We are about to start Budget Season where most of the associations will prepare the 2020 budget. The budget committee is formed by volunteers and it has an important role during the process of creating the Budget. Do you know how does the budget committee work and who serves on it?
Who Should Be on the Committee?
The owners who serve on the budget committee should represent a cross-section of the community. Of course, if members are willing to serve who have expertise in areas such as insurance, that’s even better. When it comes to size, a good general guideline is that the committee shouldn’t be so large that it becomes unwieldy.
What Does the Committee Do?
The treasurer and the property management team will make sure that all committee members understand the three basic components of the budget:
1. Funds needed for the daily operation of the community, such as common electricity and water, grounds maintenance, management, insurance, and general maintenance. These expenses are either contractual or can be reasonably estimated based on experience. An important consideration when looking at items in the operating budget is the expectations of the community—for example, do members want a landscaper who is a “blow, mow, and go” type, or do they want a landscaper who provides a higher level of service?
2. Funds needed to maintain our reserves at sufficient levels. Reserve funds provide money for the repair and replacement of the community’s assets—such as the pool, roofs, pavement, etc.
3. Funds for additions or enhancements to the existing property. This is a function of what members of the community want and are willing to pay for. The community should provide input and approval for this component.
Armed with this knowledge, the committee with the support from the property management and the Board will estimate total expenses for the coming year and compare that sum to the association’s potential revenue (assessments, interest on investments, concession income, and so on). If expenses are greater than revenue, the committee will look for ways to lower expenses without compromising service. If that doesn’t balance the budget, the committee may have to make a tough decision—whether to increase assessments or levy a one-time special assessment.