Building the annual budget

Start from what actually happened

The fastest way to build a budget that falls apart by month four is to start from what you originally budgeted last year instead of what you actually spent. Pull the actual, closed-out numbers for every line first. Where a vendor contract is up for renewal, check the renewal and escalation terms in the contract itself rather than assuming last year's price repeats. Where a utility line moved, compare it against last year's actual usage, not last year's budgeted estimate; a budget-to-budget comparison can hide a trend that a budget-to-actual comparison catches.

Decide how you're building it

Every line gets built one of two ways. Zero-based budgeting starts each line at zero and forces you to justify it fresh. Prior-year, or incremental, budgeting starts from last year's budget or actual spending and adjusts it up or down.

"the budgeting process starts from a base of zero, with no reference being made to the prior period's budget or actual performance" versus "the budget is prepared by taking the current period's budget or actual performance as a base, with incremental amounts then being added for the new budget period."

Source: Comparing budgeting techniques (Incremental v ZBB), ACCA

Zero-based budgeting tends to surface spending nobody has re-examined in years, at the cost of being slower to prepare. Incremental budgeting is faster and easier to delegate, but it carries forward whatever inefficiency was already baked into last year's number without ever asking whether it belongs there.

Layer in what's not yours to decide

Some numbers in the budget aren't a matter of judgment call. Your reserve study and your board's chosen funding goal, full funding, threshold funding, or baseline funding, set the reserve contribution line, and all three are legitimate policy choices under the industry's own standards, not a hierarchy where only full funding counts as responsible.

"Baseline Funding: Establishing a Reserve funding goal of keeping the Reserve cash balance above zero."

Source: National Reserve Study Standards glossary, Community Associations Institute

In Florida, condominium associations must obtain an independent insurance appraisal of replacement cost at least once every 36 months and use it to budget adequate coverage; other states set different cycles or none at all. Check your state's statute and your policy's renewal date before setting the insurance line.

Whether the board can adopt the budget alone, how far it can raise the regular assessment without a member vote, and what disclosure members are owed before the fiscal year starts are all set by your state's statute and your CC&Rs, not by a national rule. California, for example, caps a board's regular-assessment increase at 20 percent over the prior year's regular assessment without a member vote; other states use different thresholds or none. Check your state's common-interest-community statute.

Run it through a workshop, then a vote

Once the draft has real numbers in every line, put it in front of the board before the meeting where you'll vote on it. A workshop where directors can question individual lines catches problems that a straight up-or-down vote at the annual meeting won't. When the motion does come to a vote, your bylaws' designated parliamentary authority, usually Robert's Rules of Order, governs how the motion is made, debated, and amended.

"The word 'majority' in this context means, simply, more than half."

Source: Frequently Asked Questions, The Robert's Rules Association

A board adopting a budget by simple majority vote needs more than half of the votes cast, not more than half of the seated board or the membership. But Robert's Rules doesn't decide whether members get a vote, or a veto, on the budget itself; that comes from the same statute and governing documents that set the assessment caps and disclosure rules above.