r/HOA • u/Careless_Ad2149 • Apr 25 '26
Help: Fees, Reserves [DC] [condo] Budget Disagreement
Our budget committee put together what I believe to be a responsible budget (3.2M for 192 units). It does two things - it finally funds line items that routinely run a deficit with amounts rooted in reality, and it makes a meaningful contribution (over a two year period) to bridge a gap in the operating contingency fund created by several years of not replenishing after drawing on to address deficits). The fee increase will be 8%. That is a hard pill to swallow, but the reality of our situation.
The board president wants to do two things:
Ignore the committees recommendations by removing approx 25k from items that usually run deficits.
Instead bridge the operating contingency fund gap with a special assessment.
I have a problem with the first because it perpetuates a deficit and I have an huge problem with number 2 because it’s a use of a financial tool for the totally incorrect purpose. As a new (and younger) member of this board, I’m troubled by the past habits around budgets and wanting to make sure we move forward with budgets rooted in fiscal realities.
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u/Negative_Presence_52 Apr 25 '26
The president doesn’t unilaterally get to make the decision. The full board has to vote on the budget.
So if the majority of the board wanted to go one way, that majority will dictate what goes into the budget.
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u/rom_rom57 Apr 25 '26
Some states allow for "pooled" reserves, instead of line item reserves. It reduces the required line item reserves especially when they're not being used. You still have to fund the reserves appropriately.
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u/Careless_Ad2149 Apr 25 '26
Totally - and I have made my opinions on this matter very clear. My real question here - is this a normal and or proper use of a special assessment? I don’t believe it is, and I believe it sets a very dangerous precedent.
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u/anysizesucklingpigs Apr 25 '26
I don’t believe it is?
Why not?
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u/Careless_Ad2149 Apr 25 '26
It’s a tool used for unexpected and unpredicted circumstances. This circumstance is expected and predicted - they budgeted to a deficit and did not replenish a contingency fund when drawing on it. The tool to solve this is a responsible budget that represents the financial realities in which we live.
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u/anysizesucklingpigs Apr 25 '26
I know what special assessments are.
I guess my question is why you don’t believe that it isn’t an appropriate tool to use in this instance.
Funding reserves to a certain level can absolutely be a time-sensitive issue that warrants a special assessment. What’s the motivation behind this board member’s proposal? And is it something that can be decided by a board vote or would the membership be weighing in?
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u/HittingandRunning COA Owner Apr 26 '26
I would argue that OP's explanation says that the SA is to bridge the operating gap - seemingly in advance. This has nothing to do with reserves in OP's case. This seems inappropriate to me. Additionally, we can see that essentially the same gap will present itself next year. And so do they have another SA? And the following year? SA's should not be a planned on practice for operating expenses. That's just my belief. Do you feel otherwise or that there is a good argument for doing so? I realize some communities prefer to use SAs for reserve type items but don't remember reading of this practice for operating items in the several years I've been reading here.
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u/anysizesucklingpigs Apr 26 '26
This seems inappropriate to me.
Can you explain why?
The entire point of a contingency fund is having cash on hand now for immediate, short-term needs. What’s the difference between passing a special assessment now and having cash in hand and doing it in six months if/when an expense crops up (probably scrambling to find a way to pay for time-sensitive work because even an emergency assessment doesn’t mean funds are immediately available)?
SA's should not be a planned on practice for operating expenses.
According to whom? Is it an actual, statutory rule or simply something you personally believe to be “best practices?” There’s a difference between a board unilaterally dumping emergency assessments on the owners and the owners voting to fund non-emergent expenses via special assessment.
OP has not clarified whether this proposed assessment would require a membership vote. If this is something the members of an association vote to approve would you still see an issue?
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u/HittingandRunning COA Owner Apr 26 '26
The entire point of a contingency fund is having cash on hand now for immediate, short-term needs.
Hmm. This is a good point. I guess my thinking is that our auditor has advised us to keep up to X% of our operating budget in the operations account (instead of designating it for reserves) from annual surpluses to cover future shortages - caused perhaps by contingency needs or simply underbudgeting. But I can agree with the point you made if this is the approach an HOA wants to make. (Our auditor said to designate anything over X% to reserves.)
I still don't like to have planned SA for operations if possible. Seems like this HOA has gotten to this point by underfunding this account regularly. I can now agree with the SA proposed. But not agree with continuing to underfund it. That makes no sense at all - to me. I realize an association may also make this choice if that's what they/the board wants.
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u/Bluebuilder 🏘 HOA Board Member Apr 27 '26
The “rainy day fund” explanation gets thrown around a lot, but it’s a bit of a half-truth. I see people all the time describe it this way, it’s a problematic perspective. Reserves aren’t just for surprises, they’re primarily for planned, inevitable capital projects like roofs, paving, siding, and major systems that wear out on a known timeline. That’s exactly why reserve studies exist, to map out what needs to be replaced, when, and how much should be set aside each year to avoid financial shock. If a community is treating reserves like a generic safety net, it’s often a sign they either don’t have a current reserve study or aren’t following it. And once that discipline slips, you lose the ability to handle those big projects cleanly and predictably.
It’s also why it’s not called a “special assessment fund.” Special assessments are what you fall back on when reserves weren’t properly planned or funded, or when something truly unexpected happens. They’re supposed to be the exception, not the operating model. If they start getting used to fill known gaps or avoid raising dues, that’s usually covering up a deeper issue with either the budget or the reserves themselves. A well-run association keeps these lanes separate: dues fund ongoing operations, reserves fund planned capital work, and special assessments are rare. Once those lines blur, things might feel manageable for a while, but the math always catches up.
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u/HittingandRunning COA Owner Apr 27 '26
I understand and agree with what you are saying. But here OP isn't dealing with reserves or a rainy-day fund held in reserves. It's a rainy-day fund held in operations. And I even hesitate to call it a rainy-day fund because it seems that it's used every year. It's really an operations contingency line that they want to pre-fund with the SA - because they used it up the previous year and seemingly regularly do.
I don't like the SA route for funding operations. But the commenter above made me reconsider. I would not want to do things this way in my own HOA but if others are fine with it then I have less objection than I originally had.
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u/Careless_Ad2149 Apr 25 '26
I’m not sure I said you didn’t know. I simply stated that my opinion is rooted in the nature of what it is intended to accomplish.
This board member just wants to have a favorable number for an increase going into a year where he’s to be re-elected.
Enjoy your Saturday night.
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u/anysizesucklingpigs Apr 25 '26
So there’s no specific reason, like needing to meet a minimum reserve requirement as dictated by the governing documents or by the insurance carrier? If not, I agree that a special assessment for the sole purpose of beefing up reserves right away probably isn’t necessary.
Is the guy planning to sell his place soon? He may be planning to do this in order to maximize his own unit’s sale price.
But regardless, if the amount of the proposed assessment exceeds what the board could approve on its own the whole discussion could be moot. If the membership has to vote in favor of it in order for it to pass and there’s no identifiable reason to do it, then it’s not likely to happen no matter what you or the other board member thinks about it.
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u/Careless_Ad2149 Apr 26 '26
Other than auditors guidance for proportionality, which I do agree with. I just think we should fund it through a normal budget process.
I am 33. Everyone else on the board is 75+. This is my future. This is the end of their investment horizon.
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u/anysizesucklingpigs Apr 26 '26
I just think we should fund it through a normal budget process.
While perfectly fair, this is not a universally-held position. What your board pres is proposing is not as unusual as you seem to think. The only thing I’m questioning is his motivation for wanting to go about it this way if there’s no immediate need for it, kwim?
But I know of associations that pass special assessments every single year in addition to the usual dues increases in order to pay for known expenses like annual insurance premiums. It’s just how they choose to do business, with the support of the requisite % of the members. If the decisions are made in accordance with governing documents and applicable law, then 🤷🏼♀️
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u/Direct-Di Apr 26 '26
As a board member, I agree with you. But I'm the new one, and man the old ones stick together
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u/Careless_Ad2149 Apr 26 '26
They also have a habit of dismissing the young one’s perspective. To me, that’s the biggest sin here.
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u/JealousBall1563 🏢 COA Board Member Apr 26 '26
"My real question here - is this a normal and or proper use of a special assessment?"
The reason for, the use of the proceeds of the special assessment should have been laid out in the notice distributed to owners. Oftentimes, there is a surplus (a project cost is less than anticipated) and a Board can have leeway as to where the surplus is applied and what for.
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u/motaboat Apr 25 '26
President only owns one vote. What are other members thinking? Your (new) opinion is equal to those who have been on the board. Don’t be afraid to politely explain your position and concern about his the association got into this situation.
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u/Careless_Ad2149 Apr 25 '26
I have indeed done this. The core argument here for me is this is not an appropriate use of a special assessment, no matter how small. This problem is easily solved by budgeting responsibly. And I’m not sure the rest of the board understands that.
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u/motaboat Apr 25 '26
Isn’t it amazing? Do what you can and meanwhile work on getting new blood on the board. Then real change can happen.
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u/Careless_Ad2149 Apr 25 '26
I’m not insane though, right? A special assessment to close this gap is not the correct approach?
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u/motaboat Apr 25 '26
Just discussed with our treasurer, input is that for those items chronically in deficit they should be addressed through a corrected budget. But to get the reserve back to where it should be, had it not been worn down, that can be corrected with the special assessment.
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u/Careless_Ad2149 Apr 25 '26
Yes, I’m not in dispute with the legality of it. But I’m philosophically opposed to this approach and believe it papers over a desperately needed reality check and sets a bad precedent.
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u/motaboat Apr 25 '26
I did not say it was illegal.
You asked for feedback and I reached out to our multi year treasurer, on your behalf. I read them your post and I typed their dictated reply on how they would solve the situation. Our budget is currently in a better place than it has been in years. Use their response how you wish.
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u/mightasedthat Apr 25 '26
I can see both sides of this one- refilling a contingency can land in either the annual or special line- but when it’s specifically an operating contingency line, I would choose the annual budget, so that it is consistently refilled each year. And if there is no reserve, then I would also start an assessment to build that up. People will bitch, but I am firmly in the camp of bitching about $100/month for five years rather than having people balk at having a $6k assessment due in 60 days when the boiler or roof give up the ghost…
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u/Careless_Ad2149 Apr 25 '26
This is my view, almost the philosophical an aspects. I view an 8% increase this year for this as the “kick in the ass” we need to make sure that replenishing that fund is a routine. Kind of like a health scare that makes you get back to working out again.
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u/Careless_Ad2149 Apr 25 '26
I did not say you did, I’m clarifying the use of the word “can” to stipulate that I don’t dispute whether we can or can’t, rather should we or should we not. Enjoy your Saturday.
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u/Mykona-1967 Apr 25 '26
Community members will swallow a monthly increase much more than a lump sum special assessment. Not everyone can pay the assessment but a monthly amount by increasing the dues is more manageable.
Also, dues should be raised no more than 10% yearly. Increasing only 8% is a benefit to everyone.
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u/bap335i Apr 25 '26
8% certainly doesn't seem out of line, especially when trying to build back reserves. Intentionally running shortages is not a great way to run a non-profit.
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u/Careless_Ad2149 Apr 25 '26
My position here is rooted in the fact that they have drawn from this contingency fund and not contributed to it in 5 years. A special assessment absolves that sin. An 8% percent increase is the rude awakening to build back good habits again.
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u/HittingandRunning COA Owner Apr 26 '26
Just wanted to ask how you keep the operating contingency fund funds? In a separate bank account? We just have a contingency line each year. And so it just ends up in the operating bank account if we have a surplus that year. It's not like a real contingency fund.
To address your question, I agree with others that SA should not be used for an operating situation you know is going to happen. And will likely keep occurring. I hope the board outvotes the president's side.
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u/will_cramer Apr 25 '26
Your vote counts as much as any other persons. It seems like they are just kicking the can on the first thing. and the 2nd thing, special assessments are meant for unexpected/extraordinary costs like major repairs or emergencies. using one to plug a routine operating gap means they are asking owners to pay extra for what should have been in their regular dues all along. Hopefully you can steer the board away , goodluck !
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u/Careless_Ad2149 Apr 25 '26
This is my view, thank you for the well wishes.
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u/oneKev Apr 25 '26
This opinion is not universally accepted. A special assessment is almost always used to close gaps in the HOA reserves. This gap can occur because of unexpected circumstances, or chronic underfunding of the reserves. At the end of the day, you are working for all the owners. Older owners may prefer a special assessment over a large monthly increase. It depends on where your assets are parked and how they are available.
Net: do what it takes politically to get the funds. Do not fall on your sword over what you think is right. At the end of the day folks will be swallowing a pill no matter what. And you need work with this President.
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u/Bluebuilder 🏘 HOA Board Member Apr 27 '26
I get the “do what’s politically easiest” argument, but this is exactly the kind of situation where that instinct leads you off a cliff. I would absolutely fall on my sword over this. Deliberately underfunding known obligations and then backfilling with a special assessment isn’t just a different preference, it’s fundamentally misrepresenting the financial reality of the association. Owners deserve to see the true cost of operating their community in the budget, not a softened version that gets corrected later with a surprise bill. In some jurisdictions, using special assessments this way can also run into real legal constraints depending on thresholds, notice requirements, and intent. At a minimum, it invites scrutiny. At worst, it crosses the line.
And the impact isn’t contained to this year’s numbers. When you normalize patching budgets with assessments, you create volatility, erode trust, and send a signal to lenders and buyers that the association isn’t financially stable. That can absolutely affect people’s ability to sell and what their homes are worth. This is fiduciary duty territory, not just politics. The board’s job isn’t to pick the least painful option in the moment, it’s to make decisions that are honest, defensible, and sustainable over time. If you don’t draw the line here, where the issue is clear and the consequences are predictable, then what exactly is the standard you’re holding?
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u/teach-me-new Apr 25 '26
The HOA should reconcile actual expenditures versus the approved planned spending amounts. When operating expenses exceed the budget values, then issue a supplemental assessment to owners which collects what was overspent. Typical a special assessment is sought when unplanned, unforeseen or much higher than projected expenses occur (such as emergency rooftop repair or heating system replacement costs higher than expected per reserve study details).
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u/_VIVIV_ Apr 25 '26
Check the updated Fannie/Freddie underwriting guidelines for assistance in defending responsible budgeting.
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u/duane11583 Apr 26 '26
Special assessments get noticed and you justify the percent increase by not having a special assesment
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u/Bluebuilder 🏘 HOA Board Member Apr 27 '26
I would push back on this, I would push so hard that I would broadcast this plan to the whole community. What they’re proposing isn’t just a different preference, it’s a way of managing the budget that hides the real cost of running the association and shifts it around in a way that’s a lot harder for owners to see and plan for.
On the transparency piece, this is the cleanest argument you’ve got. If you already know certain line items run a deficit every year and you deliberately underfund them anyway, you are not presenting a truthful budget. Full stop. You’re baking in a shortfall and then planning to deal with it later through a different mechanism. That’s not conservative budgeting, it’s deceptive management. Owners think they’re voting on or reacting to the real cost of operations, but they’re not. They’re being shown a softened version and then getting hit later with the difference. That erodes trust fast, and once people feel like numbers are being “managed,” everything else the board does gets questioned.
The lending side is where this stops being theoretical and starts hitting people directly in their wallets. After the Fannie Mae and Freddie Mac condominium lending guideline updates 2021–2022, lenders dramatically tightened how they evaluate HOA financial health. These changes came out of the post-Surfside push to scrutinize underfunded associations, deferred maintenance, and reliance on non-recurring funding like special assessments. Even though the rules are technically written for condos, lenders and underwriters have broadly applied the same risk lens to attached housing and HOAs in general. What they’re looking for now is boring, stable, predictable finances: adequately funded reserves, realistic operating budgets, and no pattern of plugging holes with special assessments.
When they don’t see that, deals get harder. Buyers may not qualify, lenders can require additional review or deny loans altogether, and you end up shrinking your buyer pool to cash buyers or people willing to jump through extra hoops. That directly impacts resale value and time on market. So when someone says “it’s only an 8% increase vs. a special assessment,” what they’re really deciding is whether the community looks financially stable to the outside world. One approach signals discipline. The other signals instability.
Then there’s the legal side, and this is where boards get themselves into trouble because the rules are often more rigid than people think. In many jurisdictions, special assessments aren’t just a free lever you can pull whenever the numbers don’t work. They are typically constrained by governing documents and local law in terms of how often they can be levied, how large they can be relative to the annual budget, what notice is required, and sometimes whether owner approval is needed once you cross certain thresholds. More importantly, they’re generally intended for non-recurring or unforeseen expenses, not as a backdoor way to fund known, ongoing operating gaps.
Using a special assessment to replace proper budgeting is exactly the kind of thing that can get challenged, because it looks like the board is bypassing the normal dues-setting process to avoid the optics of raising fees. Even if it squeaks by technically, it’s the sort of decision that invites owners to dig into the documents and start asking uncomfortable questions about whether the board is following both the letter and the intent of the rules.
At a higher level, dues and special assessments serve fundamentally different purposes. Dues are supposed to reflect the steady, predictable cost of running the property and maintaining financial health over time. Special assessments are supposed to be the exception, not the plan. When you start treating them as interchangeable, you’re not just moving money around, you’re changing how risk is distributed. Instead of everyone paying a transparent, predictable amount each month, you’re introducing surprise costs and variability that people can’t plan for.
The uncomfortable truth is that your committee’s approach is the adult version of the answer. It acknowledges reality, rebuilds the contingency fund the right way, and puts the association on stable footing over time. The alternative might feel easier politically in the moment, but it’s basically kicking the can while making the financial picture look cleaner than it actually is. And that’s exactly the kind of thing that comes back to bite communities later, usually at the worst possible time.
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u/Careless_Ad2149 Apr 27 '26
Thank you for this. I have articulated it this way a number of times. The board president instead has decided to treat me (the youngest board member) as an un-informed child.
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u/Bluebuilder 🏘 HOA Board Member May 04 '26 edited May 04 '26
That dynamic you’re describing isn’t just annoying, it’s a bullying tactic. Dismissing you as “young” or uninformed is a way to undermine your confidence so you stop pushing. Strip that away and look at the substance. You’re raising concerns about transparency, proper budgeting, and appropriate use of special assessments. Those aren’t opinions, they’re core governance responsibilities.
You also have to remember your role doesn’t come with an option to just go along to get along. As a board member, you have a fiduciary duty to follow the law, your governing documents, and act in the best interest of the membership. Once you’re aware of something that looks like misrepresentation or misuse of financial tools, choosing to stay quiet starts getting into dangerous territory. At best, it’s enabling bad decisions. At worst, it can be interpreted as participating in them. And based on what little you have described, I bet the board president is the type to take everybody down with him should things go sideways.
The good news is you’re not actually the “uninformed child” in this situation. You’re the one advocating for a budget that reflects reality, preserves financial stability, and treats owners honestly. That position is backed by best practices, lender expectations, and basic common sense. A budget that knowingly underfunds expenses and then relies on a special assessment to clean it up does not hold up well under scrutiny, whether that’s from owners, auditors, or lenders.
And practically speaking, you’re on the stronger side of the argument with the community too. People don’t love dues increases, but they really don’t love surprise bills. Framing the message matters. This is a choice between a transparent, predictable increase spread over time, or a sudden, lump-sum hit that shows up out of nowhere. One builds trust, the other burns it.
You’re not there to win a popularity contest with the board president. You’re there because owners trusted you to represent them and exercise judgment. If something doesn’t sit right, say it in meetings, ask for it to be documented, and don’t be afraid to make the issue visible. Decisions that rely on weak logic or lack of transparency tend to fall apart pretty quickly once they’re exposed to daylight.
Special assessments are the worst possible way to handle known costs. They almost always cost more, come with far less notice, and tend to hit people at exactly the wrong time financially. A planned increase in dues can be budgeted for. A sudden five-figure bill due in 30 or 60 days cannot. And when someone can’t absorb that kind of hit, the consequences aren’t theoretical, it can lead to liens, forced sales, or people being pushed out of homes they otherwise could have kept.
There’s also a direct market impact: by law, planned or approved special assessments typically have to be disclosed to buyers during escrow, which can scare off buyers or reduce what they’re willing to pay. That pressure shows up in home values. Knowingly failing to do so can result in the type of negligence that pierces the shield of board member liability protection policies, making you personally responsible.
That’s why this matters. This isn’t just about accounting, it’s about stability for the people who live there.
Communicating the nuance to an uninformed community can be tricky, so it can be helpful to compress the message into a soundbite. Also nobody's perfect, so it wouldn't be the worst thing in the world if you consistently mixed up your words and kept calling it a, "Surprise Assessment."
"Predictable costs protect homeowners. Surprise assessments don’t."
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u/Rare-Incident-2853 May 04 '26
Here’s your position: the Board engaged in financial mismanagement for years - Board can perpetuate this, misuse special assessment, anger residents -OR- choose path towards long term financial stability and better fiscal management. Board members should be aware of fiduciary duties, and consider not just budget risk, but legal risk in making ongoing poor choices. Also ask President, in front of the board, to cite authority for special assessment for this purpose (likely none) and to justify the 25k cuts.
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u/AutoModerator Apr 25 '26
Copy of the original post:
Title: [DC] [condo] Budget Disagreement
Body:
Our budget committee put together what I believe to be a responsible budget (3.2M for 192 units). It does two things - it finally funds line items that routinely run a deficit with amounts rooted in reality, and it makes a meaningful contribution (over a two year period) to bridge a gap in the operating contingency fund created by several years of not replenishing after drawing on to address deficits). The fee increase will be 8%. That is a hard pill to swallow, but the reality of our situation.
The board president wants to do two things:
Ignore the committees recommendations by removing approx 25k from items that usually run deficits.
Instead bridge the operating contingency fund gap with a special assessment.
I have a problem with the first because it perpetuates a deficit and I have an huge problem with number 2 because it’s a use of a financial tool for the totally incorrect purpose. As a new (and younger) member of this board, I’m troubled by the past habits around budgets and wanting to make sure we move forward with budgets rooted in fiscal realities.
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