Best Practices for Passing an HOA Budget

Has your 2019 HOA budget passed?

 

If not, what needs to happen to pass the budget? Does the HOA Board just need a consensus vote? Is it time to increase assessments?

 

First, check your governing documents. These describe the manner in which the HOA budget is adopted each year. In most associations, the governing documents provide that the budget is adopted by the board or by vote of the owners. However, even when the documents give the board the right to adopt the budget, a vote of the owners may be required to adopt a budget that would require a large increase in regular homeowner dues/assessments.

Hopefully, your HOA Board is current on the reserve studies, as these provide clear analysis of the future repair and replacement needs of the HOA (based on the condition of the property elements it maintains), a projection of the remaining useful life, and future cost to repair (or replace) them, and the amount of money the HOA has in its reserve fund.

Once a homeowners association has gone through the exercise of developing a budget to fund their plans for the coming year, the assessments can be set.  Depending upon the  governing documents, assessments will be determined in one of two ways.  First, the assessment may be charged to each property owner equally.  Second, the assessment may be charged to each property owner according to the percentage of the property their unit represents.  Ultimately to arrive at the assessment, the budget is simply allocated to the owners and paid accordingly.

 

What best practices can my HOA Board employ for next year’s budget?

 

Share newsletter articles about water conservation restrictions (check the Department Of Water Resources website) at meetings, Nextdoor, or community websites. Enforced water cost increases may clue residents in that installing the winter lawn may not be financially feasible this year.

Negotiate contracts with vendors! You don’t have to accept the first estimate or terms given to you.

Research Community Grants, such as the AACM Hope Grant.

Practice transparency. The more your community can review and be involved, the easier budgets become to pass (as well as mitigating any other issue disgruntled homeowners may have with your HOA). You may think about appointing a budget committee of a representative number of homeowners that can survey the community on what changes they would like to see in the annual budget. The committee may have new cost-saving (or revenue generating) ideas that your HOA Board hasn’t yet discovered!

Lastly, send out a copy of next year’s budget, increase or not, to show the homeowners exactly where their assessments are being spent. Not communicating, or communicating false expectations for next year, is a recipe for disgruntled homeowners.

For more detailed information on HOA Budgets, read “HOA Budgets, The Insiders Guide” and “Why Complete A Reserve Study.”