Does increase in dues require a vote of the Membership?

Got a question about this....I'm trying make sure I understand this. I think that my HOA board can increase annual dues just with a board-level decision, not having to take the vote to the membership, but I see there's a line in the Special Meeting section that talks about holding a Special Meeting for the purpose of voting an increase in Regular Assessment. I think my state laws are silent on this.

Here's everything relevant I could find. Any help interpretting this? They way I am reading it, the dues (regular assessment) can be adjusted each year without a membership vote. Correct?

CCR
3.28 "Regular Assessment" shall mean the portion of the cost of maintaining, improving, repairing, managing and operating the Common Areas and all Improvements located thereon, and the other costs of an Association which is to be levied against the Property of and paid by each Owner to the Master Association, or applicable Local Association, pursuant to the terms hereof or the terms of this Master Declaration or a Supplemental Declaration.

8.2 Regular Assessments. All Owners, including the Grantor, are obligated to pay Regular Assessments to the treasurer of the Association on a schedule of payments estab~1shed by the Board.

8.2.2 Computation of Regular Assessments. The Association shall compute the amount of its Expenses on an annual basis. The Board shall compute the amount of Regular Assessments owed beginning the first day of  the third month following the month in which the closing of the first sale of a Building Lot occurred in [HOA] for the purposes of the Master Association's Regular Assessment, and in the applicable Tract for the purposes of a Local Association's Regular Assessment ("Initiation Date"). Thereafter, the computation of Regular Assessments shall take place not less than thirty (30) nor more than sixty (60) days before the beginning of each fiscal year of an Association. The computation of the Regular Assessment for the period from the Initiation Date until the beginning of the next fiscal year shall be reduced by an amount which fairly reflects the fact that such period was less than one year.

8.9 Special Notice and Quorum Requirements. Notwithstanding anything to the contrary contained in either the Bylaws or the Articles, written notice of any meeting called for the purpose of levying a Special Assessment, or for the purpose of obtaining a membership vote in connection with an increase in the Regular Assessment, shall be sent to all Members of an Association and to any person in possession of a Building Lot in the applicable Tract, not less than fifteen (15) days nor more than thirty (30) days before such meeting. At the first such meeting called, the presence of Members or of proxies entitled to cast sixty percent (60%) of the total votes of the Association shall constitute a quorum. If such quorum is not present, subsequent meetings may be called subject to the same notice requirement, and the required quorum at the subsequent meetings shall be fifty percent (50%) of the quorum required at the preceding meeting. No such subsequent meeting shall be held more than thirty (30) days following the preceding meeting.

Bylaws
Section 4.3. Special Powers and Duties. Without prejudice to such foregoing general powers and duties, and such powers and duties as set forth in the Master Declaration, the Board of Directors is vested with, and responsible for, the following powers and duties:
(e) To fix and levy from time to time Regular Assessments, Special Assessments, and Limited Assessments upon the Owners, as provided in the Master Declaration;

Section 8.9 refers to special assessments, which aren't the same as regular assessments. From what I can see, your board can set regular assessments (the ones you pay every month, year or however often they are assessed), whereas a special assessment is levied for a specific reason and that requires homeowner approval.

some associations may require homeowner approval For increases to the regular assessments that exceed a certain percentage - For example, in my community, increases over 5% of the current year's assessments require homeowner approval. Special assessments have to be paid in addition to regular assessments and depending on what it's for, you could be talking several thousands of dollars of more. That's why the documents usually require homeowner approval for special assessments.

As a Board President, our Board has the power, without Owner approval to raise the monthly assessment a maximum of 5%. This covers both budgets, Operating and Replaecment Reserve.

If the expenses and reserve study say this increase was needed, what is the problem?

Owners determining en masse what the assessment is = Surfside Condo collapse repeat.

https://www.nytimes.com/interactive/2022/01/28/magazine/miami-condo-collapse.html?smid=fb-nytimes&smtyp=cur&fbclid=IwAR1d_1iuuCuafg7vZXbJSqRSRXIAGnSaaMEOjGucKaaxV34N8ZcS4GXg-_I

Surfside may have more of a chance of it happening again then not.

Hi Adam,

From the information you've provided, it appears that your board of directors can establish your "regular" monthly dues rate on an annual basis as part of the budget process. There is no information on dues increase limitations in what you've provided so that may be elsewhere in your by-laws.

I would think most HOAs would have limits on dues increases articulated in the by-laws.

I'll sidestep the whole condo collapse issue because it's not applicable to your inquiry.

FYI

Our BOD, on its own, can rise the ANNUAL DUES as much as they want but only once a year. In order to do so, we have to send each owner a copy of the budget for the coming year on or before 12/01 and the increase becomes effective 01/01.

Owners MAY call a Special Meeting before 01/01 to reverse the increase. 51% of ALL OWNERS must vote to reverse the increase. If they reverse it there is an automatic 5% dues increase to the existing budget beginning 01/01.

Now ask the majority of our owners and they would say the BOD can only increase dues by a max of 5% per year. This misinformation was spread by the builders on-site Sales Agent.

2/3rds of ALL OWNERS would have to approve a Special Assessment no matter the amount.

I think it's pretty common to build in a little wiggle room in the annual budget because many of the items are estimates and unexpected things happen.

"Slush" funds are probably less common, although we do something like that with our snow reserve. We budget for an average year - sometimes we spend more than budgeted, sometimes less, because the weather in my area can vary widely. If we spend less, we put it into snow reserve so that it's earmarked for the next bad winter. Otherwise it's too tempting for board members to say "oh hey, money!" and go out and spend it immediately.

It may make sense to rethink the slush fund idea given how unpredictable and more frequent the extreme weather events have gotten.

I was thinking about special assessments requiring homeowner approval, which I think can happen even in communities that don't require approval for the annual budget (such as mine).

Special assessments aren't always the result of poor financial planning. They can also be the result of an unexpected event whose costs exceed available funds (think natural disasters or being on the receiving end of a lawsuit).

So the notion that requiring approval for the special assessment will encourage better planning doesn't look at the whole picture. In practice what it does do is make it more likely that the HOA/COA will take out a loan - and a loan is a guarantee that things will cost more in the long run than they would if you had paid upfront. The loan will also impact other things such as people's ability to obtain financing for their homes. Borrowing may make sense only if the other options are worse, such as declaring bankruptcy or neglecting essential maintenance (I remember the poster who said that the buildings in her community had tarps on the roofs and she couldn't sell her condo).

In short, homeowner approval feeds the narrative that expenses can be voted out of existence, and that just isn't true. Unless the board is a bunch of spendthrifts with room for belt tightening, voting against assessment increases will come back to bite you. It's not a matter of "if", it's a matter of "when".

@Augustin: as I wrote previously, the Directors have already stated in writing that they are increasing the dues an incredible amount, mostly to pay for 1-off expenses this year, then plan to keep the dues as is to use for any future unknowns. We all know that dues rarely are re-calculated back down.

Regarding the Reserves, we currently have about 75% of our annual Assessments in reserve. ~$70k. Our reserve study more or less stated that we are in a good place and contributing as we currently are will keep us on target for reserve funding.

We are SFH across a few streets with just road repair and landscaping to pay for. No clubhouse, pool, etc.

@Pat: great points about the non-profit. A NP should be living hand-to-mouth, not building up a slush fund. Our Directors have stated in writing "any extra funds will remain in the HOA", regarding keeping the dues at the new level for the coming years after the 1-time expenses.

unfortunately, its the latter. We have a reserve study and a well-funded reserve with a very low forecast for expenses for next 10 years.

If you are saying that the Expenses (including the Expense of paying into the reserve fund) that the Board budgeted for this year do not equal the sum of the assessments the board has set for the owners, then this is where you can challenge the board. Do you understand this?I do not know what you mean. Can you please re-state another way?Again, I cannot tell what you mean. Are you saying that the annual income of the HOA is about $93k = $70k / 75%

If so, I do not know what the relevance of this would be.

Very well. Then once again, the question is whether the Board is collecting money (via the assessments) that is in excess of the annual Expenses as shown on the Board's Budget.

Would you please be patient? Communications on this medium are tricky. No one's trying to give you a hard time.

I'm going to disagree with the part in bold. What this sort of thing does is drive short-term thinking, and often results in higher costs overall. The HOA will select vendors solely on price - and this in turn leads to "Mickey Mouse" repairs that don't hold up and must be redone. So the HOA pays twice: once for the cheap repair and once for the proper one.

There's a saying: the cheapskate spends the most. There have also been many studies that looked at spending patterns of people who are living hand to mouth. Basically it's a recipe for poverty since they don't have the cash on hand to handle emergencies. The only option is to take on debt (often credit card debt or a loan from a pay day lender), and that's a hole many never climb out of.

This is another of my gripes about HOAs and COAs: the belief that running a very tight budget will lead to smarter spending. It doesn't. In practice, what many associations do is borrow from the reserves, whether or not that's appropriate, and then they wonder why the reserves never seem to match up with what the reserve studies had been predicting.

I'd much rather associations have a line item in the budget for a rainy day fund to handle the unexpected. And there are always unexpected expenses, lawmakers having neglected to provide boards with functioning crystal balls.

And if the "rainy day" fund still bothers people, remove the dollar signs and think of it as redundancy. Engineers build redundancy into systems that must not fail. An HOA's finances aren't quite on the level of a bridge that can kill people if it collapses, but the principle is the same.

I think the root of many HOA/COA finance problems is that many people can't really afford their homes, and the HOA/COA structure allows them to hide this to some extent. But that's a whole 'nother issue.

Cathy, no offense, but you may want to review and understand the definition of a non-profit. Also, no one said anything about short-term thinking or judging vendors solely on price or running a tight budget. You can budget and sign contracts for the platinum Cadillac service....the problem is about a NP amassing a slush fund. By definition (and law) they are not to be turning a profit. If there is a surplus at the end of the year, it will then get taxed at the corporate rate or the funds need to be distributed back to the members.

Please, lets try to avoid your feelings about budgeting and stick to the facts of how NP's are required to operate and the my statement about my NP openly stating they want to amass a surplus of income.

There's another conversation on this website about telling homeowners they may have a large bill in their future to pay for new roofing. I've already suggested a new reserve study because the OP didn't say if or when the last one was done. After reading Cathy's math problem, I suggest he and anyone else going through this discussion in their communities put this question to the community and challenge them to come up with a solution. That should be fun to watch......

Oops; this appears to be CathyA3's solution to the aforementioned math problem.

I do not buy that something unexpected and expensive can arise that the reserves would not lawfully cover. As needed this would be followed by a Special Assessment.

not to mention the fact that creating a line item for a rainy day fund is bordering the line of non-profit legality....

The problem is that the reserves are already earmarked for future spending on capital assets, and that's what those funds must be used for. They're not a rainy day fund to pay the electric and water bills when delinquencies suddenly rise. (I was being somewhat facetious in my previous example, but it was a situation that was faced by many associations in 2020-2021.)

In practice what happens is that boards raid the reserves to cover the shortfall, and they often fail to replace the funds they withdrew regardless of what the law in their state says. If the money isn't there, it isn't there - and no amount of wishing, whining or lawmaking will change that.

Being able to tap the reserves is a great solution for a *temporary* budget shortfall - ie, a planned fall project suddenly has to happen now. It is not a solution for what I view as systemic shortfalls: consistently unrealistic budgeting, homeowners voting down already lean budgets, or increases in delinquencies as a result of events in the larger economy. A board may have little to no control over some of these things.

I like the Operating Reserve description, because that's what is needed. Some states and/or associations require the unspent money be returned to homeowners, and I think that is short-sighted since it doesn't allow for nuance. In some cases it may be appropriate, in others not - but it should be up to individual communities to determine this.

There will always be unexpected events no matter how skilled or responsible a board is. Forbidding the use of a reasonable method of handling them (ie. operating reserve) means that they will be handled through sub-optimal means (ie. raiding the reserve accounts or taking out a loan) or not handled at all (deferred maintenance). There will be consequences, and not good ones.

AFAIC, CathyA3's thinking (that a cushion should be built into the budget and then assessments should be set accordingly) turns out to be spot on. Importantly to me, and maybe others who like hard support for whatever, CathyA3's thinking on this turns out to be 100% consistent with the advice for a nonprofit to have an "Operating Reserve." Well done.

Some puny commentary from me --

I hear you that often either state statutes or a HOA's covenants prohibit borrowing or taking money from the reserves. Yet where this prohibition does not exist, I think many a HOA, for good or bad, exercises the option to cut back on reserve contributions or take money out of reserves to pay for the unexpected expense now and then. And yes, they should replenish the Reserve the following year. And yes, they often do not.

Boards get stuck with bad circumstances? Often they have to choose from the least worst of choices? I loathe HOAs/COAs taking out loans. I think loans should be a last resort. I would prefer the HOA raid the Reserve Account before taking a loan.

For a nonprofit's operating reserve, googling indicates that a minimum of three months (a.k.a. 25%) of the annual operating expense budget is pretty much the conventional wisdom. For a condo, I think this is a lot of money. And yet 25% seems like an appropriate cushion to me, based on the unexpected expenses I have seen.

I do not think I have ever seen this done.

I am expecting guffaws from the veterans at the thought of aiming for 25% of the annual operating budget being in an "Operating Reserve." I am sure the guffaws will not be mean spirited but instead, a reflection of reality.

I hope to hear from say BillD16 or TimB4 or SheliaH or anyone else who has maybe seen "Operating Reserve" as a bona fide line item on the budget and so a bona fide ledger account for the HOA's books.

In Florida, that statute that governs HOAs (not COAs) does not require that reserve funds be restricted. So we can use funds from our reserve for items that are not in the reserve study. This is good and bad. Good in that when we have an unexpected expense, like we recently did with replacing 20 year old landscaping that arguably should have been in the reserve study, we can pay for it with reserve dollars. It's also bad, because we had recent boards who lowered the monthly fees, ran the operating budget at a deficit for several years, and pulled money out of reserves to balance the budget.

We also do have a "slush" fund in our budget that we have labeled "hurricane contingency". We received an incentive from our cable company to renew our community-wide contract and we put that in the contingency fund. It gets carried over from year just in case we have a hurricane and need to do expensive clean up.

I'd much rather have an excess than have to try and explain to the homeowners why our "non-profit" bookeeping ended up with a special assessment.

Our documents do not require a vote of membership for dues increase. We present our budget every year at a budget meeting open to all homeowners, but the only ones voting to approve the budget is the board.

LoriM15, I read and enjoy your posts. It is obvious to me that you are one of the sharpest people here, and by a lot. But I think what you describe above is a great example of how directors often have little understanding of what they are doing.

HOA budgets are supposed to have an "expense" line item for reserve funding. Pulling money out of reserves likely throws reserve funding out of whack, meaning that, without an assessment increase, the budget is not balanced. IMO what this Board did is not balancing the budget. Instead, what this Board did is sheer financial jabberwocky.

Interesting post indeed.

We just increased our dues. The increase is not earmarked for anything specific nor called anything (Slush Fund). If at the end of the year we have an excess we will decide what to do such as probably put it in the General Reserve Fund I understand it can be carried forward if labeled for a specific expense expected such as snow plowing, etc. We were operating on a balanced budget but it was getting harder to balance it, thus the increase.

Lori

I say repair/replace anything should/can come out of the reserves. One common argument is where/when does repair/replace become an improvement?

Mia has an axe to grind and for what reason I do not know. I expect she is the type that will never be happy unless things are done her way.