It's Budget Time!

Many of us dread budgeting and taxes, or anything to do with numbers. As a member of the Board of Directors, you have an added responsibility to produce and communicate to the members a projection of the assessments and expenses for the upcoming fiscal year. While the process can be time consuming, getting an early start and having all the ducks lined up in the process can reduce the workload.

First and foremost, drag out those governing documents and begin the review process. The governing documents explain about assessment increases, which assessment increases necessitate a vote of the membership, any required Board or member approval of the budget, and any notice requirements to the membership.

As soon as possible, even as early as July or August (if the association is on a calendar year), discuss these matters with the Board in preparation for financial changes they might be considering. It may seem a little early to bring this agenda to the Board's attention; however, presenting a timeline that explains the sequence of events will prepare fellow Board members for discussion of the budget and ensure that all deadlines within the governing documents are met. If the Board does not meet on a monthly basis, the need to begin and complete the budget process on schedule is even more amplified.

Checklist

• If the association is considering raising the annual assessment by more than what the Board can approve under the governing documents, then member voting is typically required and this necessitates a meeting and advance notification.
• If the Board can raise assessments, is it necessary for the members to be notified 90, 60, 30 days in advance of the next assessment period and amount?
• Does the maximum annual assessment automatically increase every year or does it require the vote of the Board? Some governing documents state that the maximum annual assessment may be increased every year, but requires the Board to take action to make that happen. (If they miss this opportunity, in some cases they will not have another chance until next year). This action would involve a vote at a Board meeting and should be included as an agenda item for Board consideration.
• State Statutes can limit an annual assessment increase to a specified percentage without the vote of the membership, no matter the amount of the maximum annual assessment at the time. An example: Happy Land HOA's maximum annual assessment will be at $200 the first day of the next assessment period. It has been automatically increasing 5% each year since 1995. However, the current annual assessment being paid by the members is $150. For the next calendar year, the Board is considering raising the annual assessment. The Board would be limited to an increase of up to $200 or the limits established by the state statues (if applicable), without member voting.
• Read the CC&R's to determine who approves budgets. Is there a requirement that budgets be distributed to the members at large? Is there a requirement that the members be notified about the amount of the assessment for the next year, regardless of whether the assessment is increasing or remaining the same? How many days notice is required prior to the beginning of the fiscal year to notify the members? Is a member meeting required for budget review/approval? Some governing documents require an approval by a date certain or the current assessment rate stands for the next assessment period.
• Discuss with the Board any changes in contract services they are considering for the next year. For example, increasing landscaping, decreasing newsletter production, etc. If the association is still in the development phase, will additional common areas and/or amenities be added during the next year? Discuss the level of service that may be added to the existing amenities, as well as the fiscal impact of additional amenities coming on line. Contact vendors/suppliers to determine if any rate increases are being considered.
• Communication during the budgeting process is essential. Are you including notices to the members to allow them an opportunity to participate in the budget discussion. This is especially important if a rate increase is being considered.
• Keep track of any notes and budget assumptions that are included in the budget. This is particularly important when you are in final review. Changes made along the way, with notations, will become critical if a board member misses a meeting or the budget preparation is cast aside for an extended period of time.
• Review any current year cash flow issues. For example, is the association operating on budget for the current year? Or will the association report a deficit for the year that will create a shortfall in cash, possibly affecting the association reserve funds? This must be reported to the entire Board immediately as it may affect other budget decisions.
• Has the association conducted a reserve study analysis or update in the past twelve months? If so, is this reflected in the budget?

It's never too early to start the budget process and it's always a good idea to establish a calendar of events. As many associations operate on a calendar year basis, the primary budget time is the fall season - - which can be easily distracting with other seasonal happenings.

The best lesson: always plan ahead!