How an Association Budget is Determined
Every Fall the Board meets with its Grace representative to plan the association’s budget for the following year. Resident’s do not vote on or participate in budget planning, they rely on their elected Board members to plan a responsible budget.
Associations are non-profit organizations. An association budget should come out to zero at the end of the year, so that all money brought in has been spent, and all bills have been paid. This is the Board’s goal when planning a budget.
There is no standard budget that applies to all associations. You will receive a copy of the budget for the new year sometime in November or December of the previous year. Below are some of the most common line items on budgets, with a brief explanation.
Management Fee: By contract, the fee for managing the association’s financial & business affairs by
Grace Property Services.
Legal: Annual service option fee if the association has one, and an allowance for any attorney costs.
Taxes: Costs for preparation of annual tax returns and taxes due
Electricity: If the association has street lights, or a lighted sign, or any other common uses of electricity.
Miscellaneous Administration: This covers the cost of preparing monthly financial reports and the publishing and mailing of association newsletters and notices. This also includes the cost for the annual coupons mailed to all owners who are not on direct payment.
Grounds Contract: The contracted cost to care for regular common ground maintenance such as mowing, edging, fertilizing, and Spring and Fall clean ups. Snow removal may be under this line item, or may have its own category.
Misc. Landscaping: Allowances for purchases of shrubbery, trees and grass in the event replacement or additions are needed during the course of the year
Maintenance Repairs: This item is an allowance for exterior building repairs such as roof leaks, gutter cleaning or building trim fixes on an as needed basis.
Insurance: Coverage of the commonly owned property.
Reserves: These are funds that are banked and invested for future capital repairs
Long Term Operating Fund: These funds allow the association to save money for short term, non-capital projects such as painting, or for unexpected expenses.
The green line items will generally have a known annual cost based on contracts. These line items should always come out to zero. The amount that goes into the Reserves and Operating Fund are determined by the Board, and is dictated by whether or not the Association is fully funding the Reserves, and whether there are any large upcoming projects.
The other line items vary more and the budget amount is determined by a combination of what was spent last year in that category, and any known upcoming projects in that category. For example, if the Electricity budget of the previous year went over by $56, the electricity line item should be increased for the coming year. If the Board knows that five Association bushes will need to be replaced next summer, the miscellaneous landscaping budget will reflect that anticipated cost, as well as having enough to cover any unexpected landscaping needs.
Once the Board has determined the needs of the Association, the entire annual budget is divided amongst all home owners in the form of Association fees. Depending on the Association, these fees are then due once a year, once a quarter, or once a month.
If the total amount required to run the association is more than the previous year, fees will go up. If the total amount is less than the previous year, fees will go down (unfortunately, few services get cheaper as time passes).