Our Association is Over Budget. Now What?
Our association is over budget halfway through the year and anticipates running out of money…what can we do?
It is not an uncommon situation for there to be variation between an association budget and the actual expenses incurred. At the beginning of each fiscal year, typically via board vote, the association adopts an annual budget and bases assessments for each owner off that budget. Just like with any corporation, associations sometimes face unanticipated expenses or simply under budget expenses (typically to try to keep assessments lower), thus leading to a shortfall and the need to raise funds during the course of the year. At this point, how does the association address this issue and make it through the rest of the year financially?
The two main ways to increase revenue for the remainder of the year is to amend the budget or pass a special assessment. Most association documents provide that the board approves (as opposed to the owners) the original and amended budget. The budget can be amended by the same means as it was originally adopted. In other words, it can be amended upon proper and timely notice of the proposed amended budget mailed to the ownership. Once the budget is amended, the regular assessments associated therewith are likewise amended. The major benefit of amending the budget is that the funds received from the increased regular assessments will be allocated to the association’s general operating account and thus can generally be spent as the association sees fits. The major downside is if the association is running a major deficit, or needs funds for a near-future project, it might not be able to wait for the additional funds to come in via regular assessments (i.e. monthly or quarterly basis). A final note regarding amending the budget is to be mindful of increasing the budget by too much. There are mechanisms for ownership to challenge budgets that exceed 115% of the previous year’s budget. Review Fla. Stat. § 718.112(e)2.a before a large budget increase.
In those situations where there is an urgent need for money, the board should consider passing a special assessment. A “special assessment” is any assessment levied against a unit owner other than the assessment required by a budget adopted annually. The association’s governing documents should provide the voting threshold needed to adopt special assessment (e.g. majority vote of owners present at a meeting, majority vote of the board, unanimous vote of the board, et cetera). Florida law currently requires that any meeting where nonemergency special assessments will be considered must be mailed, delivered, or electronically transmitted to the unit owners and posted conspicuously on the condominium property at least 14 days before the meeting. Also, notice of any meeting in which special assessments against unit owners are to be considered for any reason must specifically state that assessments will be considered and provide the nature, estimated cost, and description of the purposes for such assessments. Fla. Stat. § 718.112(c)1. Finally, be mindful that the funds collected pursuant to a special assessment shall be used only for the specific purpose or purposes set forth in such notice. Fla. Stat. § 718.116(10).
This post does not address passing special assessments on an emergency basis but that is typically covered in the association’s governing documents. There’s also the option of moving money from the reserve account to the operating account, but that requires its own separate discussion.
In summary, if the association has a special project that needs full funding immediately, then the association is better off going the route of passing a special assessment. However, if the association is over budget on a variety of items and it is simply trying to raise revenue for a variety of issues/minor projects, then amending the budget/increasing regular assessments may be sufficient.
If you have any questions about these issues or any other issues related to condominium or community associations, contact Carla Thacker or Kevin Obos at Harrison Sale McCloy, Attorneys at Law.