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-Are you a budget ghoul or great board leader?

Believe it or not, budget season is upon us. It's that time again to think about our successes, and failures... and what we need to do to next year to maintain a happy, healthy neighborhood.  Don’t let deferred maintenance on long term projects scare your association.  Be proactive and become a Great Board Leader, not a reactive, scared,

and unexpected Budget Ghoul.



The Board of Directors is responsible for setting the community’s budget, but many Boards find this process to be a scary endeavor.  As such, October is the month when most Boards find themselves meeting more often and worrying about the financial future of their association.  If you are on the Board for your association, read this article for answers to common budget questions:



Common Budget Questions:
  • What is a Budget?

  • What is the Board’s role in the budget process and how do homeowners affect the process?

  • How can I determine if my association’s budget is realistic?

  • As a Board member, how do I get the community to understand the association’s needs without being lynched for suggesting a budget increase?



What is a budget?


A budget is a guideline financial plan that outlines future cash projections and uses of association funds.  The budget provides an estimate of a community’s revenue ($ coming into the organization) and expenses ($ going out of the organization) for a specific period of time.  The budget is the first step in financial planning for a Community Association and serves to answer many other items:


  • It is a way for the community to plan its maintenance activities. 

  • It is the basis for determining the homeowner assessment amount. 

  • It serves as a control to check progress on projects versus actual expenses incurred on financial statements throughout the year. 

  • It allows the community to plan for continuity of services from year to year.

  • It helps minimize unexpected cash requirements.

  • It allows the community to balance needs versus “nice to haves.”



What is the Board’s role in the budget process & how do homeowners relate to the budget process?

The community treasurer is usually the party responsible for initiating the draft budget process.  He or she will delegate specific portions of the budget preparation process to the community manager (if applicable), other members of the Board, or a budget/financial committee.  The budget process typically begins with a determination of the projects that the Association would like to complete in the upcoming year and then a solicitation of bids for those services.


Usually, the treasurer is also the party responsible for presenting the proposed budget to the homeowner members at an open community budget meeting.  The process for presenting this meeting to the homeowner members is frequently outlined in the governing documents of the Association and provides specific guidance on requirements for the meeting and actions that must be taken before the Board adopts the budget.



The association is both a community and a business.  As such the President should focus on both enhancing the lifestyle of residents through strong community values and protecting the value of the asset.  During budget season, the President of the Board should work with the treasurer to establish the overall goals of the association and define a road map of community values.  The President should also aid the treasurer in understanding the community’s governing documents and notice requirements.  The President should be supportive of the Treasurer by drafting agendas  and organizing meetings that will assist the budget process.



During budget season, the Secretary prepares and distributes the board meeting notices related to the budget.  The Secretary will create a compilation of documents from the Treasurer and the President for use in mailing these documents to homeowners.  The Secretary will also record the meeting minutes of the budget meeting, accept and verify proxies, and maintain all relevant records related to the budget process.



Many state laws and community governing documents call for what is called a “ratification meeting” of the owners.  At this meeting, the Board presents the proposed budget to the Association membership for review and the opportunity to veto the budget.   Veto (to vote down) the budget, there are usually specific requirements regarding what constitutes a majority veto within the Association’s governing documents.  However, some states and some community governing documents require that a budget be passed by a majority vote of the owners.  So, be sure to check your requirements before the meeting.



How can I determine if my association’s budget is realistic?

In general it is a five step process:


  1. Start at Zero - It is a best practice to start your budget at zero and back into homeowner Assessment amounts based on the required association expenditures.   From there, the Board can take other factors into account related to the economy and perceived homeowner cash flows.  At minimum, however, backing into the assessment amount allows the Board to make an educated decision regarding budget cuts required to “balance” the budget to zero (where the equation looks like this)



total of association assessments - projected expenses=$0.00




  1. Review actual amount of known expenses - To do this, start with the known expenses that the Association is required to provide per the governing documents.  These expenses are usually things like: utilities, water, sewer & trash. 


  1. Estimate  the cost of Recurring Maintenance Items – After making sure that the association will have the funds to pay the light bill, send water to homes, and pick up the trash, the Board should then look at items which the association is required to maintain.  In many cases, the association may already have a contracted service.  These items are things like management fees, accounting, landscaping, and snow removal.  Finally, look at past expenditures on maintenance items (use bank statements and invoices to find amounts).


  1. Plan for the future – Review association long term “nice to haves” and create a priority list of long term maintenance items.  Check the association’s bank statements and financial reports for actual costs of maintenance in prior years.  This can give hints toward potential problems to expect in the New Year if you can see an increasing trend in maintenance for a specific line item.


  1. Remember Reserve Contributions – Some state laws and federal regulations along with the association’s governing documents may dictate budget requirements.  Some of the more specific agencies include: Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, Federal Housing Administration, and Veteran’s Administration.  These agencies may influence budget decisions related to minimum reserve contributions required to upkeep the property and allow new homeowner buyers to purchase the property under an FHA loan.  These agencies may also regulate a specific insurance policy requirement, procedures required for financial operations, and general maintenance requirements.

    Other things to consider - employment policies,workers compensation insurance,specific state statutes, other items required by your Association’s specific Governing Documents…and don’t forget variances in month to month cash flows!  There are typical fluctuations in the timing of both receipts from homeowners and payments to vendors.In our cold weather states, snow removal bills pile up in the winter and spring. Unfortunately, the busy holiday season makes collections from homeowners slow in December and January. It's important to manage cash appropriately and be ready for those big, seasonal expenses.When preparing the annual budget, your manager (or self-managed Board) should pay special attention to break out seasonal expenses and prepare a cash flow budget so money is not borrowed from reserves.


As a Board member, how do I get the community to understand the association’s needs without being lynched for suggesting a budget increase?


Many community leaders fall into a complex scenario during budget season.  They like their neighbors and want to keep positive relationships with them, but they know that in order to maintain the community association at the level demanded by the members, a budget increase is going to be required.  So, how does a Board relay this message to the community members and still get invited to dinner parties?  Follow these steps and ensure your social life continues after the budget proposal meeting:


  1. Explain that last years budget is a guide, not the end all. Utilities providers and maintenance vendors will typically be able to estimate increases in cost for the next year. It is important to take these into account and explain variances from year to year to homeowner members.

  2. Explain the positive changes that will come to the community regarding increases.  What new projects will be completed in the New Year?  How could these projects positively affect home values?  What about planning for the future?  What maintenance items will be deferred for future years to conserve funds today?

  3. Explain the negative consequences of not taking action.  What happens if the Board does not raise dues or keep an adequate budget?  Could there be a cost savings today versus waiting for future years (some vendors can help you show this difference through current and future bids).

  4. Discuss the long term plan. How will paying a little more in assessments today work towards not having a special assessment for long term projects in the future?  What long term projects will be funded by the increase in funds and reserve contributions?  If the Board doesn’t know the answer to this question, contact a reserve study specialist to help “sell” the point as an expert with an opinion on answers to some of the questions above.


Though many realtors may state that “you need to keep dues low to attract new owners.”  Assessment increases can actually be GOOD because regularly scheduled increases and responsible budgeting shows new potential owners that the community has a plan to maintain itself as a great place to live.  Many communities fall into a trap of thinking that keeping assessments low will keep property values high, but unrealistic budgets lead to big problems, the inability to keep up with economic inflation, and unexpected special assessments down the road.  Just like many parents would rather know that there is going to be an expensive outing for their teen (like prom) a few months in advance so they can plan to pay for it, so too should your association plan for large expenses.


Overall, sound budgeting practices keep unified communities moving forward.


“ A budget is telling your money where to go rather than wondering where it went
- Ramsey


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