As we are in the middle of annual meeting season for many communities, it may be helpful to review the budgeting process that you are required to follow. Budgeting is the process of reviewing your association’s anticipated income and establishing planned expenditures for the upcoming year. The process results in the preparation of a proposed annual budget which details the projections and sets a level of assessments which will hopefully cover all of the upcoming expenditures for the year. Following the proper steps in preparing and adopting the budget is one of the most important components of the effective management and operation of your community association.
If your community was created after July 1, 1992, it may be subject to the budgeting provisions set forth in CCIOA (the “Colorado Common Interest Ownership Act”). Let’s take a closer look at what CCIOA Section 38-33.3-303(4)(a) provides:
- A notice provision: Within 90 days of the board’s adoption of any proposed budget, the board must mail or otherwise deliver a summary of the budget to all unit owners. (Note that it is only a summary that must be provided to the owners)
- Set a meeting: The board must set a meeting date to for the owners to consider the budget. The meeting date must be a reasonable amount of time from delivery of the budget summary, or as provided in the association’s bylaws. (Note also that the notice of the budget meeting shall be given per the requirements of the bylaws as well).
- Approval of owners required? Unless the association’s declaration provides otherwise, a proposed budget does not require approval from owners. The budget will be deemed approved by the owners unless a veto occurs at the meeting.
- How does a veto occur? Pursuant to the CCIOA budget ratification process, the owners can reject the proposed budget only if a majority of all of the owners veto the proposed budget. There is no requirement that a quorum of owners be present for it to be a valid meeting. (Note that your association’s declaration may specify a larger percentage than a majority of owners).
In practice, it is rare for a majority of all of the owners in the community to actually attend (in person or by proxy) the budget meeting and veto the proposed budget. As a result, the proposed budget is normally approved as a matter of course. If, however, a majority of owners do veto the proposed budget, the prior year’s budget remains in effect until a new budget can be proposed and ratified.
If the declaration of an association created after July 1, 1992, requires owner approval (as permitted by the CCIOA provision), that requirement must be followed by the board of directors when presenting a budget for approval. Thus, the homeowners’ right to reject dollar amounts presented in the budget will depend entirely on the budget provisions set forth in the declaration.
If a community was created prior to July 1, 1992, it is not subject to the budget ratification process set forth in CCIOA. Therefore, the board must comply with any approval/ratification requirements set forth in the association’s governing documents.
If you are not sure about the budgeting requirements set forth in your governing documents, or whether the CCIOA budget process set forth above is what you must follow, please contact your knowledgeable community association attorney at Altitude Community Law PC.