A New Year Brings New HOA Budgets

As nonprofit corporations, homeowner’s associations must establish budgets each year so that the revenue received by the association is sufficient to pay for, but does not exceed, the projected expenses for the year. State laws and association governing documents typically provide that assessments which are imposed on the members must not exceed the amount that is necessary to defray the costs for the assessment that is levied.

As homeowner’s associations act through their board of directors, the burden for adopting an appropriate budget falls on the directors, who have a duty to establish assessments on the association members in an amount that is sufficient to carry out the association’s responsibilities. Aside from the amounts that are necessary to pay the association’s operating expenses, the directors must establish a budget that ensures that the association has funds available for the maintenance, repair and replacement of common area components as the need arises.

The requirements for the preparation, approval and distribution of an association’s budget are governed by state statutes and the association’s governing documents. The process generally starts with the preparation of a “pro-forma” operating budget by the association’s manager, or a budget committee created by the board of directors. The pro-forma operating budget should encompass all known expenses the association will incur during the fiscal year that the budget pertains to, and