Homeowners Association board members are often unfamiliar with how to follow the proper process for putting together an annual operating budget. Board member volunteers may be overwhelmed with the task of creating a budget for their homeowners association for the upcoming year. They may be asking, “How should we properly create and approve our budget?” For North Carolina homeowner associations the budget should be ratified.
Homeowners Association Budget Ratification Process per NC Statutes
The North Carolina Planned Community Act (NCGS 47F) outlines this process. Specifically, it is in 47F-3-103.c. You may access this document online by searching the NC General Statutes. Below is the content of this section:
“Within 30 days after adoption of any proposed budget for the planned community, the executive board shall provide to all the lot owners a summary of the budget, and a notice of the meeting to consider ratification of the budget, including a statement that the budget may be ratified without a quorum. The executive board shall set a date for a meeting of the lot owners to consider ratification of the budget, such meeting to be held not less than 10, no more than 60 days after mailing of the summary and notice. There shall be no requirement that a quorum be present at the meeting. The budget is ratified unless at that meeting a majority of all the lot owners in the association or any larger vote specified in the declaration rejects the budget. In the event the proposed budget is rejected, the periodic budget last ratified by the lot owners shall be continued until such time as the lot owners ratify a subsequent budget proposed by the executive board.”
First Step in the HOA Budget Planning Process
As with any budget used as a planning tool, the components of a homeowner’s association budget include revenue and expenses.
- Owner assessments
- Other revenue – late fees, fines, etc.
- Operating – administration and community operations
- Replacement reserve – repair or replacement of existing major components within the community
- Major improvements – for new projects
As board members begin to put together a proposed budget, sources of information will most often come from historical trends within the community. Items that should be reviewed are the current financials, existing contracts and bills over the past year.
It is also important to consider the following:
- Legal requirements of state statutes, governing documents, local ordinances
- Homeowners’ needs and desires
- Committee requests and input
- Knowledge of other community improvements and repairs that are needed
The community treasurer is responsible for making sure the draft budget is prepared. Often, the initial preparation is delegated to the manager if the community works with an association management company.
We find it helpful to export an Excel spreadsheet from our software system which includes the current year actuals and current year budget, along with a column for entering in the 2017 budget and a column for comments. The comments area provides a way for board members and the manager to help explain any items that are necessary, or to note questions.
Once all of the budget numbers are established, the board would approve the budget at a board meeting and this would be noted in the board meeting minutes.
Communicating the Proposed Budget with Homeowners
Once the budget is approved by the board, it should be mailed out within 30 days after adoption along with the annual meeting notice. Or, if a separate budget ratification meeting will be held on a different date, it would be included with that notice. It must provide at least 10 days’ notice. Unlike annual homeowners association meeting requirements, a quorum is not required for ratifying the budget. At the meeting, the board will go over the budget line items and answer any questions homeowners may have. Once the board entertains all questions, remember that a vote by the membership is not required. The budget is ratified unless a majority of all members of the Association reject it in person or by proxy at the meeting held for that purpose. If it is rejected, the current budget would remain in effect until a subsequent budget is proposed by the board and ratified.
If you would like a free assessment of your current homeowners association budget, and insight on possible ways to save your homeowners association money, contact our office today.