budget -voted down by residents

Started by DanielN4 • 34 replies • 572 views

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DanielN4 (Pennsylvania)
Posts: 17

Posted:

Last week, we had our budget vote and it was not passed by the residents of our HOA because of the huge salary increases to 3 employees. My understanding of the budget vote is that the board must abide by the previous budget and the employee raises will not be allowed. Today, I was told by a Board member that the employee raises will be approved and taken out of the general fund. Can the Board do this ? Please respond. TY

KerryL1 (California)
Posts: 14,550

Posted:

Please provide answers to Elle’s questions. Governing documents like covenants (CC&Rs, the declaration, deed restrictions) &. Bylaws are different in every HOA, and some state laws are different than other state laws. No one try to help without info firm you.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Quote:

Posted By DanielN4 on 11/04/2023 12:14 PM
Last week, we had our budget vote and it was not passed by the residents of our HOA because of the huge salary increases to 3 employees. My understanding of the budget vote is that the board must abide by the previous budget and the employee raises will not be allowed. Today, I was told by a Board member that the employee raises will be approved and taken out of the general fund. Can the Board do this ? Please respond. TY

I say they can. The BOD controls the employees (salary, benefits, etc.), not the owners.

DanielN4 (Pennsylvania)
Posts: 17

Posted:

to answer your question...... our HOA has approx. 530 lots and 340 homes. Each lot is approx. 80" x 150". Front setbacks are 50" Rear 25' and side 15'.
The property owner has to keep their own swales clean and free from debris. We have amenities such as a clubhouse, small pavilion area, small 9 hole golf course, playground, basketball ct. & 2 tennis cts.

We have a board of 7 people and a quorum of 25 residents need to be present to approve a vote otherwise the board will vote for the community as a whole. We own our roads and
have 3 employees (1 clerical & 2 maintenance) to take care of the development.

Restrictions... approval is needed to cut down trees over 6" in diameter, pools over 2ft. deep need fencing around it or the entire lot. Vehicles are not allowed to be parked on the roadway during wintertime due to plowing.

Our budget is planned every year in August and voted on in October.

If there is anything else that you need to know..... please ask. TY

DanielN4 (Pennsylvania)
Posts: 17

Posted:

Wouldn't the BOD have a fiduciary responsibility to comply with the residents wishes as they voted the proposed budget down, not allowing the huge raises

KerryL1 (California)
Posts: 14,550

Posted:

You need to answer Elle's questions from an unrelated thread. She wants to know and others of us need to know: "In the new thread, would you please quote exactly everything your Bylaws and/or covenants say about approving the budget?"

Your narrative has nothing to do with this important info and these governing documents that only you can provide. In addition to Elle's requests, please give us the complete citation about: "a quorum of 25 residents need to be present to approve a vote otherwise the board will vote for the community as a whole." Please tell us the NAME of the document that's in, and add a sentence before and your citation.

I can't tell, for instance, if this citation is about a meeting of the Board or a meeting of the members (owners). Is your quote exactly right? In any Bylaws or CC&Rs (AKA, covenants, declaration) I've seen cited over many years, a "quorum" of owners would need to be much, much more than 25 Owners. In addition, Owners do not Usually vote at board meetings, only at meetings of owners (aka "members").

Your CC&Rs & /orBylaws MIGHT say that Owners can vote to turn down a proposed budget that would raise dues 20% or more than this year's dues. That is common and is the law in some states.

While not at all related to your words in your governing documents that we need to see, it's clear that you have a complex HOA with many amenities that are expensive and labor intensive to take care of and to manage the various vendors who work on these areas under contract with your HOA. Who manages all of these contractors' vendors, e.g., landscapers, pool maintenance, golf course upkeep? Does your HOA not have some sort of community manager who does all of that work? A "clerk" seems ill-equipped. Are you sure the clerk & maintneac workers are employed directory by your HOA and not by companies that provide them?

My HOA has no "direct" employees but awarded pretty good raises because labor markets here are very tight and our janitors, security personnel (you have none?) and two maintenace engineers can easily find other work if we aren't competitive with their wages.

TimB4 (Tennessee)
Posts: 21,059

Posted:

For those who may be unaware, Daniel started this topic on a different thread.
She was encouraged to start a new thread so her issue wouldn't be lost by a similar issue that thread was started with.

It is on that thread that Elle asked the questions Kerry mentions.

For anyone who may want to look at those questions, A link to that thread is (go to page 2):

https://www.hoatalk.com/Forum/tabid/55/forumid/1/tpage/2/view/Topic/postid/358453/Default.aspx

ElleN (Idaho)
Posts: 4,420

Posted:

Quote:

In my opinion, if the prior year's budget has a line item for staff salaries/compensation, and if the documentation for how much the staff will be paid for the coming year clearly shows a large discrepancy with the prior year's numbers, then the board is likely violating the bylaws or covenants, where the bylaws or covenants speak to the owners' right to reject a budget. Owners have the right to sue to enforce the bylaws or covenants. So far in my opinion the owners might have a good chance of prevailing here.

But I would feel better seeing exactly what last year's budget says and the documentation of the staff's compensation. Examples of where the board might have wiggle room: Operating budgets usually, and wisely, have a cushion. Sometimes this is called the "contingency fund." The contingency fund helps deal with unexpected expenses. It's possible a court would approve the use of the contingency fund to pay for the raises for staff. The board, through the HOA attorney, might say to the court, "Your honor, the board is also obliged to do xyz, per covenant 23, bylaw 79 and statute section___, all to maintain the HOA common areas. The board in its business judgment found that it could not maintain the grounds pursuant to the governing documents and statute without doing what it did. Also your honor, a budget is only a guide. Stuff happens. Here, this stuff includes inflation and a labor market that means HOAs have a tough time competing for good staff."

The owners' attorney could give a perfectly reasonable response, about how the HOA board's interpretation renders the bylaws/covenants section on owner rejection of the budget to be toothless. The HOA attorney could respond that he agrees the section should have teeth, and yet there would seem to be some wiggle room allowed.

Whence the judge asks for final briefs on the case law; adjourns the court; and declares she will render a decision within a few months. Whence the owners, if angry enough, can recall the directors and replace them with people from their group, who will now face the tough decisions the former incumbents faced. And this is a lot of work. I suggest: Be ready to volunteer, DanielN4.

DanielN4 (Pennsylvania)
Posts: 17

Posted:

TerriS6 (California)
Posts: 3,284

Posted:

Is it common for members to vote on the budget?

SheliaH (Indiana)
Posts: 6,964

Posted:

I'd like to know how "huge" these salary increases were. Huge is subjective- what may be high to you may be fine to someone else. When was the last time the employees received a bump in pay - youband your neighbors do realize the costs if everything has gone up, don't you?

If it's been a few years, did anyone consider an increase at a smaller rate (at least offer a point or two above the inflation rate)? Is there an issue with the quality of work and people felt a salary increase wasn't warranted? Has anyone considered what may happen if one or all those employee decide to quit? If that happens, you'll have costs associated with recruitment, onboarding and training them to do the job (which may be more challenging because the people with the institutional knowledge of your community are no longer there?)

If it is not right do not do it; if it is not true do not say it. Marcus Aurelius

DanielN4 (Pennsylvania)
Posts: 17

Posted:

the 2 maintenance employees got a 12% & 15% raise last yr. and this yrs proposed budget was another 15% for both. Both get medical insurance.
The clerical p.t. employee was hired last yr and given a sweetheart deal at 34,000 / yr working 28 hrs. / wk plus medical insurance.
This year's budget proposal would give her an add'l 5% raise.

SheliaH (Indiana)
Posts: 6,964

Posted:

And before last year,nwhen was the previous increase - 2022 might have been high because the community had to play catch up with inflation. This year may be the same, although it would seem a simpke cost of living increase would be more appropriate.

You say they get medical insurance, but som policies are better than others - and what else do they get benefit-wise (retirement, paid days off, etc.?) The association isn't a for profit corporation, so I don't expect the benefits to be that comparable, but should be something to keep them around. Did you ask the board for any details? Oh, and how have the maintenance people been there- there may have been some talk of them leaving, so the board offered these raises to hang onto them.

The part time job probably deserves a bit more scrutiny because $34k does seem high, but that depends on what she does during that 28 hours a week. This breaks out to at least 5 hours a day (one is likely 8 hours) - and just because 28 hours sounds like a "sweetheart" deal to you doesn't mean she hasn't done some work outside those 28 hours that could warrant the pay if they don't pay overtime.

One more thing - did you look at anything else besides employee pay to see what's gone up to warrant Thus budget - and an increase in assessments (which probably explains why the budget was shot down)? I'm not saying salaries shouldn't be questioned, but it seems people were more focused on that and didn't look to see what else is in that budget. Things like funding reserves and collecting delinquencies may have been more of a factor.

If it is not right do not do it; if it is not true do not say it. Marcus Aurelius

DanielN4 (Pennsylvania)
Posts: 17

Posted:

I've lived in the development for 10 yrs. now and in years past, we had only 1 FT & 1 PT maintenance employees and 2 PT clerical and 1 MGMT company.
The mgmt company has been receiving increases about 3.5% per yr. and last yr was the first yr. for the add'l maintenance employee and last
yr. was the first yr. for consolidating the 2 clerical positions into 1.
The first FT maintenance employee is with us for 5 yrs now and has received 5% raises until last year (15%) and a proposed 15% for 2024.
The other maintenance employee was hired about 3 yrs. ago and was part time. Last yr., he was promoted FT with a 12% raise and a proposed 15% for 2024.
Our employee and mgmt costs are almost 50% of our budget when in yrs. past, they were only 38%.
It is my belief that the employee wages are high for our area.
TY for responding

SheliaH (Indiana)
Posts: 6,964

Posted:

Well, I suspect you don't know what other HOAs in your area pay for staff, if they have any, and you don't live in those communities anyway, so let's focus on this one. You're also forgetting inflation- again. What do you mean by "years past", and considering how labor costs have jumped everywhere for various reasons, can you think of anything you buy now that is less than it was "years ago"?

You still haven't said if you've looked at tbe rest of the budget either - as long as you're focused on salaries, maybe you should also look at the costs of supplies, equipment and other things that make the association function - especially master insurance. There have been several conversations on this website about the high hit everyone is facing.

And speaking of salaries again, health insurance is increasing a lot and people have been faced with increased deductibles and co-pays, and in many instances, pay increases (including som at 15%) haven't been able to keep up. How much do the maintenance people make anyway - and how take home fies they and the office worker get after tax deductions (did you forget those too?)

Mind you, I'm not saying you shouldn't ask questions and after a 15% jump last year, something a little smaller may make more sense. Then again...you say you have a management company AND three employees working directly for the association? Why isn't the company providing staff to do what these three are doing? That may explain why your labor have increased, and if so, why hasn't anyone suggested having the management company provide staff for the work these people areou might pay more in management fees to cover those services, but you wouldn't have to worry about figuring out what their salary should be.

If it is not right do not do it; if it is not true do not say it. Marcus Aurelius

LetA (Nevada)
Posts: 2,679

Posted:

Quote:

Posted By TerriS6 on 11/05/2023 6:17 AM
Is it common for members to vote on the budget?

Very common. There is a budget ratification meeting that is held. if 2/3rds of the owners show up to vote no, then it's back to the drawing board.

LetA (Nevada)
Posts: 2,679

Posted:

Quote:

Posted By DanielN4 on 11/05/2023 8:40 AM
I've lived in the development for 10 yrs. now and in years past, we had only 1 FT & 1 PT maintenance employees and 2 PT clerical and 1 MGMT company.
The mgmt company has been receiving increases about 3.5% per yr. and last yr was the first yr. for the add'l maintenance employee and last
yr. was the first yr. for consolidating the 2 clerical positions into 1.
The first FT maintenance employee is with us for 5 yrs now and has received 5% raises until last year (15%) and a proposed 15% for 2024.
The other maintenance employee was hired about 3 yrs. ago and was part time. Last yr., he was promoted FT with a 12% raise and a proposed 15% for 2024.
Our employee and mgmt costs are almost 50% of our budget when in yrs. past, they were only 38%.
It is my belief that the employee wages are high for our area.
TY for responding

Why do you need so many cooks in the kitchen??? Of the lots and homes you stated, are the lots vacant and unsold?

Those numbers you stated, sounds like the PMC should hire an assistant out of their share of the pie, and as far as the maintenance person, you may
fare better on hiring a contractor as a per diem or as needed. As far as grounds keepers, I would incorporate that into the landscapers duties.

DanielN4 (Pennsylvania)
Posts: 17

Posted:

TY for your input.

DanielN4 (Pennsylvania)
Posts: 17

Posted:

TY for your input

DanielN4 (Pennsylvania)
Posts: 17

Posted:

I want to Thank You for you response. My sentiments exactly !!

KerryL1 (California)
Posts: 14,550

Posted:

I’m baffled why Daniel is unable or unwilling to exactly
quote what CC&Rs ands/or Byalws say re:: Owners’ ability to reject a. Budget. Until he answers this very basic, very fundamental questions, it’s folly and speculation to talk about suing or mediation or anything else.

If I am missing something here or elsewhere, please let me know.

DanielN4 (Pennsylvania)
Posts: 17

Posted:

b/c i am not sure what your looking for. i thank you for your input

SheliaH (Indiana)
Posts: 6,964

Posted:

Quote:

Posted By DanielN4 on 11/06/2023 3:02 AM
b/c i am not sure what your looking for. i thank you for your input

Kerry's question seems pretty clear to me - you said the community voted to reject the proposed budget, so what section in your bylaws or CCRs allows this? CCRs usually address how the common areas are to be used (this is where you'll see rules like parking limits, which exterior changes require review and pre-approval by the board, etc.) The Bylaws address how the community is run (how many board members, length of terms, etc.)

The Bylaws are probably what you need to read - is there language that says something like "the Board proposes a budget for the next fiscal year (however you define that - that may also be addressed in the bylaws), and then there has to be a budget ratification meeting where X percentage o homeowners must approve it. If the budget is rejected, the current year's budget will be used until a new budget is approved."

For example: in my community, the Bylaws state the board must send the upcoming year's budget to homeowners 30 days in advance. We operate on a calendar fiscal year, so the new budget should be received by Dec. 1. The board may increase assessments up to 5% over the current year - any higher and it must be approved by a homeowner vote. I hope this helps you understand Kerry's question - if you read the documents and are still unsure, you may need to consult a private attorney to research your documents for you.

There may also be an HOA statute in your state that allows homeowners to reject a proposed budget under certain circumstances, but there's usually a process to this, and that law may only apply to HOAs that were established after a certain date, so if yours was established before the law took effect, it might not apply.

If you were at that meeting where the budget was discussed, exactly what went on that resulted in the budget being rejected? Or did someone circulate a petition that said the undersigned reject this budget because of X, Y and Z? A petition doesn't override a board decision - and if you've lived in this community for 10 years, you should already be well acquainted with what your documents say. If you've forgotten, pull them out and read it again. Actually, it may be that everyone should read it - the board may have backed down on this issue when it didn't have to.

If it is not right do not do it; if it is not true do not say it. Marcus Aurelius

TimB4 (Tennessee)
Posts: 21,059

Posted:

Quote:

without reading your governing documents or applicable statutes, I would argue that this isn't the case.

The proposed budget was to set the annual assessment.
That budget was rejected and, per you, the previous budgeted assessment amount must be used.
No issue with this.

However, budgets are guidelines of how the money should be spend and are often changed as issues present themselves.
The only absolute would be the bottom line (you only have x dollars to work with).

As long as the Board kept the assessment amount in line with the membership vote, they can allocate the funds how they see fit (unless statutes or governing documents say otherwise).

DanielN4 (Pennsylvania)
Posts: 17

Posted:

TY very much for your input

DanielN4 (Pennsylvania)
Posts: 17

Posted:

TY for your input. Each yr. in October, the BOD (7 members) presents a proposed budget for the residents to vote on. The residents need to have a quorum of 25 good standing homeowners in order to approve or disapprove of the proposed budget. In our case, we had 22 residents who vote NO and 19 residents who voted Yes for the proposed budget. The 22 NO votes meant that the proposed budget was not approved and our bylaws stipulate that the BOD must revert back to the previous budget. The reason that the budget was voted down was b/c of the excessive raises given to 3 employees and the MGMT co. The previous budget did not have these excessive raises in it. My question is: Can the BOD give these excessive raises to the employees & MGMT if we revert back to last yr's budget where the raises were not listed on it ?

SheliaH (Indiana)
Posts: 6,964

Posted:

As Tim noted, budgets are guidelines, not set in stone, and as long as the assessment doesn’t change (because the homeowners rejected the proposed budget), they may still move money around as needed. It’s similar to what you do with your own budget – spend less over here because there’s a need for something else someplace else. You might also look at what you spend money on – maybe you do need to reduce or eliminate things you don’t really use or look around for products and services at more competitive rates.

If a board member told you they’ve found another way to provide the salary increases on last year’s budget, it’s ok to ask how that happened because you don’t want other parts to take a major hit, especially reserve funding. That said, if your assessment isn’t going to change (because the budget was rejected), what’s your problem now? Are you suggesting the staff not get a raise of ANY kind because they got one last year? Did you suggest that to the board or that they consider a smaller percentage – if not, why not? We know you think the proposed raises were “excessive” but that’s your opinion and not necessarily fact. How do you know what these people got or were supposed to get is well above the norm – have you researched the HOAs in your area that are similar to yours and also have direct employees?

Kerry also noted that the labor market is very tight and depending on what’s happening in your community, the raises might be necessary to keep these folks working for you. Ellen also made some great observations about budgeting and it doesn’t seem you’ve considered any of that.

Once again, there’s nothing wrong with asking questions for more information on budget line items and still feel the same way, but I worry about people who only focus on one part of HOA budgeting. Some folks think they can get first class services at dirt cheap prices, and that isn’t always the case.

And have you considered the quality of work these folks provide? If most of the homeowners (not just you) are happy with it, I see no reason why a smaller salary increase couldn’t be suggested. Would you be ok with, say, 5% a year over the next three years?

If you’re still unhappy, you can rally your neighbors together and vote this board out in the next election and replace them with people who will do as you ask (one of them may need to be YOU). But be careful of what you wish for because you may get it. By now, I’m sure they’ve heard the community said nope to this budget because they don’t agree with the salary increase, so what will you do if they quit? Are you willing to help find people who will work for less or at the 2022 salaries – if you already know folks willing to do so, refer them to the board so they can consider it.

If it is not right do not do it; if it is not true do not say it. Marcus Aurelius

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Quote:

Posted By SheliaH on 11/06/2023 11:07 AM
As Tim noted, budgets are guidelines, not set in stone, and as long as the assessment doesn’t change (because the homeowners rejected the proposed budget), they may still move money around as needed. It’s similar to what you do with your own budget – spend less over here because there’s a need for something else someplace else. You might also look at what you spend money on – maybe you do need to reduce or eliminate things you don’t really use or look around for products and services at more competitive rates.

If a board member told you they’ve found another way to provide the salary increases on last year’s budget, it’s ok to ask how that happened because you don’t want other parts to take a major hit, especially reserve funding. That said, if your assessment isn’t going to change (because the budget was rejected), what’s your problem now? Are you suggesting the staff not get a raise of ANY kind because they got one last year? Did you suggest that to the board or that they consider a smaller percentage – if not, why not? We know you think the proposed raises were “excessive” but that’s your opinion and not necessarily fact. How do you know what these people got or were supposed to get is well above the norm – have you researched the HOAs in your area that are similar to yours and also have direct employees?

Kerry also noted that the labor market is very tight and depending on what’s happening in your community, the raises might be necessary to keep these folks working for you. Ellen also made some great observations about budgeting and it doesn’t seem you’ve considered any of that.

Once again, there’s nothing wrong with asking questions for more information on budget line items and still feel the same way, but I worry about people who only focus on one part of HOA budgeting. Some folks think they can get first class services at dirt cheap prices, and that isn’t always the case.

And have you considered the quality of work these folks provide? If most of the homeowners (not just you) are happy with it, I see no reason why a smaller salary increase couldn’t be suggested. Would you be ok with, say, 5% a year over the next three years?

If you’re still unhappy, you can rally your neighbors together and vote this board out in the next election and replace them with people who will do as you ask (one of them may need to be YOU). But be careful of what you wish for because you may get it. By now, I’m sure they’ve heard the community said nope to this budget because they don’t agree with the salary increase, so what will you do if they quit? Are you willing to help find people who will work for less or at the 2022 salaries – if you already know folks willing to do so, refer them to the board so they can consider it.

Well said.

TimB4 (Tennessee)
Posts: 21,059

Posted:

Quote:

Posted By DanielN4 on 11/06/2023 9:00 AM
The previous budget did not have these excessive raises in it.
My question is: Can the BOD give these excessive raises to the employees & MGMT if we revert back to last yr's budget where the raises were not listed on it ?

Expecting that the Board found a way to finance the raises without a raise in assessments, then yes.

As Shelia pointed out, the better question is to ask the board how they funded the raises.
If it was lowering the amount contributed to reserves, that would be a huge concern and something to rally the membership for.

KellyM3 (North Carolina)
Posts: 2,239

Posted:

Daniel,

My impression is that the board of directors can approve pay increases for community employees and find funding within the existing budget.

Your 2024 budget is not approved, it appears. Usually, an HOA budget is quite difficult to not ratify but those rules are embedded in the by-laws.

DanielN4 (Pennsylvania)
Posts: 17

Posted:

I want to Thank you for your input. Lot's of good information to digest. TY

DanielN4 (Pennsylvania)
Posts: 17

Posted:

I want to Thank everyone for their input. Lot's of good stuff. I will rally the NO residents to come to the next meeting this Nov. for some answers. TY

KerryL1 (California)
Posts: 14,550

Posted:

Why do you think this is true, Daniel? our wrote: "The residents need to have a quorum of 25 good standing homeowners in order to approve or disapprove of the proposed budget." And The only way this can be the truth is that those words are in your Bylaws. But we, or at minimum, I, need to see those exact words as they are writtten in your Bylaws

It would be exceedingly unusual if such a small group of owners can vote does a proposed budget. Another reason I think you are misinterpreting or misunderstanding the Bylaws is that usually the amount of votes needed in HOAs is written as a percentage, not as a number. You have 530 lots, so there are 530 voters. and you're claiming that less than 5% of them constitute a quorum.

Waitaminute: Please tell us what your think the word "quorum" means.

The only time we see a tiny % of owners being able to do anything in the HOA is to call a special meeting of the members (owners)

KerryL1 (California)
Posts: 14,550

Posted:

Why do you think this is true, Daniel? our wrote: "The residents need to have a quorum of 25 good standing homeowners in order to approve or disapprove of the proposed budget." And The only way this can be the truth is that those words are in your Bylaws. But we, or at minimum, I, need to see those exact words as they are writtten in your Bylaws

It would be exceedingly unusual if such a small group of owners can vote does a proposed budget. Another reason I think you are misinterpreting or misunderstanding the Bylaws is that usually the amount of votes needed in HOAs is written as a percentage, not as a number. You have 530 lots, so there are 530 voters. and you're claiming that less than 5% of them constitute a quorum.

Waitaminute: Please tell us what you think the word "quorum" means.

The only time we see a tiny % of owners being able to do anything in the HOA is to call a special meeting of the members (owners).

Rea Shelia's good explanation!

DanielN4 (Pennsylvania)
Posts: 17

Posted:

Thanx again for your input. According to our bylaws.. a quorum is a minimum of 25 members of our HOA in good standing. And BTW.. the recent Oct. meeting was the most members(41) that came out to vote, in the 10 yrs. that I have been living here. Our next step is to go to the Nov. meeting and start asking some questions to the BOD. Thanx again for your help

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