As the calendar year comes to a close, many associations are preparing and adopting budgets for the next year.  What budget process is required for the association?  Does state law affect the budget process?  This article reviews budgeting for new and older communities.

How are older communities and communities that are not subject to CCIOA budgeting?

Budgeting is document-specific for owner associations in communities created before July 1, 1992 and for those that are exempt from the Colorado Common Interest Ownership Act (CCIOA).  Declaration provisions in these communities frequently require that assessments be based on an annual budget of the estimated expenses of the association for the upcoming year. 

The Bylaws or Articles of Incorporation may further detail the budget process and may delegate  the duty to prepare an initial budget to an officer.  In most associations, the treasurer is given this responsibility.  Many associations delegate this responsibility to their management company, bookkeeper or accounting firm.

After a budget is created, the board of directors is usually provided with the authority to approve and implement the budget.  This power can be "checked" or "limited" by caps on the increase in assessments or increases in expenditures, requiring a vote of members.

How are new communities that are subject to CCIOA budgeting?

In communities that are subject to all of CCIOA, assessments must be based on a budget, adopted at least annually.  The proposed budget is typically prepared by the manager or the treasurer or a budget committee in coordination with the manager, then approved by the board as a proposed budget.

After the board’s adoption of a proposed budget, CCIOA requires distribution of the proposed budget, or a summary of it, to all members, with the right of a majority of the members (or a higher percentage, if set in the declaration) to veto the budget at a member meeting.  This budget meeting is sometimes combined with the annual meeting. 

At the meeting, unless a majority of the owners veto the proposed budget (or such higher percentage as established in the declaration), the proposed budget becomes the approved budget of the association.  In the event the proposed budget is vetoed by a majority (or higher percentage) of your owners, the budget last approved is continued until such time as the owners approve a subsequent budget proposed by the executive board.

How can budget preparation be improved in your community?

Prior to actual budget approval, consider taking the following steps:

·        Set goals

·        Utilize the services of an independent or professional community association manager

·        Establish a planning process for each service of the association (consider the five phases of each service:  establishment, maintenance, restoration, improvement and cancellation)

·        Provide several opportunities for owner comment and involvement at all phases of the budget process.

Budgeting Summary

Budgeting depends on the application of state law (CCIOA) and the governing documents for the community.  Compliance with these requirements and budget planning are the keys to budgeting for associations.