PLEASE NOTE – THIS IS AN ARCHIVED ARTICLE AND MAY NOT REPRESENT CURRENT INFORMATION.
Budget issues… do we have them?
These days, if you’re lucky, you are managing to pay all of your bills, put food on the table, and still swing a movie night every month. Maybe it’s just a Red Box movie, but it’s still a date night. If you’re doing really well you might even manage to put a small amount of cash into savings.
When I was a kid my parents had a special account called a “Christmas Club Account” I have no idea if banks still have these, but back in the 80’s they were a big deal. The idea behind the “Christmas Club” was to stick a little extra savings into a fund that was for, well, Christmas. You saved your regular money up in your savings account and you saved Christmas money up in a separate account. Imagine, setting a budget for your Christmas gifts instead of maxing out the credit cards every December. Crazy!
So where is all of this going? Well it’s budget time and the board of directors has been meeting with the finance committee chair. (You do know we have a 5-person panel of HOA members just for financial guidance, don’t you?) One of our top priorities as a board was to try and grab the budget by the proverbial reins, and ensure our dues are being used properly. More to the point we wanted to be sure we get the maximum value out of every dollar.
Recently we looked over the first HOA driven budget, as prepared by our finance committee. The outlook was not all happy and rosy. I will be the first to stand up and say that corporate style budget sheets are not my thing. In fact, I specifically requested everyone stop gasping and groaning long enough for someone to drag out my daughters over sized pad of paper and crayons to make some sense of what I was reading. In the end I understood one big fat fact, the old board was not approving good budgets.
To really simplify things: The old board signed off on a budget that didn’t cover all of the expenses, used money from different line items to pay for different expenses, had items that didn’t need to be included (playgrounds that do not exist), and worse yet, didn’t always allow for funds to go into savings.
My understanding of the budget (as simple as I can get it) is this. Every year we look at the stuff we need to pay for over the next 12 months. We then guess how much all of that will cost based on what it has cost in the past and adding in a small amount to cover inflation (that’s as complicated as this will get). We then decide, as a board, to fund any new projects (there is the Christmas Club Account I mentioned). We also plan how much money we are going to put into our savings (called a Reserve Fund). The Reserve is money we set aside to pay for things we have now that will break in the future. An example is the pool plaster lining ($25,000 repair in 2019 or 2020) or the townhome roofs.
As a board we have to do everything we can to try and ensure the money will be there to take care of these big ticket items in the future. Failing to maintain and repair what we have now will ultimately hurt our property values.
We also have to find ways to fund the operating costs (water, electric, incidental expenses) and at the same time add to our amenities when possible.
Right now we have one source of income for our HOA. Dues. We all want low dues. In fact, we all want NO dues. I think most people realize we can’t get rid of dues, but we can plan now to find ways to keep dues down over the long term while building the reserves, adding amenities, and funding our operating costs.
One of our goals is a “Reserve Study”. Simply put a reserve study is a detailed report of what we have and what it will cost to fix it all. You can do a small-scale reserve study in your home right now. Take the cost of replacing your current vehicle; divide that by the number of years your current vehicle should last. Now you know how much you need to save each year to be able to replace your car from savings.
Most people do not operate that way. Most folks these days just wait until their old rust bucket dies and then they head to the dealership to see what kind of deal and rate they can get. As an HOA we can’t do that. We have to plan for the future. We have to start planning now so that we can be prepared as early as possible.
Over the next few weeks we will be focusing on the budget. We hope a reserve study will be able to better prepare us for the future and give us the info needed to really educate our membership about the state of our reserves and where our dues really need to be. (For better or for worse)
