For homeowners associations with a January through December budget year, the time clock is ticking to develop a budget for the upcoming year and have the budget approved in time for the association’s year-end mailing. A budget committee can be comprised of HOA board members, members of your community association or a combination of both. How does the budget committee work and who serves on it?
The Treasurer’s and Accountant’s Roles
It makes sense for the board treasurer to chair the budget committee. As chair, it is the treasurer’s job to keep everyone on track as the budget is prepared. The treasurer also presents the budget for approval to the board and members. If the homeowners association works with an accountant, he or she may offer consulting, but the accountant really has no significant role in the process of devising the budget.
In some associations the development of the budget is left to the management company and then the budget committee meets with management to review and possibly make any adjustments necessary to the budget.
Who Should Be on the Committee?
If owners serve on the budget committee they should represent a cross-section of the community. Of course, if there are members willing to serve who have expertise in specific areas of the budget, all the better. When it comes to the size of the committee a good general guideline is that the committee should not be so large that it becomes unwieldy.
What the Committee Does
The treasurer will make sure that all committee members understand the three basic components of the budget:
1. Funds needed for daily operation of the community - common electricity and water, grounds maintenance, management, insurance, and general maintenance. These expenses are either contractual or can be reasonably estimated based on experience. An important consideration when looking at items in the operating budget is the expectations of the community—for example, do members want a landscaper who is a “blow, mow, and go” type, or do they want a landscaper who provides a higher level of service?
2. Funds needed to maintain reserves at sufficient levels - reserve funds provide money for the repair and replacement of the community’s assets; i.e., pool, roofs, streets, etc.
3. Funds for additions or enhancements to the existing property - This is a function of what members of the community want and are willing to pay for. The HOA board can solicit owners for input and approval for this component.
Armed with all knowledge available, the committee will estimate total expenses for the coming year and compare that sum to the potential revenues of the homeowners association. The committee will look for ways to lower expenses without compromising service. If that does not balance the budget, the committee may have to make a tough decision—whether to suggest increasing assessments or levying a one-time special assessment.