Against the law for social committee to make profits on parties

We are about ready to disband the social committee. For ten years this committee has served our community of 404 homes. Sometimes we make a little profit and sometimes we are in the red. What difference should it make as long as we reduce the price of the December party and end with a zero balance? We have been told that every function has to end with a zero balance. That is impossible.

I can't thank you enough for responding to my concern. The HOA Board
is referring to the Davis Sterling Act 1366.1. An assoiciation shall not impose or collect an assessment or fee that exceeds the amount necessary to defray the costs for which it is levied.
We also think that if any profit made is used to reduce the price of our holiday party so that we have a zero balance at the end of the year that that would be sufficient.
Since the flyer for our event is put out two months before, it is impossible to know if we will have a profit or a loss. We do our homework and make a budget but depending on how many people sign up for the event is an unknown.
Do you have knowledge of the Davis Sterling Act?
A special public meeting is set for Feb. 8th with the only topic being the Social Committe. We wanted two Board members to meet with us and they would not. Now we are going to air our concerns before the homeowners.
At this point and time we are ready to disband and maybe down the road start another group independent of the Board. I just think they would find a way to make that impossible since our events involve all of the homeowners.
If you have any information that would help our argument please let me know. Thank you again.

Judith, if it is an association function and all owners are allowed to attend I do not believe it is a violation. Particularly when the amount of money is very minor compared to the annual income from assessments. I think social activities provide an important role in reducing apathy in HOA's.

Thank you for your reply. If you know of any legal reference that would help our concerns please let me know.

Judith,

Our social Committee has a line item in our HOA budget. They do not charge for any of the social events they sponsor, so there is no income from these items. The social Committee simply has to make sure they stay under the budget the the BOD has granted them for the year. The host among other things an Easter Egg Hunt for the Kids, a summer BBQ, a Holiday decorating contest. About once every two years they do host with the help of some of the High School Students a fund raiser for the needy in our area. All the moneys collected at these fund raisers go directly to the charity of the Students choice. The last one of these had a great turn out, lots of music a requested donation at the door and a silent auction of the art work of the students. This one collected close to $5,000.

Rick

The board should budget X amount for the committee's annual budget and get out of the way as to how you spend it. Submit all costs to them, and at the end of the year the financial report just lists expenditures. You should not be worried about being resposnible for an "account" to document revenues/expenses to the board. This is a committee issue. The HOA's books only list one figure, and that is annual expensiture.

How much of a difference are you talking about in expenditures/revenues are we talking about, anyway?

If you have an excess left over, simply purchase something needed by the committee in the way of equipment or dry goods and zero out your own committee's "account".

I was going to suggest what HB said, but setting up an independently funding committee could bring up liability and control issues. Better to umbrella the one-time expenditure under the HOA.

I found the following re" the Davis - Sterling Act. http://www.internet-realty.com/Davis-Stirling.pdf. I am interested in this discussion because our newsletter has ads in it which, although right now make us "Revenue Neutral" we could some day have to deal with a profit.

The Davis Sterling Act that I am referring to is Civil Code 1366.1...
Rxcessive Frees Prohibited.
An association shall not impose or collect an assessment or fee that exceeds the amount necessary to defrey the costs for which it is levied.
There is a lady on our committee that has worked for a nonprofit for 20 years. This should not apply to our committee making a $50 profit on a party. If, for example, they got a bid for the roof for $5000 and charged the homeowners $7000 then that is more what this is about.
For now, the way we see it is that if we make a profit at a party we can use it for the next party etc., and we would be willing to end the year with a zero balance even if we have to buy supplis with the extra money.
We have always been 100% self sufficient until January when the Board made us a line item and is giving us $150 every month. We don't want it but we may have to take it since the budget has been made.
Interesting times ahead.
Judy

Our Association has an Events/Social Committee with an Annual Budget of $4200, which should be exhausted by the end of the year, zero-out in effect. If we are short at Christmas time, the Association can fund just what is needed.

Here is an excerpt from www.davis-stirling.com ( a very good source for Association Law)

Revenue Rulings Re: Excess Revenue

Since HOAs are supposed to be nonprofit, any excess income at the end of an association's fiscal year (a budget surplus), must be applied to next year's budget or refunded to the membership. Revenue Rulings 70-604 and 75-371.

Although boards approve next year's budget and the carryover of surplus funds, revenue rulings require a membership vote on the carryover so as to avoid taxation issues. Most associations vote on the excess income resolution at their annual meeting. The resolution may be included on the ballot along with the election of directors or done by voice vote at the meeting and recorded in the minutes of the meeting.

The bottom part about the members voting on the excess at the Annual Meeting, well we have had an valid Annual Meeting in over 6 years. So not sure how the excess is really handled.