It's Budget Time!

Many of us dread budgeting and taxes, or anything to do with numbers. As a member of the Board of Directors, you have an added responsibility to produce and communicate to the members a projection of the assessments and expenses for the upcoming fiscal year. While the process can be time consuming, getting an early start and having all the ducks lined up in the process can reduce the workload.

First and foremost, drag out those governing documents and begin the review process. The governing documents explain about assessment increases, which assessment increases necessitate a vote of the membership, any required Board or member approval of the budget, and any notice requirements to the membership.

As soon as possible, even as early as July or August (if the association is on a calendar year), discuss these matters with the Board in preparation for financial changes they might be considering. It may seem a little early to bring this agenda to the Board's attention; however, presenting a timeline that explains the sequence of events will prepare fellow Board members for discussion of the budget and ensure that all deadlines within the governing documents are met. If the Board does not meet on a monthly basis, the need to begin and complete the budget process on schedule is even more amplified.

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Communication is Key

“Community” and “Communication” have the same root word, which means a coming together. So it makes sense that good communications can lead to good communities, especially when boards provide so many ways to facilitate good communication, both to and from the client associations that we serve.

These days, a person will provide his email address more readily than his phone number. Email is an excellent tool to solicit opinions and ideas quickly among board members. Homeowners are finding out the ease of emailing requests and questions instead of using the phone.

• Telephone calls can provide a more natural and effective form of communication. The direct feedback provided during a telephone conversation can be a great benefit to everyone involved.
• Talking person to person also eliminates time delays sometimes involved with emails that have multiple replies. This real time communication can be more effective for detail intense situations.
• Web sites provide an additional way to communicate, and have grown in usage as homeowners discover the ease of downloading rules and forms at a click of the mouse. Community association websites can be invaluable for the dissemination of information to members of the association.
• Printed forms of communication have not yet become obsolete. Also, community association mailings and newsletters are beneficial as a means of sending information and maintaining a positive environment for residents.

Each method of communication reinforces the other, opening the door to a mutually beneficial relationship among boards and homeowners.

© Association Times http://www.associationtimes.com/
Permission to reprint any of the information contained in this article is granted provided Association Times is credited as the source.

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Before Board Meeting Checklist:

It's never too early to start the budget process and it's always a good idea to Ask The Experts to assist and guide us thru the Budgeting Crunch!

    * If the association is considering raising the annual assessment by more than what the Board can approve under the governing documents, then member voting is typically required and this necessitates a meeting and advance notification.

    * If the Board can raise assessments, is it necessary for the members to be notified 90, 60, 30 days in advance of the next assessment period and amount?

    * Does the maximum annual assessment automatically increase every year or does it require the vote of the Board? Some governing documents state that the maximum annual assessment may be increased every year, but requires the Board to take action to make that happen. (If they miss this opportunity, in some cases they will not have another chance until next year). This action would involve a vote at a Board meeting and should be included as an agenda item for Board consideration.

    * State Statutes can limit an annual assessment increase to a specified percentage without the vote of the membership, no matter the amount of the maximum annual assessment at the time. An example: Happy Land HOA's maximum annual assessment will be at $200 the first day of the next assessment period. It has been automatically increasing 5% each year since 1995. However, the current annual assessment being paid by the members is $150. For the next calendar year, the Board is considering raising the annual assessment. The Board would be limited to an increase of up to $200 or the limits established by the state statues (if applicable), without member voting.

    * Read the CC&R's to determine who approves budgets. Is there a requirement that budgets be distributed to the members at large? Is there a requirement that the members be notified about the amount of the assessment for the next year, regardless of whether the assessment is increasing or remaining the same? How many days notice is required prior to the beginning of the fiscal year to notify the members? Is a member meeting required for budget review/approval? Some governing documents require an approval by a date certain or the current assessment rate stands for the next assessment period.

    * Discuss with the Board any changes in contract services they are considering for the next year. For example, increasing landscaping, decreasing newsletter production, etc. If the association is still in the development phase, will additional common areas and/or amenities be added during the next year? Discuss the level of service that may be added to the existing amenities, as well as the fiscal impact of additional amenities coming on line. Contact vendors/suppliers to determine if any rate increases are being considered.

    * Communication during the budgeting process is essential. Are you including notices to the members to allow them an opportunity to participate in the budget discussion. This is especially important if a rate increase is being considered.

    * Keep track of any notes and budget assumptions that are included in the budget. This is particularly important when you are in final review. Changes made along the way, with notations, will become critical if a board member misses a meeting or the budget preparation is cast aside for an extended period of time.

    * Review any current year cash flow issues. For example, is the association operating on budget for the current year? Or will the association report a deficit for the year that will create a shortfall in cash, possibly affecting the association reserve funds? This must be reported to the entire Board immediately as it may affect other budget decisions.

    * Has the association conducted a reserve study analysis or update in the past twelve months? If so, is this reflected in the budget?

The best lesson: always plan ahead!

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DO'S:

-   Consider whether the budget should include a line item for working capital or whether there should be a special assessment.

-   Consider the current expected delinquencies and be conservative; otherwise it could be painful when the next year's budget is prepared.

-   Consider special projects that cannot be fully funded from reserves.

-   Consider increases in expenses and be realistic about reduction of costs.

-   Anticipate contracts that expire and contracts that automatically renew.

-   Include in every annual meeting a membership vote to approve a resolution for tax purposes (Revenue Ruling 70-604, allowing a carryover of excess membership income, if any, to the next year).

-   Be sure that the financial statements include the prior year's audit adjustments.

-   Be sure that all reserve expenditures have been ratified by the Board.

-   Follow the statutory procedures for budget approval.

-   Determine if the Association's net worth (operating fund balance) is adequate. Consider an assessment for additional working capital if necessary.

-   Review basic financial controls to minimize waste and any possibility of misappropriation of Association funds
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DON'TS:

-   Don't post any current year expenditures to the beginning fund balance.

-   Don't just annualize every expense when preparing the budget. Understand every category and what needs to be included in next year's budget.

-   Don't be political in the budget process. Sound fiduciary responsibility dictates working for the best interest of all owners.

-   Don't let payables become delinquent; otherwise this could result in a poor credit rating and jeopardize basic services as well as insurable interests.

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 Dynamic Strategies for Tough Times

Making ends meet is not an easy task for community association boards and managers facing the uncertainty of these economic times. Dealing with high delinquencies rates, bankruptcies, foreclosures, properties falling into disrepair and home values plummeting, boards are looking to their professionals to think of creative solutions in dealing with their financial woes. The pressure is on to think out of the box and develop a strategic plan to stay afloat. Homeowners want their board to wave their magic wand to instantly make things better. So where do you begin?

There is no better time to evaluate the policies and controls in place on association spending. You can start by reviewing the present inventory and purchasing procedures in place. Having a good handle on purchasing practices saves time and money for the association, decreases waste and provides for smooth operations and better services for the residents. Develop reasonable spending limits, solicit bids from vendors with competitive pricing, validate that you received the product or service that was purchased prior to paying the bill and monitor inventory. Know what you have and what you need for your association’s operations. Taking these steps will make operations more effective and efficient for the community. And don’t stop there! Clearly identify the manager’s role and responsibility in the process. Boards need to hold their professionals accountable but managers need to know the rules to live by.

Evaluate the price and service on those long term contracts that have been rolling over year to year. The contractor maybe doing a fabulous job but are you utilizing the level of service that the contract covers? As the association ages, the community needs also change. Make sure that your contractual services reflect the current needs. Soliciting competitive bids is a sure way to address service and cost concerns but, by working with existing contractors, benefits can be derived in cost savings and better services to the residents. If the association is happy with the incumbent contractor, renegotiate the terms and services of the current contract to better suit the desires of the homeowners. Consider if you can consolidate services through one vendor. Any consideration in downsizing services should have member input to see what they can’t live without and care less about. You may be surprised what is important as well as unimportant to them. In today’s market you want to stay competitive with your neighboring communities. Don’t be short-sighted by cutting services and not researching the consequences of the action.

Have you tried asking your residents for help when your budget becomes tight and might not be able to support the services they are accustomed to receiving or the upkeep of the community appearance? Communicate upfront the difficult decisions the board is facing. Solicit feedback and sell the need for volunteers. The utilization of volunteers not only can reduce costs but builds community spirit. Seek out the talents of your members and ask them to get involved. Even though it might initially be a lot of work to rally the troops, the end results can be rewarding for the individuals and the community as a whole. Community participation fosters and encourages vision, self expression, and consensus while working toward a common goal. It promotes good communication, respect and pride among the membership. A positive, motivated community will more likely maintain appeal to buyers in a tough housing market.

Make yourself even more accessible to homeowners who are struggling to pay their assessments on time or dealing with compliance issues. If they are making the effort to be heard and are attempting to resolve the matter at hand, take the time out to discuss options available to remedy the problem. Many homeowners in this position are embarrassed and frustrated. Their dilemma can be caused by loss of jobs, illness, and family matters which add turmoil and additional financial burdens within households. Discuss with your fellow board members setting up payment plans and possibility providing a preferred vendor list which ultimately will give discount prices to members for products and services. Approach pool, landscaping, maintenance, and paint companies to see what prices they are willing to set for doing business with your members.

As boards consider a leaner spending plan for the coming year, you need to take into account what the impact will be on your members. Communicate anticipated changes and request feed back from your community. Keep in mind that the community curb appeal and services to your members should not be sacrificed, and that alternative solutions should be explored. Exercise good judgment and good common sense.

© Association Times http://www.associationtimes.com/
Permission to reprint any of the information contained in this article is granted provided Association Times is credited as the source

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To Be Professionally Managed or Self Managed...That is the Question.

If you live in a community association, the question has naturally arisen about the type of management style will best suit your unique needs. Do you want a full-time onsite manager affiliated with a large management company or would you prefer a part-time offsite manager who is not affiliated with a company? Are you now considering trying to manage your association affairs on your own after years of being professionally managed or are you looking to return to professional management after going it on your own for a few years?

Proper management of any community association is paramount to its long-term success. Selecting a management style that best suits the needs of your particular community is a very important decision and one that will be strongly influenced by the unique circumstances of each community.  There are many options out there for you and we want to know what factors go into your decision-making process, especially in today's challenging economic climate.

Please voice your opinion:

http://www.neighborhoodlink.com/Heritage_Circle_Condos/topics/292772 

Food For Thought:

http://www.neighborhoodlink.com/article/Association/Directors_Officers_Conflicts_Interest

Good Luck to us all,

William

954-534-5071