Hibernation mode

MichaelT21 (Arkansas)
Posts: 462

Posted:

Well, it looks like the HOA that I'm on will be going into hibernation mode after our next meeting. We have a little work to do with budgeting, but generally, slowing down.

The main thing is that we've spent all of the money we have and need to rebuild the coffers a bit. I think we will be out of discretionary spending money until next May or so. We of course have enough to pay the recurring bills, etc, but the things that require extra board work, like landscaping improvements, we are out of cash for at the moment.

We also have our association in really nice shape in other regards. We have gone through and found the best price vendors for all of our recurring services, so we don't have a need to try to change out vendors this year. Maybe in a couple years we can look again but we're set for now. The major parks maintenance has been completed. There is plenty more maintenance work left but we can take it a bit slower from here on out. We have a solid set of documentation and records as well. So no major work in front of us for a while.

What's left? Well, we still have ACC applications to review, delinquent accounts to review, and compliance issues. Those will keep us meeting monthly even if for shorter lengths of time.

The other things that we can work on is we might need a different ACC form (ours hasn't changed in 15 years). It's probably time that we review our rules and regulations and that will take some time. And I think we can make some decisions on stationary (envelopes) that will improve how we look to our homeowners at very little cost. Maybe create a webpage again. But these are all minor things and ones there is no hurry to rush.

It feels good to sit back a bit, relax, and enjoy the accomplishments around the neighborhood. I don't want to let our foot of the gas once we have discretionary money again, but for a while, it's time to enjoy the neighborhood.

AugustinD
Posts: 1,027

Posted:

What do your governing documents define "discretionary money" to be?

MichaelT21 (Arkansas)
Posts: 462

Posted:

Quote:

Posted By AugustinD on 09/01/2022 4:10 PM
What do your governing documents define "discretionary money" to be?

Our governing documents allow us to set dues at the level the Board wants (as long as it is ratified by the homeowners) and spend money as we see fit. The term "discretionary money" is not defined in our governing documents. I'm calling it the money we collect that we don't use on recurring expenses (landscaping, electricity, reserve contributions, property management fee, insurance, etc). It is the money that we can spend at the Board's discretion - park maintenance, landscaping repair, park renovation, etc.

But there's no defined requirements as to how we spend money in our CC&Rs so we have carte blanche to spend as we see fit.

AugustinD
Posts: 1,027

Posted:

Quote:

Posted By MichaelT21 on 09/02/2022 8:16 AM
Our governing documents allow us to set dues at the level the Board wants (as long as it is ratified by the homeowners) and spend money as we see fit. The term "discretionary money" is not defined in our governing documents. I'm calling it the money we collect that we don't use on recurring expenses (landscaping, electricity, reserve contributions, property management fee, insurance, etc). It is the money that we can spend at the Board's discretion - park maintenance, landscaping repair, park renovation, etc.

But there's no defined requirements as to how we spend money in our CC&Rs so we have carte blanche to spend as we see fit.

Such is your opinion.

For the archives:

The Board's use of excess income may very well be violating the governing documents and Washington (the OP's state) statutes.

For governing documents or state statutes to require return of excess income to owners is not unusual. Alternatively, often there are lawful ways to put this excess income into the reserve accounts. Ceteris parabis, the result of putting excess income into the reserve account in one year would reduce the required assessment for the subsequent year.

MichaelT21, sorry to rain on your parade. You color outside the lines much too often AFAIC. In particular far too often you have posted about either providing services or adding capital improvements that are out of scope of your HOA's governing documents. I think you act ultra vires as a matter of habit at this point.

I think the first post in this thread sends the message to readers that boards can spend owners' money willy-nilly. Not so. Washington state in particular does require ratification by owners of the annual budget, with quite a bit of detail. The interested Washington state reader may wish to start by reading here, first confirming that this statute section applies to their HOA:

https://app.leg.wa.gov/RCW/default.aspx?cite=64.38.025

MichaelT21 (Arkansas)
Posts: 462

Posted:

Quote:

Posted By AugustinD on 09/02/2022 8:58 AM

Posted By MichaelT21 on 09/02/2022 8:16 AM
Our governing documents allow us to set dues at the level the Board wants (as long as it is ratified by the homeowners) and spend money as we see fit. The term "discretionary money" is not defined in our governing documents. I'm calling it the money we collect that we don't use on recurring expenses (landscaping, electricity, reserve contributions, property management fee, insurance, etc). It is the money that we can spend at the Board's discretion - park maintenance, landscaping repair, park renovation, etc.

But there's no defined requirements as to how we spend money in our CC&Rs so we have carte blanche to spend as we see fit.

Such is your opinion.

For the archives:

The Board's use of excess income may very well be violating the governing documents and Washington (the OP's state) statutes.

For governing documents or state statutes to require return of excess income to owners is not unusual. Alternatively, often there are lawful ways to put this excess income into the reserve accounts. Ceteris parabis, the result of putting excess income into the reserve account in one year would reduce the required assessment for the subsequent year.

MichaelT21, sorry to rain on your parade. You color outside the lines much too often AFAIC. In particular far too often you have posted about either providing services or adding capital improvements that are out of scope of your HOA's governing documents. I think you act ultra vires as a matter of habit at this point.

I think the first post in this thread sends the message to readers that boards can spend owners' money willy-nilly. Not so. Washington state in particular does require ratification by owners of the annual budget, with quite a bit of detail. The interested Washington state reader may wish to start by reading here, first confirming that this statute section applies to their HOA:

https://app.leg.wa.gov/RCW/default.aspx?cite=64.38.025

AugustinD,

You're misinterpreting what I am calling "discretionary spending".

For example, we have a line item for General Maintenance in the amount of $5,000. The board spends this money (normally on General Maintenance, although we don't have to spend on that) as we see fit. We might replace boards on park benches one year, another year we might spray for noxious weeks. A third year we might buy new nets for the basketball hoops that we own. This isn't surplus money but it's not a fixed recurring expense that we pay under a contract to an outside vendor, so I call it discretionary spending.

With regards to the budget ratification: While we create a budget with 30 line or so line items, there is no state law that says that we have to spend only per the budget. The budget is our best guess of where expenses are. If we only need $2,000 for general maintenance, the remaining $3,000 can be spent on Landscape Improvements if we so desire.

In no part am I saying discretionary spending is surplus funds. We have no surplus funds. All of our funds go into maintaining our community property and administering our association. We have a long list of things that need maintenance around our community (decay that should be corrected) but cannot attend to at the current time due to budget constraints. Discretionary spending is simply money that the Board has the power to spend at it's choosing rather than allocated through multi month vendor contracts.

I take great pride in operating per our governing documents and Washington State law. We actually do an excellent job in that area. I also take great pride in not trying to follow made up rules that seem like good ideas but don't really exist.

CathyA3 (Ohio)
Posts: 6,299

Posted:

Augustin is correct about laws that require HOAs to return excess funds to homeowners. This is one the things that has prompted my periodic observation that businesses that have to operate under the constraints that HOAs do can find it hard to stay in business.

Example: here in the Great Frozen North, winters are pretty variable. We set our snow removal budget for an average winter. Some years are mild, we won't spend all of the budgeted amount, and we move the excess into something called Snow Reserve to make it clear that this money is earmarked and unavailable for other things. During bad winters, we have to draw on that reserve.

Picture what would happen if we returned those reserves to the membership and then had a bad winter. Our choices would boil down to not clearing streets adequately, which can have some unpleasant and expensive consequences (and howling homeowners) - or we pull funds from elsewhere, which means some planned maintenance won't happen. You can make a good argument that the legal requirement basically mandates poorer outcomes. On what planet does this make sense? But numerous citizens have convinced lawmakers that those nasty HOAs are spendthrifts that need to be reined in and that the money belongs in homeowners' personal pockets - not realizing that the money is eventually going to be spent by the HOA in some fashion, and with a premium attached because of legal silliness. Grrrrr....

We now return you to your original discussion currently in progress ...

MaxB4
Posts: 3,513

Posted:

Actually HOA's would vote to return or roll over excess income per IRS Resolution 70-604. In 14 years, I have NEVER seen any funds returned to homeowners.

AugustinD
Posts: 1,027

Posted:

MichaelT21, we disagree that such a thing as "discretionary spending" exists in any meaningful way for HOAs or COAs. The CC&Rs and state law dictate spending. Your HOA has a budget. General maintenance should be broken down into a number of line items AFAIC. To me it reads like you are telling owners one thing (with your annual budget) and doing something else.

I know budgets are guides. But to me the state of Washington, for one, seems clear that going too far outside the ratified budget argues for the statute saying the board should seek another approval from the owners for a new budget.

I would not use the phrase "discretionary spending" to characterize the purpose of that cash that has accumulated due to spending less on what the ratified-by-owners budget specified. AFAIC it is not a part of the lexicon of HOAs and COAs. "Discretionary spending" implies the board has certain powers which in fact it does not.

For any given year, I believe the governing docs and state law translate to boards not, say, operating so as to save money here or there (particularly on annual budget items whose cost was presumably estimated by the board with some care some months earlier) all so the Board can then spend money "per the board's discretion" subsequently.

I cannot say for sure that what you are doing is appropriate or not appropriate. All I know is that the belief that HOA/COA Boards have "discretionary spending" powers is IMO a grossly inaccurate interpretation of the governing documents and state law, particularly given the requirements for budgets and then, in Washington, a requirement for approval of budgets.

At a minimum, I suggest Boards never state, suggest or insinuate they have the power of "discretionary spending," particularly when there is a requirement for an annual budget, and particularly when the owners have pointedly ratified this budget.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Quote:

Posted By AugustinD on 09/02/2022 10:35 AM
MichaelT21, we disagree that such a thing as "discretionary spending" exists in any meaningful way for HOAs or COAs. The CC&Rs and state law dictate spending. Your HOA has a budget. General maintenance should be broken down into a number of line items AFAIC. To me it reads like you are telling owners one thing (with your annual budget) and doing something else.

I know budgets are guides. But to me the state of Washington, for one, seems clear that going too far outside the ratified budget argues for the statute saying the board should seek another approval from the owners for a new budget.

I would not use the phrase "discretionary spending" to characterize the purpose of that cash that has accumulated due to spending less on what the ratified-by-owners budget specified. AFAIC it is not a part of the lexicon of HOAs and COAs. "Discretionary spending" implies the board has certain powers which in fact it does not.

For any given year, I believe the governing docs and state law translate to boards not, say, operating so as to save money here or there (particularly on annual budget items whose cost was presumably estimated by the board with some care some months earlier) all so the Board can then spend money "per the board's discretion" subsequently.

I cannot say for sure that what you are doing is appropriate or not appropriate. All I know is that the belief that HOA/COA Boards have "discretionary spending" powers is IMO a grossly inaccurate interpretation of the governing documents and state law, particularly given the requirements for budgets and then, in Washington, a requirement for approval of budgets.

At a minimum, I suggest Boards never state, suggest or insinuate they have the power of "discretionary spending," particularly when there is a requirement for an annual budget, and particularly when the owners have pointedly ratified this budget.

Sound advice.

MichaelT21 (Arkansas)
Posts: 462

Posted:

Quote:

Posted By AugustinD on 09/02/2022 10:35 AM
MichaelT21, we disagree that such a thing as "discretionary spending" exists in any meaningful way for HOAs or COAs. The CC&Rs and state law dictate spending. Your HOA has a budget. General maintenance should be broken down into a number of line items AFAIC. To me it reads like you are telling owners one thing (with your annual budget) and doing something else.

I know budgets are guides. But to me the state of Washington, for one, seems clear that going too far outside the ratified budget argues for the statute saying the board should seek another approval from the owners for a new budget.

I would not use the phrase "discretionary spending" to characterize the purpose of that cash that has accumulated due to spending less on what the ratified-by-owners budget specified. AFAIC it is not a part of the lexicon of HOAs and COAs. "Discretionary spending" implies the board has certain powers which in fact it does not.

For any given year, I believe the governing docs and state law translate to boards not, say, operating so as to save money here or there (particularly on annual budget items whose cost was presumably estimated by the board with some care some months earlier) all so the Board can then spend money "per the board's discretion" subsequently.

I cannot say for sure that what you are doing is appropriate or not appropriate. All I know is that the belief that HOA/COA Boards have "discretionary spending" powers is IMO a grossly inaccurate interpretation of the governing documents and state law, particularly given the requirements for budgets and then, in Washington, a requirement for approval of budgets.

At a minimum, I suggest Boards never state, suggest or insinuate they have the power of "discretionary spending," particularly when there is a requirement for an annual budget, and particularly when the owners have pointedly ratified this budget.

Again, you are focusing on something that I said off the cuff.

I'm simply defining our budget into two buckets: Non-discretionary spending and discretionary spending. Non discretionary spending is when we purchase an insurance policy and pay for the policy on a monthly basis, or when we sign a contract with a property management company or landscaping company. We have a fixed expense each month to pay for these services that comes out of our budget.

Discretionary spending is when the Board has some bucket of money that they need to decide how it is spent. In other words, we solicit proposals from vendors, and then approve which proposal to sign, and have the vendor do that work. $5,000 of general maintenance might pay for basketball nets, replacement bench boards, or replacing a damaged trash receptacle. The Board has the discretionary ability (and funds) to decide which of these tasks should be accomplishes. Proposals will be sought, reviewed at a meeting, and decided on upon the Board. This isn't surplus money, this is regular money used to maintain the community that the Board can decide how it is spent.

MaxB4
Posts: 3,513

Posted:

Quote:

Posted By AugustinD on 09/02/2022 8:58 AM

Posted By MichaelT21 on 09/02/2022 8:16 AM
Our governing documents allow us to set dues at the level the Board wants (as long as it is ratified by the homeowners) and spend money as we see fit. The term "discretionary money" is not defined in our governing documents. I'm calling it the money we collect that we don't use on recurring expenses (landscaping, electricity, reserve contributions, property management fee, insurance, etc). It is the money that we can spend at the Board's discretion - park maintenance, landscaping repair, park renovation, etc.

But there's no defined requirements as to how we spend money in our CC&Rs so we have carte blanche to spend as we see fit.

Such is your opinion.

For the archives:

The Board's use of excess income may very well be violating the governing documents and Washington (the OP's state) statutes.

For governing documents or state statutes to require return of excess income to owners is not unusual. Alternatively, often there are lawful ways to put this excess income into the reserve accounts. Ceteris parabis, the result of putting excess income into the reserve account in one year would reduce the required assessment for the subsequent year.

MichaelT21, sorry to rain on your parade. You color outside the lines much too often AFAIC. In particular far too often you have posted about either providing services or adding capital improvements that are out of scope of your HOA's governing documents. I think you act ultra vires as a matter of habit at this point.

I think the first post in this thread sends the message to readers that boards can spend owners' money willy-nilly. Not so. Washington state in particular does require ratification by owners of the annual budget, with quite a bit of detail. The interested Washington state reader may wish to start by reading here, first confirming that this statute section applies to their HOA:

https://app.leg.wa.gov/RCW/default.aspx?cite=64.38.025

But, the OP is from Rhode Island.

AugustinD
Posts: 1,027

Posted:

Quote:

Posted By MichaelT21 on 09/02/2022 10:51 AM
Discretionary spending is when the Board has some bucket of money that they need to decide how it is spent.

Re-write of first post, throwing out the slush in the bucket:

I think my HOA has reached the limit of its spending authority for the line item in our annual budget for "General Maintenance." The HOA of course has enough to pay the recurring bills, but for those things that require extra board work, like landscaping improvements, the HOA is now out of cash, at least per the budget line item.
...
It feels good to sit back a bit, relax, and enjoy the accomplishments around the neighborhood. I don't want to let our foot off the gas once the new fiscal year begins again. For next year's budget, I hope to have enough approved for "General Maintenance" to do even more. Note: The board will carefully break down the "General Maintenance" category into a few line items now, for transparency.

All better.