For most associations that run a fiscal year from January 1 to December 31, Fall is generally the time that the Board and management team will work together to compile the budget for the following year.
While the exact timing of the final budget is dictated by the Association’s Declaration and Bylaws/Code of Regulations, many associations are required to estimate the budget by December 1, give their owners notice of the budget adopted by the Board by December 15, and the new maintenance fee calculation would be effective starting January 1, of the new year.
- Discuss Increases with Vendors in September and October. You might be asking, why do we have to discuss increases with vendors now? We have until December to put this budget together! If there are any detailed proposals or bid renewals, it might take a few weeks for vendors to get that information together. Don’t wait until December when the holidays come around and everyone is scrambling to get last-minute bids. If a contract bid appears to be abnormally high, there would be no opportunity to shop for a new bid before the end of the year.
- Review the Budget at Least Once Before the Budget Meeting. The Board should come into the meeting about the budget fully apprised of the projection and ready to make any adjustments. Ideally, the Board would want to vote upon and adopt the budget at your November meeting so that the new maintenance fee can be distributed to the membership in December.
- Your Duty is to Fund Your Budget with Projected Expenses, Not Keep Maintenance Fees Low. No member in your Association wants to pay higher maintenance fees—that is a given. However, the Board has a fiduciary obligation to ensure that there are sufficient funds in your operating account to fund all projected expenses for the next year, unless they are coming from reserves. The Board’s fiduciary duties are owed to the corporate entity rather than the individual owners. It is not the Board’s job to keep owners happy, although sometimes that makes life easier!
- Back Into Your Maintenance Fee from Your Budget. If you are in a situation where the Board has not increased maintenance fees in 10 years, there is likely a problem. The cost of living has increased approximately 16% in the past decade, which would lead to increased contract prices and other expenses. The maintenance fee should be calculated by projected expenses—and those expenses certainly have not gone down each year. Add the totality of all projected expenses. If you are an HOA, divide by the number of lots, and that is the annual contribution per Lot. If you are a condominium association, you will multiply the budget by the percentage of ownership to achieve the annual contribution per Unit.
- Don’t Discount the Need for a Reserve Study. Beginning in September of 2022, the law in Ohio for both condominiums and HOA’s is that the Board must fund their reserves in an amount adequate to repair and replace Association-responsibility capital items in the normal course of operations without the need for a special assessment. If the Association chooses not to fund the reserves according to statute, a majority of the members must waive the requirement. It will be difficult, if not impossible to determine this contribution without a reserve study for many associations. If there is any doubt about the Association’s need to obtain a reserve study, please contact our office.
If you have any questions about reserve waivers, budget requirements, or anything else on the issue of budgets this fall, please feel free to contact our office. We are here to help you, especially concerning the new laws which are effective this year.