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

HOA 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.