HOA DUES increase and budget question

Do your governing documents (declaration/articles of incorporation/bylaws) specifically say the membership has to approve the annual budget?

Gino,

Indeed our documents require that we, the homeowners approve the budget each year.

There issue as I understand it is as follows:

A board member is insisting that if the budget/Dues increase is not approved the community will need to go to a higher figure to fully fund the reserves over the length of the reserve schedule (years).

I would like to ask that the board get a legal opinion prior to the annual as I believe that if not approved, DUES go back to the $125 amount previously assessed to each lot owner.

Personally, I don't mind the increase but as members we do not get anything for the additional increase of dues. If the intention was to accelerate the reserve fund or a special project that was being planned I would support 100%. But to build the checkbook with excess monies is not, in my opinion a well thought out DUES. We already have three months of expenses currently sitting in the checkbook for the last twelve months.

The board member is pushing to accept theincrease or the board would have to raise the assessment up to $143 due to status of the reserves. I don't buy this logic.

Additionally theeasurer has stated that she would like a bigger cushion as she is "comfortable" with a cushion that allows a four month buffer larger.

Your thoughts?

Jim,

I try not to sound negative, but the numbers you mention are so small ... are you on the Board? Do you fully understand the WHY?

Guess I don’t get it ...

Budgets for HOA's don't work like your personal account. Your to spend what you collect to get to the bare bones of it. Having a "Buffer" is more like having a reserves account NOT extra spending cash. A "Buffer" can subject your HOA to taxation on that money if not accounted right. Having extra money isn't the goal of a HOA. The goal is to meet it's expenses by what it collects.

As Shelia said. If it has been a long time since your dues increased, I doubt you are even keeping up with inflation. I think you may have more issues than just a $10 per month increase.

In regards to our treasurer, after her two terms are up, she does not run for re-election. Rather someone on the board is appointed treasurer and the prior treasurer job shares with her....in reality she continues to act as treasurer. This has gone on for years.

The board will tell you that there are no interested parties willing to do the job or are interested in running for election to the board. Yet there are candidates each time there is an opening.

I should note that I have been in this community 2 years this coming January. I have attended many HOA board meetings and ARC meetings. I have been on the lawn care committee (there are about 20 committees, but that too, is another post matter).

In January I will begin a stint on the Architectural Review Committee. This was another issue that I and a few other commuunity members had issues with. The HOA chair did not like a decision made by the ARC chair and pushed the ARC chair out and put himself on the board. The ousted ARC chair was also on the HOA board. Another HOA board member was also placed on the ARC so it ended up with three HOA board members on the ARC. We protested this and finally this past month, two of the board members resigned. Another two members followed for a total of 4 resignations. The remaining board member made himself chair and recruited four new members from the community to join him. Where this goes from here should be an interesting journey.

This is a small community with 56 homes. We have a community clubhouse with a pool. The HOA mows the lawns. There are two gates.

This year the lawn contract had a decrease in overall cost due to the fact that the lawn care company chose to eliminate the cleaning of the sprinkler heads on each lot. The company never really did this but a year ago I personally flagged every lot owner sprinklers with flags and had the lawn care company clean them. After that one cleaning they were not touched again. I understand that it is very labor intensive and difficult to find all. So to eliminate the issue, the company removed it from their proposed contract and the HOA board accepted this new contract.

I should note that the budget is well organized and there are always hiccups...thankfully they have been minor. Each budget cycle the treasurer will ask the board if there are any "special projects and will plan financials accordingly.

The treasurer proposed a ten dollar increase from $125. My main concern this time around is that one board member insists that if the budget, approved by the HOA board is not approved by the commuunity, as per our HOA docuuments, the community would need to increase them to $143 due to the fact, in his opinion we are not fully funded. Not sure where he came up with this number/amount. Our reserves are approx 28K with a total of about 241k over the twenty year schedule.

This is where my concern is. The only thing I see happening is that as a result of the dues increase we only benefit by having more money in the checkbook as a cushion. I would rather have the increase going into the reserves to help protect us in the event of severe hurricane damage. BTW, there has never been a reserve study (a symptom, I believe of non-progressive HOA board). This too has been brought up along with the need for an audit. There nas never been an audit and should something happen to the current treasurer, I am not sure I or anyone would want to assume financial responsibility. I don't believe there is any financial discrepancy in the record keeping, but heck, no audit in 25 years.

I should note that my analysis is that our free cash will increase from about 32k a month to about 36k. My analysis for the past year shows an average expense of approx $6800 a month. This amount would give us about 5 months of expenses which I believe is too much. I would rather see this money in reserves with perhaps a three month of expenses in the checkbook.

So I still don't have an answer to my original question...does the dues go back to the prior amount if the community does not approve the increase in DUES suggested by the HOA board of directors?

Thanks everyone for your comments and questions. I appreciate them all. Sorry for any typos...lol

Jim, the HOA statute FS 720 says the board must prepare a reserve budget that provides for full funding according to a formula. If a majority present at a members meeting with a quorum vote to underfund or waive some or all of the reserves then an alternative reserves budget that underfunds must be used in lieu of the original full-funding reserves budget. This is a decision that must be made EVERY YEAR by the homeowners. But if the homeowners don't vote to underfund or waive the statutory reserves contributions, then the fully-funded reserves budget must be used. This is the homeowners' decision, not the board's, and such a vote to underfund the reserves must take place EVERY YEAR that underfunding is proposed.

See FS 720.303(6)(f) for details.

Genoa,

Thanks for this info.

I have only attended one annual meeting in this commu ity; my second one is coming up in January.

I do not specifically remember if the reserves were even discussed at the annual meeting l ast year. I will try to work this into the discussion at this year's annual meeting.

Again, thanks for your comments...they do indeed help.

It depends on if it's considered subject to taxes. Typically monies collected by the HOA not subject to taxes are dues. However, let's say that your HOA got paid back from a lien collection. That money may come in one lump sum and cause a spike in the budget. That money most likely would not be taxed because it came from paying back the back dues owed plus legal expenses for filing the lien.

Now if the money came from issuing out fines. Fines are not considered sources of income for an HOA. That additional money could be subject to taxes. Another issue is some people think having a "Bake/Garage" sale to raise money for the HOA is good thing. That money could be subject to being taxed. It's much better to have a special assessment to raise money for a special project than to have a sale of some kind.

So basically it breaks down on how the money is collected not as much as it's "Extra". Extra money can be put aside to savings, reserves, or spent. Collecting the money outside of dues collection is where it becomes tricky.

Perhaps I was not as clear as I should have been.

Currently each month our cash available, unspoken for in the HOA checkbook averages about 38K a month.

If in the current budget recommendation there is about a 2.2K difference in income vs expenditures. I believe that the monies not accou Ted for will simply be used to increase the available cash in the checkbook.

I was always led to believe that expenditures in the line items of the budget should total the total revenues of the association. In this budget expenditures do not match revenue.

Does this clarify the issue?

Thanks.

Not sure if Estoppel is actual "Revenue". That's something we did not have to deal with. It may fall into a different category.

The rental of the clubhouse may be considered "operational cost compensation". If that makes any sense. When one rents the clubhouse it generates a chain of expenses. Hence why the HOA does charge the rental fee. Renting/use of facilities increases expenses for the HOA when in use.

For example: The utility/water bill will increase after use. HOA's budget for "normal" use of the facility. A party/meeting use can be outside that "norm". Party guest may not like the temperature or keep the door open. They use the bathroom or the kitchen sink a lot more. That is money the HOA's paying for. They charge the rental fee to offset those expenses.

You also have to put into play the cleaning/maintenance/supply purchases. That comes out of the HOA's budget. So they have to set the rental fee at an amount that should compensate for this loss. This is why a member still has to pay to rent the clubhouse.

So again, it's kind of weird of how a budget works in a HOA. It's always a fine line of spending what you collect. When to do a special assessment. How much/What to spend reserve money on. Some HOA's are large enough to invest money in CD's or other funds. If they are, then they subject to the same taxes when those get cashed out.

This is another reason a HOA should never ever own a home they may foreclose on. Seen a few who may have done this. That is a huge bad idea because of the tax burdens alone in my opinion. So hope your HOA doesn't get involved in that mess.