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Subject: HOA fee and deficit budget 2020
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RobertW31
(New York)

Posts:29


11/07/2019 1:09 PM  
Based on a 3 year contract with our lawn are company we told our residents in the summer that the HOA fee will increase by $31 per quarter in the new fiscal year that starts on 12/1. Our lawn care company decided to not return for next season and we informed the residents of this but the $31 would still go into effect. The board then decided to over budget for lawn care since we will not know the figure for lawn care until after 12/1. So the situation is we have told everyone to expect the $31 increase, but since we over budgeted in that category, we would need to increase the HOA another $20 a quarter to have a balanced budget and we would have to announce that at a general meeting of the residents on this coming Wednesday. So here is the thing, the association is in very good fiscal condition and as President I Would prefer to just go with the $31 increase and run a deficit budget of about $8700, and look to a new lawn care bid to come within that figure. If it comes in higher than that then the deficit increases and the HOA fee goes even higher in 2021.

The back story is that this community has not had an HOA increase in 9 years due to very low lawn care costs. I would prefer to increase it gradually and basically keep our word. The board will meet on Tuesday to decide.

It will be a vote and if I can read the board members they will likely go for the extra $20. I am not comfortable at all with that outcome and don’t know how to present that at the meeting with the residents except to say it was a split vote.

Any suggestions or ways to present it would be helpful.
MarkM19
(Texas)

Posts:448


11/07/2019 1:57 PM  
Robert,
A few simple questions that may help everyone on this site contribute ideas or suggestions.

1) How many homes are in your HOA?

2) How much are your quarterly dues currently?

3) What amenities does the HOA also maintain?

4) How much do you have in your operating account?

5) How old is your community?

6) Do you have a reserve account and how well is it funded?

Raising dues is never a popular thing to do. It is also not your job to ignore budget deficits. How many things can a homeowner think about that have not increased in cost over the last 9 years? Okay I am going to answer that one for you it is very few if any.

JohnC46
(South Carolina)

Posts:8827


11/07/2019 3:24 PM  
Robert

A budget, at best, is a best guess. That said, if the best guess requires a higher increase than originally thought, explain why and go for it. Any overage can be put in Reserves so no one loses money.
SheliaH
(Indiana)

Posts:2749


11/07/2019 7:37 PM  
Mark and John said it best. Besides, small deficit have a nasty habit of growing into monsters - why else do you think so many people have issues with their own household budgets?

Instead of figuring what size deficit would be acceptable, all of you should sit down and take a longer look at your income and expenses. Find out what line items have increased faster than others and why. I suspect you may have more issues than the lawn care, so you'll need to work harder to crunch the numbers to come up with a budget where the totals for income and expenses are equal.

Yes, you'll still need to fund reserves, otherwise you'll really be in deep doodoo if you discover you need a major repair or replacement to the common areas that can't be put off and won't be cheap. No homeowner likes assessment increases, but I guarantee you if the subject of special assessments come up to pay for the work, you and your colleagues may find your heads on a pike
CathyA3
(Ohio)

Posts:508


11/08/2019 5:46 AM  
Don't know what NY law says, but in my state, it's illegal to tap the reserves for non-reserve spending. If we have an emergency, we still need to put the money back before the end of the fiscal year. In addition, if an association wants to under-fund the reserves (as defined in the latest reserve study), we must have 100% approval from the membership for each year that we under-fund. In other words, we can be irresponsible, but we have to go on record that we know we're being irresponsible.

Long story short, no deficit spending here. As Sheila noted, small deficits can turn into large monsters pretty quickly.

Someone else once told me that it's better to bite the bullet and do a large assessment increase in one year rather than doing small increases each year. I guess it's the psychology of the thing. Raise it once and after that, people tend to remember that the fees are stable. If you increase it every year, people seem to remember the constant increases. So they're happier with the second scenario, even though they may end up in exactly the same place financially.
JohnC46
(South Carolina)

Posts:8827


11/08/2019 10:13 AM  
Cathy

Many docs allow the BOD to "borrow" from the Reserves as long as they put in place a defined plan to pay the money back.
MarkM19
(Texas)

Posts:448


11/08/2019 10:23 AM  
John,
In Ca. it was limited to a 12 month loan from Reserves. I would think vague language would be a real issue. Can't you see a rogue board making a 10 year or longer plan?
JohnC46
(South Carolina)

Posts:8827


11/08/2019 12:59 PM  
Posted By MarkM19 on 11/08/2019 10:23 AM
John,
In Ca. it was limited to a 12 month loan from Reserves. I would think vague language would be a real issue. Can't you see a rogue board making a 10 year or longer plan?




Our docs have no restrictions. We could go 10 years or more.

Our present BOD believes in facing issues rather than sweep them under the rug as our prior BOD did. As such, we had a 40% dues increase ($600 annual to $840 annual) effective 01/01/19 as our Reserves would fall short for a re-roofing project to commence in 2027. We put the increased dues ($240 annually) in a designated Roof Replacement Reserve Fund rather than mix it with out General Reserves. Thus we now have two reserve funds. General Reserve and Roofing Reserve.
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