One of the most common questions homeowners ask board members and community managers alike is, “What are you doing with our money?” Understanding how to answer that question is important for all board members.
One of the board's fiduciary responsibilities is to establish an annual operating budget for their community. At Associa, we prepare the first annual draft budget every August and forward that to the board for review well in advance of their annual budget meeting, which should always be scheduled no later than early October each year. Depending on the association’s fiscal year, it is recommended that the board receives their draft budgets at least three months prior to their fiscal year end.
All budgets require significant research and calculations so that the anticipated expenses for the upcoming year balance out each month. (Because most of the communities we manage are not-for-profit corporations, a zero-based budget is always recommended.) During the budget process one of the key components is making sure that the association brings in enough funds to cover all expenses each year. When the budget falls short of balancing it is the board’s responsibility to consider increasing the monthly, quarterly or annual dues in accordance with the proper procedure spelled out in the community’s governing documents. This is not something that any board wants to do, however, it is something they must do if there isn’t enough money available to run the community. While the board has the authority to increase dues, they must follow the proper procedure that are spelled out in their governing documents.
Because every community is different, the specific items and amounts they spend assessments on can vary. They may or may not include the items in the graphic below.
Additionally, the board is required to annually budget and fund a reserve account, which takes care of necessary capital improvements such as parking lot resurfacing, new roofs and painting. This is needed as the budgeted operating account is only used for day-to-day operations in a community.
Although each community and budget is different, homeowners don't typically realize that certain items in the association budget are expenses. Through the process of the board and management working together to establish an annual budget, it becomes clear how association funds enhance the community therefore increase everyone’s investment.
About the Author
John Hensley, MCA®, FL-CAM, AMS®, ARM, PCAM®, is the president of Associa Tennessee and has professionally managed community associations since 1991.More Content by John Hensley