Trestle Explains Budgeting and Budget Ratification
For those communities whose fiscal year begins January 1st, budget season is underway and budget ratification meetings are likely scheduled soon, with announcements arriving in the coming weeks.
What is the Budgeting Process?
Budget planning often starts with the community’s Association Manager obtaining an updated reserve study. A reserve study is a budgeting and planning tool prepared by an independent reserve specialist and used by Associations to determine the expected and remaining useful life of common elements. Common elements typically consist of items accessible to or used by a majority of Homeowners and are often maintained by the Association as a common expense. The study also outlines the projected replacement cost of the elements as well as reserve (savings) recommendations and strategies.
After the reserve study has been received, reviewed, and approved by the Board of Directors, the initial budget preparation begins. Commonly, this starts with a budget planning session in which the Board identifies upcoming planned projects and the community’s needs. After setting goals for the upcoming year, the draft budget is prepared. Most Washington State Community Associations are non-profit corporations and as such, budget to bring in exactly what they plan to spend each year.
Association assessments are directly linked to the budget. If an Association’s expected annual expenses are $100,000, it must bring in $100,000 of income during the year to cover these costs. Typically, an Association’s sole source of income is owner assessments and as such, the amount paid by owners directly mirrors the expected expenses.
Identifying the Association’s financial responsibilities, as outlined in its governing documents and State Law, its planned projects and reserve savings strategies, helps to determine the expected costs for the upcoming fiscal year. Generally, recurring expenses such as utilities and landscaping maintenance are known and easily factored into the budget. In addition, budgeting often includes the review of historical spending trends.
While an Association may wish to keep costs low, if it historically spends $1,500 per month on necessary building maintenance, it should budget at least $1,500 per month for building maintenance in the upcoming fiscal year to ensure sufficient funds are available. Some discretionary spending, such as landscaping improvements, can be postponed in an effort to reduce expenses, but known, recurring expenses cannot. While an Association may wish its building maintenance cost $500 per month, it must consider trends and history. Wishful thinking cannot discount facts and trends.
What is a Budget Ratification Meeting?
After Board approval, the budget must be ratified in order to go into effect. Ratification is the formalization of the budget. Under The Washington Uniform Common Interest Ownership Act (WUCIOA), the Association must present the approved budget to Homeowners for vote. Unless a majority of voting power within an Association vote against ratifying the budget at the Budget Ratification Meeting, it is automatically ratified and will go into effect at the start of the fiscal year or other period, as determined by the Board.
Reviewing the Budget and Financials
Interested Homeowners can learn more about their Community Association and review its documents by visiting Trestle’s My-Community Web Portal, contacting the Community’s Association Manager and attending Board and community meetings.
Connecting with Trestle
In addition to Trestle’s website, the firm regularly connects on LinkedIn, Facebook, and Twitter.
