Best Practice #1
Investigate the legal requirements
impacting your community's budget.
Every action taken by the board must be within their legal authority and responsibility,
which means consulting the governing documents is always the first step of any
major undertaking. The CC&R's (a.k.a. Covenants or Deed Restrictions) and Bylaws
will generally include specific requirements for the preparation and distribution of the
budget. They will also include information about what services and maintenance the
association must provide, which need to be included in the budget. These are referred
to as mandatory expenses.
Here is an example of a typical provision in the governing documents:
4.03 Purpose of Assessment. The assessments levied by the
Association shall be used exclusively for the purpose of providing
for the common good and general welfare of the people of the new
community of the development, including, but not limited to, and in
addition to other purposes set forth in this Declaration, security, the
acquisition, construction, improvement, maintenance and equipping
of Common Property, the enforcement of the Restrictions contained in
this Declaration, the enforcement of the Design Standards of the ACC,
the payment of operating costs and expenses of the Association, the
payment of taxes on any Common Property, and the payment of all
principle and interest when due on all debts owed by the Association.
TIP:
Create a summary document of the specific requirements from your governing
documents to serve as a quick reference when completing the budget.
Some states will also have their own requirements that you need to consider, such as
a statute that limits assessment increases. This may impact your ability to fund certain
projects. Keeping the effects of these laws in mind throughout the process will help you
build a compliant budget.
