The annual budget sets the assessments every owner will pay and the work the association can afford in the coming year. Starting early, and working through the process one step at a time, makes the review smoother and the result more reliable.
This article is general information and is not legal or accounting advice. The association's attorney and accountant should be consulted.
Planning and Bids
Step 1: A business plan should be created. The board's goals for the coming year, such as projects, service changes, and repairs, should be listed first. The plan shows what the budget must pay for, and it should be completed early enough to allow timely approval.
Step 2: Proposals should be requested. Costs should not simply be estimated. Requests for proposals should go out for contracted services, including landscaping, janitorial services, pool care, trash removal, and pest control. Insurance renewals should be discussed with the agent as early as possible, since premiums are a major cost for most associations. The sooner proposals are requested, the sooner work on the budget can begin.
Costs and Reserves
Step 3: Maintenance and utility costs should be evaluated. Spending for maintenance, repairs, and utilities over the past several years should be reviewed, along with any new needs expected for the coming year. Rate changes announced by utilities should be included.
Step 4: The reserves should be examined. For condominiums, section 718.112(2)(f) of the Florida Statutes requires the budget to include reserve accounts for roof replacement, building painting, and pavement resurfacing regardless of cost, and for any other item with a deferred maintenance expense or replacement cost above $25,000, or the inflation-adjusted amount set by the state, whichever is greater. The amount reserved must be based on each item's estimated remaining useful life and replacement cost. Buildings three habitable stories or higher must also have a structural integrity reserve study at least every 10 years, and required reserves for those items may not be waived or reduced.
Homeowners associations are not always required by law to have reserves. Under section 720.303(6), once reserve accounts have been established as the statute describes, they must be funded and maintained as it requires. Even where reserves are optional, a current reserve study is the best guide to future costs. More on this subject can be found in
consequences of not having cash reserves.
Income and Records
Step 5: The numbers should be tracked. The working budget should be kept in a spreadsheet or accounting system, with notes on how each figure was calculated. Those notes make next year's review faster and help explain the budget to owners.
Step 6: Expected income should be calculated. Sources other than assessments, such as interest, amenity fees, and other reliable income, should be estimated conservatively. In a homeowners association, section 720.303(6)(a) requires the budget to show estimated revenues and expenses and the estimated surplus or deficit as of the end of the current year. Once expenses and other income are known, the assessment for each home can be calculated. A contingency line for unexpected costs is recommended.
Notice, Adoption, and Sharing
Step 7: The budget should be noticed, adopted, and shared. Florida law sets notice rules for budget meetings.
- Condominiums. Under section 718.112(2)(e), a notice of the meeting and a copy of the proposed budget must be delivered to each owner at least 14 days before the meeting. If the proposed budget would require assessments greater than 115 percent of the prior year's assessments, a substitute budget without discretionary expenses must also be proposed, and the owners may adopt it at the meeting.
- Homeowners associations. Notice of a board meeting at which regular or special assessments will be considered must be given at least 14 days in advance. Under section 720.303(6)(a), each member must be given a copy of the annual budget or a written notice that a copy is available at no charge.
Sharing the budget with a short explanation of major changes builds trust and reduces questions. More background can be found in
understanding the importance of reserves for your condo or HOA.
Budget Help for Your Board
Vendor bids, reserve schedules, draft budgets, and budget meeting notices are prepared for the boards of the communities managed by Condominium Associates. To start planning next year's budget,
contact us.
