Budget Season Almost Over for Community Association
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Last updated: Thursday, November 15, 2007

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Since all community associations are legal entities or corporations, a duty to properly maintain common grounds is appropriated through the use of a financial plan called a budget. A budget is a creation of a financial plan and is funded by collection of quarterly assessments. The results of the creation of the financial plan starts with a proposed budget and ends with a financial reporting of the fiscal year. Not all but most associations fiscal year ends December 31.

A copy of the annual financial report should be provided to each member of the association or a written notice that a copy of the financial report is available upon request at no charge to the member. A majority of associations will use the latter approach and include the notice in the proposed budget agenda.

The community documents will dictate if the Board or the members adopt the proposed budget. In most documents, the Board of Director adopts the annual budget. Condominium and Cooperatives require a fourteen (14) day written notice with attached proposed budget prior of the meeting at which the budget should be approved. Homeowner associations’ should consult in their governing documents. The minutes of the budget meeting validates the adoption of the annual budget.

Prior to the budget meeting, the Board should have a pre-budget or a budget workshop meeting. This is where the budget is initially prepared. The Treasurer, other Board and committee members work and finalize the proposed budget. All Board members should receive a draft of the pre-budget finalized copy. If any changes are to be made, they should be made prior of notice of the annual proposed budget meeting. The time not to change the budget is at the annual budget meeting. If the dollar amount is changed at an annual budget meeting for any reason, the whole process starts over and the result would be a waste of association funds due to administrative and mailing costs. For this reason, it is important that all Board of Director are in a 100% agreement before the annual budget notices are sent to the members. If an error is discovered at or before the budget meeting, then let it be shown is the minutes and a mailing of the corrected budget should be sent to all members. 

Some of the newer associations seem to make budgets a stressful event. Budgets are really an easy practice of forecasts projected through actual and reasonable predictions. A budget merely provides a guide for disbursing funds. Since no one can really predict the future, a line item for contingencies should be added. If unknown expenses occur that exceeds the budget, then associations will have to rely on special assessments or could even take out a loan to cover costs of such damages. See Florida Statute 718.112 part (e) below:

(f)  Annual budget.–
1.  The proposed annual budget of common expenses shall be detailed and shall show the amounts budgeted by accounts and expense classifications, including, if applicable, but not limited to, those expenses listed in s. 718.504(21). A multicondominium association shall adopt a separate budget of common expenses for each condominium the association operates and shall adopt a separate budget of common expenses for the association. In addition, if the association maintains limited common elements with the cost to be shared only by those entitled to use the limited common elements as provided for in s. 718.113(1), the budget or a schedule attached thereto shall show amounts budgeted therefor. If, after turnover of control of the association to the unit owners, any of the expenses listed in s. 718.504(21) are not applicable, they need not be listed.
2.  In addition to annual operating expenses, the budget shall include reserve accounts for capital expenditures and deferred maintenance. These accounts shall include, but are not limited to, roof replacement, building painting, and pavement resurfacing, regardless of the amount of deferred maintenance expense or replacement cost, and for any other item for which the deferred maintenance expense or replacement cost exceeds $10,000. The amount to be reserved shall be computed by means of a formula which is based upon estimated remaining useful life and estimated replacement cost or deferred maintenance expense of each reserve item. The association may adjust replacement reserve assessments annually to take into account any changes in estimates or extension of the useful life of a reserve item caused by deferred maintenance. This subsection does not apply to an adopted budget in which the members of an association have determined, by a majority vote at a duly called meeting of the association, to provide no reserves or less reserves than required by this subsection. However, prior to turnover of control of an association by a developer to unit owners other than a developer pursuant to s. 718.301, the developer may vote to waive the reserves or reduce the funding of reserves for the first 2 fiscal years of the association’s operation, beginning with the fiscal year in which the initial declaration is recorded, after which time reserves may be waived or reduced only upon the vote of a majority of all nondeveloper voting interests voting in person or by limited proxy at a duly called meeting of the association. If a meeting of the unit owners has been called to determine whether to waive or reduce the funding of reserves, and no such result is achieved or a quorum is not attained, the reserves as included in the budget shall go into effect. After the turnover, the developer may vote its voting interest to waive or reduce the funding of reserves.
3.  Reserve funds and any interest accruing thereon shall remain in the reserve account or accounts, and shall be used only for authorized reserve expenditures unless their use for other purposes is approved in advance by a majority vote at a duly called meeting of the association. Prior to turnover of control of an association by a developer to unit owners other than the developer pursuant to s. 718.301, the developer-controlled association shall not vote to use reserves for purposes other than that for which they were intended without the approval of a majority of all nondeveloper voting interests, voting in person or by limited proxy at a duly called meeting of the association.
4.  The only voting interests which are eligible to vote on questions that involve waiving or reducing the funding of reserves, or using existing reserve funds for purposes other than purposes for which the reserves were intended, are the voting interests of the units subject to assessment to fund the reserves in question.

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