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Subject: Board Spending Limit

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DavidK9
(Arizona)

Posts:4

07/18/2007 3:43 PM
We have 500 members and a five person board. We want to amend the bylaws to require the Board to seek approval by referendum for 'large' unbudgeted capital expenditures. We do have a fully funded reserve account for replacements and repairs. We are looking for guidance and suggestions on: Threshhold amount for referendum requirement. What constitutes approval on a referendum - - majority of members? - majority of voters on referendum? - majority of voters with minimum number of votes? etc.

MelissaP1
(Alabama)

Posts:1920

07/18/2007 4:42 PM
A HOA is ONLY funded by it's owners for its' owners. The board is only elected to represent the entire membership/owners and handle the daily business of the HOA. That include besides rule enforcement but controlling the budget. That budget represents ALL owner's money even the board member's money since they are owners as well. A HOA budget works much like a "kitty" in poker. Everyone puts in their share and whoever's got the biggest bluff or cards wins. So I don't think putting spending restrictions on your board is a good idea. They should already have in place other safeguards preventing anyone from ripping off the HOA. In our HOA, it takes 2 signatures to cash a check. ONLY the Bookeeper, President, vice-president and/or assigned board member had any signatory permissions. Not ALL board members had the power to sign checks. All bank statements were presented at each meeting for review and discussion. What if your HOA had an emergency like the pool collapsing and the board had spending limits? That means they would have to get a majority vote before any action could be taken. Try getting a majority of members to show up at one board meeting never the less demanding an emergency last minute majority vote. Reserve funds eventually do have to be used. They can't stay collected forever. There will be times that maintenance calls. If your so concerned about the HOA budget, then run for an office position yourself if your not on the board already. You may see a different side of the budget.

Former HOA President

JoeW1
(New York)

Posts:728

07/18/2007 6:04 PM
DavidK9 - By capital expenditures do you mean capital improvements. If capital improvements, I agree 100% with limits without the entire association having a vote yeah or neah. It's important to remember that improvements require eventual maintenance and repair. So while the initial expense may be one-time and relatively low per unit owner, the long-term benefit of the improvement can only be realized if it becomes budgeted. As cost of living goes up, so does the cost of upkeep for the improvement. The community should hold the Board accountable to project/disclose the maintenance and eventual repair of the initial improvement. A referendum by definition implies you need the vote of the majority of members. This may or may not be the case, check your BY-LAWS. Threshold amount depends on what each individual owner feels they can afford, very unique possibilities that I don't think anyone can definitively answer. If you organize a survey of owners by owners with a basic question and answer regarding threshold amount and present it to the Board in a friendly way, they should appreciate the work and learn from their constituency. Example: What is the maximum amount you grant the Board to spend without your authorization on capital improvements that are not contemplated within the budget: Is it A) $25 per unit, B) $50.00 per unit, C) $100.00 per unit D) $ per unit (specify amount). A survey question like this will communicate to the Board the threshold amount and that the owners want a threshold without their authorization.

RogerB
(Colorado)

Posts:4647

07/18/2007 6:38 PM
David, the associations we manage provide for the members to ratify the Board approved operating and reserve budgets at the annual meeting. Thus the Board has a restriction on the maximum they can spend for non emergency capitol expenditures. If they chose to spend more without a special members meeting they could be challenged for failing to perform their fiduciary duty.

BradP
(Kansas)

Posts:2384

07/18/2007 8:50 PM
David: Your HOA should have a budget and that budget is their spending limit. Anything above and beyond that should be approved.

JoeW1
(New York)

Posts:728

07/19/2007 5:32 AM
Posted By BradP on 07/18/2007 8:50 PM David: Your HOA should have a budget and that budget is their spending limit. Anything above and beyond that should be approved. BradP - Your correct only if the Board is required to do so. If the By-Laws provide for a Board spending limit, the Board doesn't have to go to the owners for approval. Plus, as fiduciaries the Board is obligated to protect the safety and welfare of the residents and capital expenditures may require them to do it.

PaulM
(Pennsylvania)

Posts:1347

07/19/2007 5:45 AM
DavidK9: Don't know what 'large' unbudgeted capital expenditures you are speaking of- this could refer to long-term maintenance & repair of sidewalks, water basin, gutters, driveways--all the projects the association might be responsible for, which is stated in your CC&Rs. Or, they could be unforeseen and therefore unbudgeted projects requiring immediate repair due to acts of nature, etc.... You say you already have a fully funded reserve account for replacements and repairs set up, BUT have you had a study completed by a reputable and appropriate engineering company detailing the probable life expectency of capital expenditure items? If so, have you shared with the community the proposed short term and long term expenditures? Obviously, the Board and members are at liberty not to follow the timeline the study lays out, but it is a starting place for the Board to discuss with members how and when to act... It is always wise to communicate and bring members into the loop, especially on large expenditure items or for unplanned (and therefore unbudgeted) items.

BradD2
(Florida)

Posts:418

07/19/2007 3:47 PM
David, your state may also have a say in what requires what approval.

DavidK9
(Arizona)

Posts:4

07/20/2007 3:04 PM
There doesn't seem to be any state law that concerns this topic. Several months ago we had an opinion from our HOA attorney. He said our bylaws do not require a referendum in the case that was at hand, but he recommended that we do 'poll' the membership for approval. Thank you.

DavidT10
(Florida)

Posts:2

07/23/2010 4:31 AM
Our board has autorized compensation to members whose water bills (excessive because of board authorized sod repalcement). They have also committed to HOA money being used to water homes that are in foreclosure. Are these allowable expenditures?

MaryA1

Posts:0

07/23/2010 10:13 AM
David, I'm not certain I fully understand your question about the water use. Are you saying that putting sod down has caused the h/o to use more water so the BOD has authorized them to be reimb for this additional water useage? Can you more fully explain exactly how your HOA is set up for water useage and whose property was the sod put down on and by who? If a home that is in foreclosure has been taken over by the bank, the bank is resp. for the maint. If the HOA waters the lawn or performs any other maint on the prop they can bill the bank for the cost but they must first inform the bank that they will do the work and ask for reimb. HOA should inform the bank that it's their resp to take care of the property including watering the lawn, if they want the HOA to take care of it they will let the HOA know. IF the cost to water the lawns of these forclosure homes is minimum I see nothing wrong with the HOA covering the expense. Their goal is to keep the neighborhood looking good. However I would first contact the bank and see what they are willing to do.

DavidT10
(Florida)

Posts:2

07/23/2010 11:55 AM
Thank you. The BOD contracted for sod, mainly to replace Bahia grass with St Augustine. They notified the owners that they should expect an increase in their water bill (owners pay their own water) until the turf is set-in. My bill is usually about $30/month. The June bill was $70. I feel that is reasonable. However, most owners received far larger bills.. I have heard of $250 to more than $500! As I understand, the BOD feels compelled to provide assistance to the owners. My question is: Is this a legal expenditure? This is the use of general funds to the benefit of individual owners. I feel compassion for some of the owners. The question is the legality. I understand your comments regarding the foreclosuer. I think only one is involved. that June bill was $400. I will check to see if the bank was notified. Thanks, David

SteveM9
(Massachusetts)

Posts:1442

07/23/2010 1:22 PM
My question is: Is this a legal expenditure? Well its not illegal. Your HOA is in charge of protecting homeowner values. If they vote to do this, then they can do it. There is no legal and illegal. You can disagree, but there is little you can do besides replace the people in office. If you didn't like how they handled the financial part, they could have issued everyone a special assessment for an equal amount, then paid the water company. It would have been the same result. Homeowners pay no matter what.

MarkM19

Posts:0

07/23/2010 4:19 PM
Our CC&Rs clearly state that we can only spend 5% of the annual budget for any single cap improvement or we have to get HO approvals by a vote. We have roughly a 1 million dollar budget so we could spend 50K without going out for a vote.

MaryA1

Posts:0

07/24/2010 9:19 AM
David, Who controls the water timers? If it's the h/o then those with the extremely high water bills are watering too much. If it's the HOA then all the timers should have been set the same and everyone's bill should have the same increase. If some timers were set wrong, only then should the HOA be obligated to reimb. the h/o for the additional water useage. But, if the h/o is setting the times I don't think the HOA should feel resp for their extremely high water bill. I mean some of the bills are outrageously high which could result in the HOA making some really high reimbs. Also, there could be some other factors that caused the high water bill. Did any of these h/o's contact the water company or just complain to the HOA? My first phone call would have been to the water co if my bill showed a $200-$500 increase! As far as the reimb being legal or illegal, I can't answer that. Perhaps an attorney should be consulted.

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