HOA Boards Must Develop Realistic Budgets Annually

Every year a homeowners association’s board of directors is required to establish the association’s annual budget and provide notice to the members of the budget and how it is going to impact the association’s regular assessments for the next year. An accurate and properly developed budget is critical to the short-term management and the long-term financial condition of a homeowners association.

While different associations have certain common expense items, no two communities are identical. Because every association has differing needs and expectations, a board of directors cannot develop a realistic budget based on guidelines or by copying the budget that has been prepared by another association. The development of a realistic budget should involve the creation of a list of commonly incurred expenses coupled with a review of past expenses to identify the expenses actually incurred in prior years and to develop a historical trend that can be used to predict an increase or decrease during the next year.