required. We have no specific required to do a budget just for a fiscal year and be stuck with it.