Budget season has arrived.  And with budget season comes the daunting task of planning, executing, communicating, and obtaining approval for your budget.  Here are some budget basics and practice pointers that all boards and managers should know:

Do I have to plan and adopt a budget every year?
If your community is a pre-CCIOA common interest community (i.e., created prior to July 1, 1992), budgeting requirements are document specific.  Most declarations will require assessments to be based on an annual budget of the estimated expenses for the upcoming year.  The bylaws or articles of incorporation may provide further guidance on budget procedures and requirements.

If your community is a post-CCIOA common interest community (i.e., created on or after July 1, 1992), assessments must be based on a budget, adopted at least annually.

In either case, the budget itself should be well-researched and developed using a variety of factors such as community goals, past and future financial needs, contract negotiations with vendors, input from service providers, and input from owners.

Practice Pointer:  Plan Ahead.  Don’t be reactionary.  Be proactive, conduct research, and anticipate the future rather than respond to emergencies.  This will decrease the chance of surprise increases or special assessments.

Do I need to get approval from owners? 
For pre-CCIOA communities, this is document specific.  Some governing documents will require board approval only.  Others will require owner approval for all budgets, or only if a certain “cap” is exceeded.

For post-CCIOA communities, unless an association’s declaration provides otherwise, a proposed budget does not require owner approval.  Instead, a budget is deemed ratified unless a majority of the entire membership vetoes it (or any larger percentage specified in the declaration).  A post-CCIOA declaration may, however, also require approval.

Practice Pointer:  Solicit feedback before finalizing the budget.  The board should be in tune with and take into consideration the desires of the membership.  And by requesting feedback, you will be alerted to any “red flags” and be ready to answer difficult questions.

What if we don’t have quorum at a budget meeting?

Generally, without quorum no action can be taken at a meeting.  However, for post-CCIOA communities, CCIOA specifically provides that “whether or not a quorum is present”, a proposed budget will be ratified unless it is vetoed by a majority of the membership (or any higher percentage specified in the declaration).

For pre-CCIOA communities, if the budget must be approved at a membership meeting, and the Association does not obtain quorum at that meeting, the Association may not approve the budget.

Practice Pointer:  For pre-CCIOA communities that require owner approval for budgets, be sure you obtain enough proxies ahead of time to guarantee quorum.

What happens if budget is not ratified or is vetoed?
If the budget is vetoed or otherwise not ratified, the current budget continues until a new budget proposed by the board and subsequently ratified.

Practice Pointer: Learn from your mistakes.  Why was the budget vetoed or not ratified?  Inadequate research?  Failure to obtain quorum?  Failure to solicit feedback?  Lack of documentation supporting the increase?  Determine the reason for failure, so it doesn’t happen again.

Melissa M. Garcia, Esq.
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