Preliminary Budgeting for 2021

For a possible $300,000 project why in the world would they not get bid(s)? How can you possibly forecast this on a guess? What happens if they are $100,000 off?

They'll get bids, just not until next year. "That's the next board's problem," is now the current board's standard operating procedure.

Geno

I would make owners aware of the pending paint job and advise them it will be paid for out of Reserves thus when done, the Reserve will drop drastically but as this has been planned, there will be no need for a dues increase to cover it. They will breathe a sigh of relief and say, carry on.......LOL

If you're on the Board, it's still your responsibility to address it - and because you're a homeowner, it's a problem for everyone. I've never understood why board members don't get this - they're not always able to sell and leave before shit happens. So keep educating yourself and speak your piece to the board. If they outvote you and you're REALLY concerned it's a bad move, prepare a one page statement with your concerns and ask that it be attached to the minutes for that meeting. This way, if other homeowners see it, they'll know at least someone was trying to use his/her brain.

Anyway, as John said, bad debt isn’t income because you never had that money to begin with. This line is used when the board decides to write off a debt owed the community (delinquent accounts) and that’s why it appears as a negative number. You subtract the income you did receive from the bad debt, and the result is a more accurate showing of the income you’re working with.

If you don’t have any bad debt to write off at the end of the year (lucky you!), you can simply list that amount in next year’s budget. You’re correct that the bad item should be looked at when preparing a budget because if you wrote off more than what was budgeted, you may need to set a higher amount for next year. You could reduce the number, but I personally think it’s better to overestimate a little than underestimate.

As for reserves, it’s really best to work with a reserves study in setting a budget because (1) you’ll know how much of the assessment needs to be deposited into reserves and (2) it’s a little easier to plan for major projects because you’ll have a better idea of what’s available. Remember, your reserve fund will likely have to pay for other big projects besides painting and life has a nasty tendency to throw curveballs so a project you thought was five years away may become necessary by the end of THIS year thanks to tornados, fires, etc.

Since you don’t know how much this project will eventually cost anyway, you might want to think about when you’d like to do the work, get some estimates to at least get an idea of what this might entail. You could still budget $300K, but you need to understand and accept the work may end up costing a lot more or maybe less. If you don’t want to exceed $300K, you may need to make this a two-year project, starting with the areas that really need the paint job now and doing the rest in 2022.

Keep the homeowners informed whatever you do, as you’re likely looking at assessment increases any way you slice it. What you want to do is try and avoid a special assessment, hence the need for a reserve study.

Yeah - RS is very important and extremely advisable.

Former neighborhood used, and now current neighborhood is going to use, a company in Tampa - initials are RA - they are one of the largest and their president has credentials in the reserve community.

I know of them. I have some of their sample reserve studies available online. They seem very thorough.

I'm leery about the painting project. In 2013, the last time the buildings were painted, the president had the bright idea of buying the paint ourselves. Apparently no one anticipated that the painters would jack up their price when they heard they weren't going to be able to supply the paint at a markup.

Then the president significantly underestimated how much paint was needed and there was an additional $25,000 bill for that after the main contract was signed and the job was underway.

At the end of 2013 the painting reserve fund was in the red by $30,000. To make up for it, in 2014 the board decided to forego any contribution to the roof reserve and instead bring the painting reserve back up to zero. Effectively there was no contribution to the painting reserve for 2 years and 1 year of no contributions to the roof reserve. I seriously wish we had moved out of here a couple of years ago. It's all well and good to be involved and try to make things better, but when nobody even understands what you're trying to do - much less really understand it - things deteriorate rapidly. You can lead a horse to water and all that.

Now the names have changed but the song remains the same. Bad estimates from unqualified people with no expertise.

Apathy - the heart of many problems with HOAs (but you know that already). Part of the reason I'm sure your board has balked at getting a reserve study is because people will yell and scream about the cost. But that's when they need to remember they're there to make decisions in the best interest of the association, meaning they have to be willing to be the adults in the room. This is how it is to be a homeowner of any stripe - regardless of where you live, sooner or later things fall apart because of use, overuse, misuse, abuse - and weather (you're in Florida, after all!)
If you don't take the time to plan and save for the future, what will you do when the future falls on your head and there's no time to run for cover?

A reserve study would address ALL the buildings, as well as other common areas you may have, such as streets, sidewalks, elevators, etc. Usually, the specialist starts with considering when each component was last replaced and how much it cost, then estimates how much useful life is left for each one. From there, the specialist will calculate how much the association should be saving every year until it's time to replace the component. These are estimates as best - since you live in Florida, you know the weather will do what it do, so even if you think the shingles should last 15 years, a stiff wind from a hurricane in year 8 can throw all that out of the window.

So, you still need to talk to your neighbors and see how they feel about all this, because that's the only way this will be addressed. If they don't start paying attention to the future and get a reserve study so there's some purpose to the budget, you and everyone else are in for a bad, bad surprise if you get a hurricane that tears the roof off the suckers and you don't have enough money to cover the repairs. In the meantime, the board members who are there need to grow a pair and take responsibility - since no one's stepping up anyway, they should be able to proceed and not worry about recall. And if people threaten it, throw that back in their face and say "you don't need to recall me - you want my job, here you go!"

That's what insurance is for. There are those here who, with a straight face and in complete sincerity, think we shouldn't worry about it because "sooner or later a hurricane will solve the problem for us". That's what happened in 2004 when Hurricanes Frances and Jean tore through the area and the HOA got a million-dollar settlement from insurance in 2005. The homes were all re-roofed with that money, as well as re-surfacing all the roads, and painting all the buildings. That was a godsend because there were no reserves at the time.

People fail to realize that the insurance industry in Florida has changed radically since 2004 and what happened after 2004 will never happen again.

The 2 recalcitrant husband-and-wife board members are both in their 80s and have announced their plans to sell and move out before the end of 2021. They want to keep assessments as low as possible for their remaining years here. They have no intention of proceeding pro-actively with anything.

The bad debt item isn't really "money" from assessments, but reflects money the association is writing off due to non-payment of assessments. You never had that money, so you subtract it from your income and what's left is what you're really working with - it's more accurate.

Say your monthly budget is $25000, with a bad debt line item of, say, $10K this month, the board decides to write off $2500 one homeowner owed the association. You did the lawsuits, liens and all that stuff, but maybe the mortgage company foreclosed on the owner and sold the property. There wasn't enough money from the sale to pay off the mortgage company and the HOA, and since mortgage companies and banks always get theirs in the end (except the government who trumps everyone), it may not make any financial sense to keep pursuing a homeowner who doesn't have the means (or can't be found). The board should vote to write off the account if the costs of further pursuit wouldn't justify the return and the amount owed is applied against the line item.

When I was board treasurer, we'd look at the line item around this time of year, as we prepare next year's budget, and compare that to the actual amount we had to write off. Sometimes we'd have to increase that amount - which usually came with an assessment increase because the bills are based on all units. Another reason I despise deadbeats and don't think they should have a right to vote in board elections or serve on the board OR use the community amenities. Homeowner votes for CCR and Bylaw amendments are a different story, although there are times I wonder about that too.

Hopefully, you didn't have to write off any debt, in which case, it's ok to use the same amount for next year's budget.

As for your reserves, you really really need a reserve study so you don't have to guess on how much money you'll need to pull out of reserves. You probably have some other projects down the road and you don't want to be caught with an underfunded account that will need a special assessment (that'll make homeowners very angry). And you need to get some estimates from at least three vendors to see how much the project will cost - it may be higher or lower than what you expect.

Once you have some numbers, you can figure out what to do. Maybe you have to scale back the project, painting the homes that really need an upgrade, and save the rest for 2023 (and maybe 2024). The vendors can help you determine which ones are really jacked up. In the meantime, see if you can get a reserve study this year - and make it quick because Dec. 31 will be here before you know it and depending on the weather in your area, you may have to wait until next year for the specialist to do a good one. From now on, plan to do these every five years at least, so you can keep track of the numbers.