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Subject: Budget approval
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Author Messages
ShirleyC
(California)

Posts:102


07/08/2006 7:39 PM  
Does the board approve the budget or do the HOA members approve? Thanks ShirleyC
RogerB
(Colorado)

Posts:5067


07/08/2006 9:07 PM  
Shirley, check your By-laws for the correct answer. Normally the Board approves the budget and the owners at the annual meeting ratify it. If the members do not ratify it the Board must present another Board approved budget at a future date for the owners to ratify.
ShirleyC
(California)

Posts:102


07/08/2006 9:52 PM  
Our by-laws don't say who approves the budget. According to the board the davis sterling act says the board approves the budget, period. I don't see it in that act either.
GeraldT1


Posts:0


07/09/2006 7:13 AM  
ShirleyC,

Unless there is a Capital Improvement over a monetary threshold, my New Jersey HOA and COA Boards approve the budgets. In the event the Capital Improvement exceeds the monetary threshold, a 2/3rd's vote of the community is required for implementation.

As you will find in California’s Davis Stirling Act, unless your governing documents provide more stringent requirements, your Board is required to adequately fund reserves and PREPARE budgets. Nothing I’ve read in Davis Stirling indicates the power of budget approval is with the community, but you should quadruple check it yourself.

If your governing document are ambiguous, develop an "operating rule" as per Davis Stirling Article 4, which the board of directors of the association can adopt to apply to the management and operation of the common interest development or the conduct of the business and affairs of the association.

As per Davis Stirling §1365 Article 2. Fiscal Matters, the association shall prepare and distribute to all of its members (amongst other things) a proforma operating budget, and the current estimated replacement cost, estimated remaining life, and estimated useful life of each major component.

Read section §1365.5. Board of Directors; Duties; Operating and Reserve Accounts; Borrowing From Reserve Accounts; Notice to Members.3.

It's my belief there should be monetary thresholds for Board ratification of Capital Improvement items, but the budget as a whole should be ratified by the Board and not by community vote. The Board is privy to detailed financial information the community is not, and generally community members are not interested in the details. If they were, there'd be more community members running for the Board. Generally, the percentage of unit owner interest in HOA leadership responsibilities is low.

Best of success!!
GeraldT1
ReneeD
(Illinois)

Posts:201


07/11/2006 8:27 AM  
Roger, below are snippets taken from our Decs concerning Budget Approval. Based on your response to Shirley, the only "business" conducted at our Annual Meetings(IL HOA) are homeowners aka candidates elected to the Board. We are on a calendar year basis and our Annual Meetings are held in August. Am I correct to say, based on our Decs snippets I've included below, that only our Board adopts and approves budget regardless of homeowner input? How do we go about changing this? -ReneeD

(a) Each year on or before December 1, the Board shall adopt subject to the provisions of Subsection (b) and furnish each Owner with a budget for the ensuing calendar year, which shall show the following with reasonable explanations and itemizations:
(1) The estimated Community Expenses;
(2) The estimated amount, if any, to maintain adequate reserves for Community Expenses including, without limitation, amounts to maintain the Capital Reserve;
(3) The estimated net available cash receipts from the operation and use of the Community Area, plus estimated excess funds, if any, from the current year’s assessments;
(4) The amount of the “Community Assessment” payable by the Owenrs, which is hereby defined as the amount determined in (1) above, plus the amount determined in (2) above, minus the amount determined in (3) above;
(5) That portion of the Community Assessment which shall be payable each month by the Owner of each Dwelling Unit which is subject to assessment hereunder, which shall be equal to one-twelfth of the Community Assessment divided by the number of Dwelling Units, so that each Owner shall pay equal Community Assessments.

(b) No budget may be adopted with respect to a calendar year commencing after the end of the Initial Development Period which would require the Owner of a Dwelling Unit to pay a monthly assessment which increases more than the percentage increase in the Index (defined in Section 6.08(b) below) during the most recent ascertainable twelve-month period prior to the adoption of the budget, unless the budget is affirmatively approved by at least two-thirds (2/3) of the members of the Board then serving.
RogerB
(Colorado)

Posts:5067


07/11/2006 10:59 AM  
Yes Renee your conclusion is correct. When your annual meeting is in the middle of your fiscal year it is not feasible to have the members ratify the budget. To change this to provide ratification control by the members would require amending the annual meeting time in the Declaration. I like to have the time for the annual meeting listed in the By-laws rather than the Declaration because it is much easier to amend the By-laws.
ReneeD
(Illinois)

Posts:201


07/11/2006 12:58 PM  
Roger, can you tell I like to read? (not!) Guess I'll check our ByLaws. If it is not mentioned in our Bylaws, does this require a homeowner's petition or can a homeowner request the BOD to make these changes to both governing documents or just Bylaws, per your suggestion. If this can be done, I would like to suggest this at the BOD meeting tomorrow night; our Annual Meeting is next month. Thanks again. -ReneeD
RogerB
(Colorado)

Posts:5067


07/11/2006 1:38 PM  
The Declaration rules over the By-laws. Therefore it would require an amendment to the Declaration which is difficult due to members' apathy. I was trying to suggest that if the Declaration is amended I would word the amendment to allow future changes of such procedural matters to be changed by amending the By-laws.
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