What Are the Budget Preparation Rules?

Years ago some wise homeowners wrote Budget Preparation Procedures for the HOA. They are found in the Procedures Reference Manual (Art. III, §C, ¶4 (Page 17)). 

The goal every year is to have a Budget that will result in financial stability of the HOA. 

The Board should be committed to financial stability; right? Then why don't they follow these rules. Here are the Guidelines:

a. The Finance Committee's Budget Sub-Committee is to develop the Annual Budget and submit it to the Board for review and approval.

    Problems? There is no Budget Sub-Committee. The Budget was not presented to the Board at the November 2024 open board meeting. All the Board did was vote on something they had seen in private.

b. the Annual Budget is to be completed before the Annual Board meeting.

    This was done, but the Board didn't like it, so the Finance Committee sliced and diced to pare down expenses.

c. The Budget process is supposed to include a "wide cross-section of community members", board members, and Property Manager (PM) representatives.

    Problem? no "wide cross-section" community members is ever involved.

d. The PM provides records of line-item budgets and expenses.

    The extent of those budgets and expenses is unknown.

e. Historical and projected income and expenses are to be used.

    It's a given that less-than-100% of billed Assessments will be collected by the HOA.

f. The Expense Budget is to be completed before the Income Budget is started.

    If that is done, they know how much money must be brought in.

g. Budgets are to be conservative and should anticipate growth and rate changes.

    This has been ignored in budget planning.

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

    Who knows if they are recorded?They are never published.

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

    This means at an open Board meeting where a decision can be made; i.e., vote taken.

j. Documented justification should be available at the board meeting when the Budget is presented.

    Has any member of the board ever asked any questions about a Proposed Budget?

k. Voting Members must approve any Assessment increase over 10%. 

    This is why only a $50.00 increase (9.8%) was proposed to the board in a private, closed, secret, pre-board meeting. Plus, there aren't enough legitimate Voting Members to approve it (or anything else).

l. "An unbalanced budget is not allowed. Income must equal expenses."

    A better way to state this would be: "Expenses cannot be greater than Income."

Another budget rule is found in the CC&Rs (Art. X, §6) Reserve Budget and Capital Contribution (Page 17) which reads, in part:

"The Board shall set the required capital contribution in an amount sufficient to permit meeting the projected needs of the Association..."

    Problem? The Board shall..." They are obligated to do so - required to do so. When they don't, no one speaks up. 

In 2020 the contribution to Reserves was $163,965 ($66.11 per home); in 2024, it was $0.00; in 2025, it is $3,000. Three thousand dollars ($3,000) is a completely insufficient annual contribution to Reserves. That's only $1.21 per home.

More homeowners need to pay more attention to protect your financial interests in the HOA.