A thriving community starts with a thoughtfully prepared budget. Financial planning helps ensure a stable future for any condominium, homeowner (HOA), or townhome association. Accordingly, board members must take their financial responsibilities seriously.

Generally, a budget should include the association’s estimated annual revenue, expenses, and reserve fund contributions. Board members, community leaders, and property managers should also refer to the governing documents to make sure they are developing the budget in accordance with all association requirements.

Below are four items to consider when planning your association’s annual budget.

 

Budget Planning Process

The budget planning process is useful for reviewing an association’s goals and priorities. The board may consider scheduling a planning session to address key budget items, including:

  • Timing – Planning early is vital. While it’s never too early to evaluate your annual budget, it’s common to start planning at the end of summer.
  • Establish goals – Planning to remodel a clubhouse? Need to replace an elevator? Is a major landscaping project long overdue? Ensure the budget properly reflects the community’s needs.
  • Look to the past – Reviewing past budgets may assist in forecasting upcoming expenses and funding gaps.
  • Assessments – Are current level of assessments adequate? Is it time to reevaluate based on budgetary concerns? Even if the assessment amount remains unchanged, budgets are typically adopted by the board on an annual basis.
  • Reserves – Along with upcoming expenses and projects, the budget should also address the association’s reserves. Adequate reserve funding (supported by a reserve study) can be integral in the event of an emergency or unexpected costs.

 

Evaluate Expenses

A proper budget should include operational expenses, reserve funding, and projected maintenance. When evaluating an association’s expenses, you will also need to account for inflation, market trends, increased cost of labor, and other financial factors.

Typical association expenses and best practices include:

  • Utilities – Consider increasing funding for these line items annually as power, water, and other utilities are subject to price changes.
  • Trash and garbage disposal – Along with regular waste management services, boards should also evaluate recycling options and large item disposal (ex. extra dumpster for furniture and boxes left after an owner moves in or out).
  • Ground and building maintenance – This may include lawn care, landscaping services, and snow removal services.
  • Security – This may include cameras, motion sensors, gates, card readers to limit access, and employing security personnel.
  • Maintenance and operation of recreational and other facilities (ex. fitness center, pool)
  • Heating fuels
  • Janitorial services
  • Building insurance
  • Elevator maintenance
  • Sidewalk and street maintenance – This may include fixing potholes, replacing broken signage, and addressing accessibility issues.
  • Property management
  • Accounting and bookkeeping services
  • Legal services
  • Reserve funds for improvements – This may include renovating common areas, replacing appliances with energy-efficient models, or installing solar panels.
  • Reserves for unexpected repair work – This may include elevator breakdowns, pool pump malfunction, frozen pipes, storm damage, or fallen tree removal.
  • Reserves for replacement and upkeep of common area and facilities – This may include painting, replacing roof tiles, and maintaining common area fencing.

 

Notice and Budget Approval

Unit owners pay assessments to pay for the association’s expenses and amenities. Accordingly, they have a right to review the proposed budget prior to approval.

The board must send notice to all unit owners informing them of an upcoming budget meeting. A copy of the proposed budget should be sent to all unit owners prior to the meeting.

There may be an option to include the budget with a board meeting notice if it falls within the correct timeline. Depending on your association, the exact number of days a notice must be sent prior to the meeting varies.

For example, the Illinois Condominium Property Act (ICPA) outlines a specific number of days to provide proper notice. Some Illinois homeowner associations (HOAs) follow notice requirements outlined in the Common Interest Community Association Act (CICAA).

It’s critical to consult with your association’s attorney to ensure the board has provided unit owners with proper meeting notice and budget distribution.

Once homeowners have been properly notified of the budget approval meeting and have been provided a copy of the proposed budget, the board can move forward the budget approval meeting.

 

While notice of a budget approval meeting is sent to all unit owners, only board members vote on the budget. To approve the budget, only a simple board majority is required.

 

Legal Resource

No one wants to live in an association with poor financial planning. Proactive and proper budgeting avoids burdening residents with preventable financial concerns while affording new improvements for the community.

Do not hesitate to contact our law firm if your association has questions regarding the budget planning process, assessment changes, correct notice timelines, budget approval meetings, or other legal concerns.

Please call 855-537-0500 or visit www.ksnlaw.com.

 

Since 1983, KSN has been a legal resource for condominium, homeowner, and townhome associations. Additionally, we represent clients in real estate transactions, collections, landlord/tenant issues, and property tax appeals. We represent thousands of clients and community associations throughout the US with offices in several states including Florida, Illinois, Indiana, and Wisconsin.

 

Please note the material contained in this article is for educational and informational purposes only and does not constitute legal advice. No attorney-client relationship is established by your review or receipt of the information contained in this article. You should not act on the information discussed in this article without first obtaining legal advice from an attorney duly licensed to practice law in your State. While KSN has made every effort to include up-to-date information in this article, the law can change quickly. Accordingly, please understand that information discussed in this article may not yet reflect the most recent legal developments. Material is not guaranteed to be correct, complete, or up to date. KSN reserves the right to revise or update the information and statements of law discussed in the article law at any time, without notice, and disclaims any liability for your use of information or statements of law discussed on the article, or the accessibility of the article generally. This article may be considered advertising in some jurisdictions under applicable law/s and/or ethical rules/regulations. © 2022 Kovitz Shifrin Nesbit, A Professional Corporation.