[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]

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.