An association’s operating budget is a projection of the money needed to cover:
A. The operating expenses
B. Provide adequate reserves for repair and replacement of the elements the COA/HOA handles.
Most states require that associations adopt an operating budget every year.
Usually, associations take into account changes in their financial position and cost structure compared to the prior year. The budget process is dictated by the association’s governing documents, with budgets adopted by the board rather than by a vote of the owners.
If the budget requires a significant increase in regular assessments, a vote of the owners may be required, even when the governing documents give the board the right to adopt a budget. Usually, this happens when non-emergency regular assessments increase 20% or more.
Associations are normally required to distribute the budget as part of the annual report.
Association dues, also known as regular assessments, are the payments that owners are required to pay to fund the operation of the association. When a budget has been properly prepared, regular assessments should cover the operating budget of the association. Like the operating budget, most governing documents allow the board to establish the COA/HOA dues without an owner vote.
COAs and HOAs use Reserve studies and Reserve funding planning to anticipate costs for future repairs and replacements. They help ensure the best physical and financial interests of the community, and are required by law in many states.
Tied to the budget are reserve funds. Reserve funds act as a saving account to repair and replace major items such as roofs or pavement in common areas that don’t need immediate attention. Associations calculate and set aside Reserve funds just like a family would do for their child’s college fund.
Each association requires different amounts of money to repair and replace maintenance tasks on schedule without special assessments or loans, and will typically commission a Reserve Study. With a Reserve Study, the association can more precisely determine and assemble adequate reserves to fund necessary repairs and replacements so that funds are there when needed.
Association dues usually include an amount dedicated to the Reserve Fund.
LM Funding provides funding solutions to condo and homeowner associations (COAs & HOAs) to recover delinquent association dues and guaranty future association budgets using proprietary technology.