Definition: Operating Budget

An HOA operating budget is a projection of the money needed by the association to cover its operating expenses and provide an adequate allowance for repair and replacement of elements on the property which the HOA maintains over the course of one year.

A key point: an operating budget should not contain expenses which won't be paid for in the coming year. This means an HOA should revise its budget from the previous year to consider changes in its financial position and cost structure. The governing documents describe the manner in which a board adopts its budget, however even when a board has the right to adopt a budget, a vote of owners (majority of over 50%) is required by California law to adopt a budget which increases regular dues greater than 20%. The HOA must distribute its budget as part of its annual report (also called the ProForma Budget).

* Credit to HOA Assist

Should Past Past Budgets and Financial Statements be Analyzed? Yes. A good way to make a plan for the future is to look at the past. Your board should consider the association’s past financial statements to gain a better understanding of its needs and current standing. Using past budgets and financial reports as a guide can lead to more accurate budgets - the past three years are a good starting point. If there are significant trends or deviations, such as consistently spending more or less on an item than budgeted for, a board can adjust the budget, or adjust that item so its cost is closer to the budget. 

* Source of data: ProForma Budgets

Even though the reserve contribution dropped substantially in 2019 and 2021, the dues still went up. At the same time, money allocated in the operating budget for a maintenance supervisor since September 2020 went unspent until this month, with no matching reduction in dues. That falls outside of best practices and suggests the money went for other items instead, which weren't properly budgeted. 

In past years, the board held a town hall meeting to answer owner questions or concerns about the budget before they voted. That stopped when FirstService was hired. I support town hall meetings for gathering owner input and addressing their concerns.