Budget Prep Procedures

Before I rip apart the 2025 Budget that was approved 7-0 by the Board of Directors on November 12, let's take a look at the guidelines for preparation of the budget. These are found in the Procedures Reference Manual. Art. III, §C, ¶4.

4) Budget Preparation Procedures:

a. Each year, an Annual Budget is developed by the Finance Committee's Budget Sub-committee and submitted to the Board for review and approval.

Is there a Budget Sub-Committee? Who are the members? When/where was the 2025 Proposed Budget submitted to the Board for review? Why wasn't it posted on the website, as it had been in a few prior years?

b. The Annual Budget is to be completed prior to the Annual Board meeting.

It was, because the Board apparently reviewed it, possibly at the pre-board meeting (before the Nov. 12 Annual Meeting?)

c. The budget process involves a wide cross-section of community members, board members, and Property Manager Representative.

Who was involved from the community? Which board members? Who from Property Management?

d. The Property Manager supplies the Sub-Committee with records of line item budgets and expenses as required.

Through what date were these records supplied? Through 9/30/2024, since the Budget was prepared in October? Or were the records through 8/31/2024?

e. The Annual Budget is to reflect historical and projected income and expenses.

Did the Committee take into consideration that at least 10 line-items were over-budget at the end of September? And that an 11th line-item (Line 6500, Legal/Professional Fees) was over-budget by $8,812.14 but was omitted from the variances on Page 1 of the 9/30/24 financial statement?

f. The Income Budget is not started until the Expense Budget is completed.

This is how the Finance Committee came up with the need for a 10% increase in dues! First you calculate the money needed to run the HOA; then you figure out where it will come from.

g. All budgets should be conservative and should anticipate growth and rate changes.

When the board indicated in a private, closed, secret, undocumented pre-board (or other non-Regular) meeting that it would not approve a dues increase, the Finance Committee had to whack away at expenses and lower them, so that expenses did not exceed anticipated revenues.

h. Minutes of all Budget meetings are recorded and published.

Minutes are not published on the website. Where are these Minutes? Can a Member (Homeowner) inspect them? Who holds those Minutes, if they even exist?

i. A member of the Budget sub-committee is selected to present the budget to the Board.

That certainly did not happen at the November 12th Board Meeting. Who did present the budget to the board? Why didn't the Finance Committee stand firm on the need for a dues increase? Why didn't it tell the (previous) Board, "This Budget is fair. If you don't like, then you adjust it!"

j. Documented justification of all budget items should be available at the Annual Budget presentation to the Board.

This should have been on November 12. It was not. Did the Board members inspect the details? Did they ask any questions? Two new directors joined the Board on November 12. They could not have participated in the budget preparation, unless they were on the Budget sub-committee or the Finance Committee. Were they? Did they vote to approve a Budget that they hadn't even looked at?

k. The CC&Rs does [sic] not allow an Annual Budget with an increase in Homeowner Assessment dues of over ten (10) percent without the approval of the voting members.

Why did the Board duck on approving any dues increase? It knew there were no Voting Members (except one) and that they could not get approval for a dues increase greater than 10%. But they could have approved up to 10%.

l. An unbalanced budget is not allowed, [sic] Income must equal Expenses.

This is stated backwards. It should read, "Income cannot be less than Expenses." Income can be controlled by raising dues. 

OK, these are the rules for budget preparation. In another article, I'll explain how the preparation of the 2025 Budget really worked.