This Association is having to ask its homeowners for a huge dues increase to help pay for maintenance in the community that has been neglected for years.
Here are our Quick Tips for the Annual Budgeting Process that will make sure your board is assessing the current and future needs of the association and not getting into a situation like this.
- In a planned community the budget must be approved by the board, but there is no requirement that the budget be approved by the membership prior to the start of the fiscal year (unless the governing documents require this, which in my experience would be unusual).
- The Arizona Condominium Act has detailed procedures regarding budget ratification. Pursuant to A.R.S. Section 33-1243, except as provided in the declaration, within thirty days after adoption of any proposed budget for the condominium, the board of directors shall provide a summary of the budget to all the unit owners. Unless the board of directors is expressly authorized in the declaration to adopt and amend budgets from time to time, any budget or amendment shall be ratified by the unit owners in accordance with the procedures set forth in this subsection. If ratification is required, the board of directors shall set a date for a meeting of the unit owners to consider ratification of the budget not fewer than fourteen nor more than thirty days after mailing of the summary. Unless at that meeting a majority of all the unit owners or any larger vote specified in the declaration rejects the budget, the budget is ratified, whether or not a quorum is present. If the proposed budget is rejected, the periodic budget last ratified by the unit owners shall be continued until such time as the unit owners ratify a subsequent budget proposed by the board of directors .
- Review last year’s budget and records and compare the differences between what was budgeted and what was actually spent.
- Evaluate the needs of the community for the upcoming year.
- Assess the needs of the community for the future.
- Ask questions of the association’s vendors.
- Review and analyze the association’s contracts for possible changes in services.
- Receive and analyze information from the vendors with regard to the budget.
- Plan for the unexpected.
- Budget the line item amount taking all research and information gathered into account.
- Prepare for the budget presentation to the board and homeowners.
- Present the budget to the board of directors for adoption and the homeowners for approval.
Also, associations should review our Cheat Sheet on Reserves 411. Proper reserve funding allows an association to provide for the repair, maintenance and replacement of the association’s assets as the community ages.