“Can we afford to do that?” — Budgets for Homeowners Associations

“Can we afford to do that?” — Budgets for Homeowners Associations

        
MP900440988HOA Finances begin with the annual
budget since it is the basis for determining the amount of regular assessments
and the possible need for special assessments. Under the statutes, the board of
directors develops a proposed budget and then submits it to the membership for
ratification, usually at the annual meeting. If it is rejected, the prior
budget controls. In developing the proposed budget, the board should take the
following steps:

  • Review budget
    line items and expense history;
  • Estimate
    operating expenses for next fiscal budget year;
  • Estimate
    non-assessment revenues.  Some examples
    are revenue from clubhouse rental, fees from non-member use of amenities, sale
    of timber or firewood, etc.;
  • Review reserves
    for future major capital expenditures and develop a 5-10 year budget estimate;
  • Total the
    operating expenses and subtract any offsetting revenues to determine the annual
    operating budget;
  • Add the amount
    required for annual reserve fund.  A
    Reserve Study can assist the Board in establishing reasonable reserves;
  • Total the
    operating budget and reserve budget estimates;
  • Divide the total
    budget among the number of residents to determine the annual assessment. Check
    the declarations and bylaws as there are sometimes restrictions in the amounts
    of assessments or assessment increases;
  • Review the
    association documents regarding annual meeting, budget review and ratification by
    members, and prepare notice of annual assessment and or special assessments.

–Bradley A. Coxe is a practicing attorney in Wilmington, NC with
Hodges & Coxe PC who specializes in Personal Injury, Medical
Malpractice, Homeowner's Associations, Contract and Real Estate disputes
and all forms of Civil Litigation.  Please contact him at (910)
772-1678.