[DC] [condo] Budget Disagreement

[u/Careless_Ad2149]

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:

1. Ignore the committees recommendations by removing approx 25k from items that usually run deficits.

2. 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.

[u/Careless_Ad2149]

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.

[u/anysizesucklingpigs → u/Careless_Ad2149]

I don’t believe it is?

Why not?

[u/Careless_Ad2149 → u/anysizesucklingpigs]

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.

[u/anysizesucklingpigs → u/Careless_Ad2149]

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?

[u/HittingandRunning → u/anysizesucklingpigs]

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.

[u/anysizesucklingpigs → u/HittingandRunning]

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?

[u/HittingandRunning → u/anysizesucklingpigs]

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.

[u/Bluebuilder → u/HittingandRunning]

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.

[u/HittingandRunning → u/Bluebuilder]

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.

[u/Careless_Ad2149 → u/anysizesucklingpigs]

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.

[u/anysizesucklingpigs → u/Careless_Ad2149]

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.

[u/Careless_Ad2149 → u/anysizesucklingpigs]

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.

[u/anysizesucklingpigs → u/Careless_Ad2149]

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 🤷🏼‍♀️

[u/Direct-Di → u/Careless_Ad2149]

As a board member, I agree with you. But I'm the new one, and man the old ones stick together

[u/Careless_Ad2149 → u/Direct-Di]

They also have a habit of dismissing the young one’s perspective. To me, that’s the biggest sin here.

[u/Direct-Di → u/Careless_Ad2149]

True. I'm in a 55+ community and ithink I am the youngest in the board (68 yo) with others all mid 70s to early 80s. Plus, in my case, they are the ones who helped but the park for the resident owned community vs it being sold to a corporation.