An HOA budget is an association’s financial compass for the year. It details the anticipated expenses, including the allocated funds for each line item and reserve contributions, among other things. Thus, board members should understand how to prepare and manage one properly.

 

What is an HOA Budget?

The HOA budget is a financial plan that depicts the association’s anticipated revenues and expenses for the coming year. It serves an important purpose: to assist the HOA in allocating resources, determining regular fees, and planning for needed maintenance and repairs.

The HOA board should exercise transparency with homeowners. Board members should share with residents about the association’s financial condition. This involves regularly communicating with them about how the HOA uses regular dues, why the HOA needs to raise dues (if applicable), and when the increase will take effect (if applicable).

 

What Should the HOA Annual Budget Include?

Specific line items included in an HOA budget can differ from one community to another. However, the budget generally consists of the following:

  • A forecast of the recurring costs for the upcoming year
  • An estimate of contract and insurance costs
  • Anticipated payroll and staffing plan
  • Revenue forecasts (including dues and from other sources)
  • A project and funding plan for reserves

 

How to Plan a Texas HOA Budget

It is part of the HOA board’s duties to plan an annual budget for the association. According to Section 204.010 of the Texas Property Code, unless the governing documents say otherwise, the HOA board may adopt and amend budgets. The same provisions exist under Section 82.102, which applies to condominiums.

However, many board members don’t even know where to begin when creating a budget. Here’s a guide on how an HOA board in Texas can start.

 

1. Form a Texas HOA Budget Committee

While the HOA board is generally responsible for budget planning, that does not mean they can’t enlist the help of others. The board can form a budget committee to assist with the preparation. Of course, it is essential that some board members, particularly the treasurer, remain a part of this committee to oversee the process.

Apart from the budget committee, the HOA board can also ask for help from a professional HOA manager or management company. Management companies typically have more experience, expertise, and connections that allow for effective budget planning.

 

2. Schedule a Budget Meeting

It is essential to dedicate ample time to budget preparation. Allocate an entire afternoon for the job. Making it official will allow the board and committee to maintain professionalism and exercise proper documentation.

 

3. Evaluate Current Fiscal Health

For the actual planning, it is best to start with an evaluation of the HOA’s current financial health. Take a look at the budget vs. actual expense report for the current year. The board should also look at current income statements and balance sheets. Other than that, it is imperative to assess the current reserve fund.

 

4. Check Historical Data

Apart from checking current financial data, reviewing data from the past years is also important. This will allow the board and committee to identify trends or recurring costs. For instance, members may spot that maintenance expenses have steadily increased over the past several years, which could indicate a potential increase again this coming year.

 

5. Anticipate Expenses

The next step is to make the projections for the HOA’s expenses. Based on the historical and current data, the board and committee can estimate the expenses for the next year. Ensure to include all pertinent costs, such as maintenance, utilities, insurance, management fees, etc. It’s also a good idea to pad the budget with a buffer for contingencies.

 

6. Consider Economic Factors

The HOA board and budget committee should also adjust the budget according to economic factors. Inflation, rising costs of goods and services, wage increases, and other factors can also influence the budget. It is important to consider these economic factors not just on a statewide but also at the local level.

 

7. Ask Vendors for Projections

It is crucial to check whether vendor contracts are expiring or up for renewal soon. This will allow the HOA board to determine any vendor price increases. Board members can negotiate with vendors when renewing their contracts, asking for discounts or no price increases. If the HOA can no longer afford the vendor’s fees or increases, perhaps it’s time to change vendors.

 

8. Refer to the Reserve Study

The reserve study contains vital information on how much the HOA should have in its reserves. This study should also include a funding plan, letting the board know how much it must collect in reserve contributions every year to meet the HOA’s needs.

 

9. Get Feedback

While not mandatory, the HOA board and budget committee can ask for homeowner feedback at an open board meeting. At this point, the board should only present a budget draft – not a finalized one.

This step will help owners feel more included and let them know they have a voice. It will also allow the board to address any issues that they may not have considered.

 

10. Finalize and Approve

After making the necessary adjustments, the HOA board can present the finalized budget to homeowners. Remember that Texas law requires HOAs to approve the annual budget (or any amendments) at a properly noticed open board meeting. This is according to Section 209.0051 of the Texas Property Code.

Condominiums don’t have a similar provision that requires their boards to approve the budget at an open meeting. However, doing so is still recommended, as it ensures transparency and builds trust.

If an HOA fails to approve a budget for the upcoming year, the general advice is that the previous year’s budget will roll over and remain in effect until the board adopts a new budget.

 

11. Distribute the Budget

More often than not, the governing documents of an HOA require the board to distribute the budget to members. Even if your governing documents don’t require this, it’s still good practice. Make sure to include an explanation of the budget and any increases (if applicable). This will keep homeowners in the loop even if they fail to attend the budget approval meeting.

 

12. Monitor the Budget

After all that, it’s time to implement the budget. One of the biggest HOA budgeting mistakes the board can make is failing to monitor the budget. Actual expenses can still fluctuate, resulting in a budget deficit or surplus. Board members should know how to adjust accordingly.

 

Ensuring HOA Financial Health

The HOA budget plays a crucial role in an association’s financial operations and management. Board members should understand how the budget preparation process works to ensure their community’s continued fiscal success. Of course, it’s not always easy to create and manage HOA budgets without professional help.

Graham Management offers exceptional HOA management services, including help with budget planning, to Houston communities. Call us today at (713) 334-8000, request a proposal, or contact us online to learn more.