HOA Activities/Events

Does your community hold events using HOA dues? If so, what percent of your budget do you allocate for these events?

Just curious! Thank you!!!

Beware the implications of HOA-sponsored (social) events.

Taxes - Per IRS tax laws, no more than 10% of your annual budget can be used for expenses not related to maintaining your property or real estate.

Liability - Make sure your liability insurance provides coverage (personal injury, medical payments, property damage, etc) for such events. Also. be sure you don't inadvertantly discriminate (I know of a case where an HOA planned an event that was held in a location that wasn't hadicapped accessible. It was an oversight, but they came close to getting into trouble).

Homeowners who do not routinely attend events may object to having a portion of their dues being used to fund them.

If all residents are invited, then it is for all members' "welfare."

Just because someone does not attend or does not personally "care for" whatever type of event doesn't mean the event wasn't intended for their "welfare" as well.

If, on the other hand, they were not invited, then they might have an argument.

Michele,

I don't disagree. But, I never said that the residents who normally choose not to attend events had a "legal" gripe. If the majority of residents wish to have the association fund events from the dues (within the limits allowed by IRS tax laws), then so be it. But, that doesn't mean that those who choose not to attend events have to be happy about it. They have every right to consider it unfair that they are required to pay for events they don't attend.

I believe events are best organized and held by the residents themselves and not by an "official" committee of the HOA, and that they are "pay-as-you-go" events. It's much simpler that way. We have an (informal) social committee in our community that plans and holds various social events for the residents each year. The association has nothing to do with it, other than the board reserves the right to step in if community property is being destroyed or being used for illegal or questionable activities. That approach has worked very well for five years and events are typically well attended

Heather - I don't think you are necessarily in the minority. We provide $2000 annually out of our $125,000 budget for the "Events Committee". Out of this amount they hold an annual Spring & Fall festival, Neighborhood Night Out BBQ, and Holiday Decoration competition.

I agree that it can help raise property values and make our neighborhood more desirable. I know of at least two families who chose our neighborhood over others specifically because of our community activities. I also don't accept the argument that it is it "unfair" that some wind up paying for events they don't attend. As was mentioned, they have as much opportunity to participate as anybody else, but they choose not to. We also have have parks with playground equipment and a pool that the HOA maintains. Some people choose not to make use of these facilities, yet we still expect them to pay all of their annual dues which pays for this maintenance. Keeping our communities safe and desirable sometime means that the entire community pays for some things that individual members may not have a use for.

Yeah Dwight and Roger agree with me! Thanks!!!!

Now, how do I convince the grumpy old men on my board to budget some money to Activities? What's the best way to persuade them? Maybe copies of budgets around us showing that other neighborhoods do budget for it?

Can I poll the residents to ask if they want some of their HOA dues to go to Activities or can I not do that since I'm the secretary?

Roger,
Although I respect your opinions, I must disagree with you that funds spent on activities meet the 90% test according to the IRS.

The rules for the 90% test can be found in 26cfr1.528-6, and I think they are very clearly stated. The section starts as follows:

"§ 1.528–6 Expenditure test.
(a) In general. An organization cannot qualify as a homeowners association under section 528 for a taxable year unless 90 percent or more of its expenditures for such taxable year are qualifying expenditures as defined in paragraphs (b) and (c) of this section. ..."

In particular, paragraph (c) states:

"(c) Examples of qualifying expenditures.
Qualifying expenditures may include (but are not limited to) expenditures for:
(1) Salaries of an association manager and secretary;
(2) Paving of streets;
(3) Street signs;
(4) Security personnel;
(5) Legal fees;
(6) Upkeep of tennis courts;
(7) Swimming pools;
(8) Recreation rooms and halls;
(9) Replacement of common buildings, facilities, air conditioning, etc;
(10) Insurance premiums on association property;
(11) Accountant’s fees;
(12) Improvement of private property to the extent it is association property; and
(13) Real estate and personal property taxes imposed on association property by a State or local government."

Although the paragraph states that the expenditures are "not limited to" the examples given, I think one would be stretching to consider funds spent on activities or events to be similar in nature to the examples given here for the "acquisition, construction, management, maintenance, and care of the organization’s association property." as required by paragraph (b). However, snow removal, lawn care, landscaping, etc., although not specifically mentioned, would most likely qualify.

One other interesting note, paragraph (a) goes on to say: "Investments or transfers of funds to be held to meet future costs shall not be taken into account as expenditures." and "In addition, excess assessments which are
either rebated to members or applied against the members’ following year’s
assessments will not be considered an expenditure for the purposes of this section."

I interpret these latter statements to mean that funds transferred to a reserve account to repair or replace a roof in the future (a specific example given by the IRS in paragraph a) do not count as part of the 90%, but must be included in the 10% non-qualifing expenditures. In other words, funds to repair a roof qualify for inclusion in the 90% expenditures only in the year they are spent; not in the year they are saved.

I know. I was just sayin' . . .

Didn't the last flurry of posts cause some concern about this activities subject. I am not suggesting it is not done, it is done all the time, we know that. That does not make it legal and if you are suggesting that the IRS say you can spend 10 % of your budget on parties, I believe that is not their intend. The funding of a reserve account is given as a example, I did not see any example that suggested parties and activities. If you are going to assume this, you are also agreeing that anything the board may decide on is ok, as long as they decree it is for the members. In this breath you would have a hard time excluding religous contributions if no members objected, set up an open bar at functions if no one objected, political rallies for individual candidates if no one objected. And, as one of those grumpy old men that is not sitting around the table complaining but still objects, I would like to remind you that history is rife with the failure of leaders that assumed because no one complained, all was well.
But we are all just giving opinions and I learn a lot when we have the spectrum to analyse and from that form our opinions.

If I'm not mistaken, and I very much could be, but I'm sure someone will point it out if I am, that language could tend to support social activities for the community as well.

I think ours read almost exactly like that.

Oh, thanks. Is it illegal or something?

Heather,
What you and others have describing is simply a matter of degrees. First you are attributing more authority to the by-laws, than state statutes or more senior documents. I am sure you are not suggesting that the Board has carte blanch to spend what they want as long as the label it "for the common good." Do you then mean you are limited on the funds expended? Didn't hear that. Do you mean you need a majority vote from the board? Do you mean you have the authority to spend anything you want? If you are saying that then who sets the amount and the cause. As I said in prior posts, my regime does it. In my opinion they do it for convenience and to "look good" and don't forget the Boards bent (common)that they work long hard hours and deserve a little freebie, once in a while. I am not going to the wire over this with the Board, it is not worth it. However if I feel it is abusive, I will. Now please explain to me the legality of my last two sentences. I have no standing, I can't justify one without justifying the other, and I happen to think they are both illegal. But, someone said, "you would be surprised if you knew how little people considered your opinion."
IMHO.

Heather,
I wish I had a magic wand to make your world right, but then if I did, I would use it to make my world right. Grumpy ---shumpy, who cares, if they don't do what you believe to be right, find a way to get around them. Being grumpy does not bestow intelligence, outsmart them. Do I think you should have a party if you want one.........of course I do. Do it with or without their help. They can't stop you. Heather, you sound just as smart as any grumpy old man I have run up against. Good luck and have a good time and if you can shake them down for a few bucks, do it. May be you could send a grumpy old woman to sway them, tell them it is a Community Seasonal Enhancement Fund Drive and Exposure to the Joys of Living at ___________________, and their First Annual Association gathering of all Members to Solicit Contribution to Hold the Second Annual, et, etc.

If nothing else works, tell them I said they should give you the $75.

Aaaaahhhhhh - the good ol' "catch-all interpret it almost any way I want to" escape clause. I feel "cranky" today, so here goes.

These clauses seem to appear almost everywhere. It is usually the author's way of saying "just in case I left anything out, use this as justification." The problem I have with them is they can be interpreted to allow almost anything, within reason (and sometimes not within reason).

Suppose I live in a community that has a large number of non-english speaking homeowners. Let's say they speak Foreignese, so as not to single out any particular group. They speak some English, but poorly, and converse among themselves in Foreignese. The English-speaking homeowners know very little, or no Foreignese. As you might expect, the two groups don't mingle very well, if at all, during activities and events. So, I propose that the association sponsor language classes, free to all homeowners, with the costs paid for by the association. We would offer English classes to those who know very little English, and Foreignese classes for our English-speaking residents. I think this meets the test of being useful for the benefit and welfare (maybe not the health) of the owners and residents of the community. It would allow the two groups to understand each other better and might promote more mixing among neighbors rather than remaining as isolated groups during activities. Some may consider this idea silly; others might think it's a great idea. There could be other examples. The point is, where do you draw the line?

The problem with a "catch-all" clause is that the only person who knows what was intended is the person who wrote it, and often he/she is not around to ask. I remember thinking that English literature questions that asked what the author meant by such-and-such were unfair. Who's to say the teacher's interpretation is correct and mine is wrong? The only one who really knew what what the author intended was the author, and he or she was dead, so you couldn't ask.

We had a similar "catch-all" clause, but it wasn't in our CCRs or bylaws. It was in our Certificate of Incorporation. In this case, though, the author was available, so we asked what was intended. The reply was that social activities were not intended.

Our board of four grumpy old men, and one brilliant lady, all participate in community social activities, and we often help plan them. But we do it as residents and homeowners, not as board members and they are not official association activities. The board receives anywhere from a half-dozen to a dozen property-related questions and issues (complaints?) from homeowners to review at board meetings every month. (The grass is too long, the grass is too short, why don't they cut the decorative grass on the hill behind my home?, I don't like it, they don't plow my street soon enough, why haven't my bushes been pruned yet?, how many proposals did you review for the lawn mowing contract? etc., etc. - these are all real, by the way). Every letter is reviewed by the board, discussed, a determination is made, and the property manager is instructed on the response to be drafted. There have been instances when this has consumed over an hour of meeting time. We feel the board is far better off by not being held responsible for social events. Not only do we avoid the potential tax, insurance, accounting, and legal issues involved, but we avoid having to review and address complaints as well (Why don't we hire a different caterer?, I didn't like the music, the food was lousy, the food was great, why not hold the event someplace else?, etc. etc.) Even if you have committees to handle these issues, when activities are part of the official business of the association, the board is the "committee" of last resort.

Now I'll go hide.

Bruce, I love your posts....