Lisa Weber | 01-12-2014
A homeowner's association budget provides a road map for the operations of the community. Some HOA budgets total millions of dollars, making management of the budget similar to the management of a small to mid-sized company. An HOA budget should include a reasonable estimate of known operating expenses, as well as a plan for future capital purchases.
The operating expenses portion of the budget determines what services will be provided to homeowners, as well as day-to-day maintenance of the community. These expenses include utilities, management, accounting and legal services, as well as cleaning and maintenance of the property. It is also useful to lay out when these services will be provided -- weekly, monthly, or seasonally -- when determining costs. Additionally, the budget should specify who will provide these services, whether it will be a contracted company or a property management employee.
Every year, the HOA board must put money in reserve for long-term, major projects. Reserve funds can be used only for repair, maintenance or replacement of the parts of the property that the association has promised to maintain, or litigation involving these items. These may include making improvements to roofs, pools, or tennis courts, or repairs to roads or parking lots. It is useful and recommended that an HOA board conduct a reserve study, during which an outside expert will anticipate what projects will need to be completed over the next 20 years, and how much money the HOA needs to set aside in order to pay for these projects.
The majority of revenue in an HOA budget comes from homeowners' dues. Other income may be generated from interest paid into a reserve fund account. In some states, management companies charge a flip tax that must be paid directly to the building or development whenever an owner sells a unit. Any money collected goes back into the reserve fund. Before raising association dues to meet expenses, HOAs can always resort to old-fashioned fund-raising techniques, such as a bake sale or a car wash. However, be aware that federal rules limit how much money can be raised by fund -raising and how much of an association's operating budget can be used to finance a fund-raising event.
Keep expectations for both expenses and income are realistic. It may be useful to enlist the help of professionals, including the association's CPA, attorney and property manager to accurately predict expenses and avoid a shortfall. Laws vary by state, so be sure you are operating your budget within not only your association's by-laws, but within your state's as well.
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