How an HOA budget works

One budget, two jobs

Every HOA budget is really two budgets stapled together. The operating budget pays this year's bills: landscaping, insurance, management fees, utilities, routine repairs. The reserve budget sets money aside now for the large components that will need replacing later, a roof, pavement, an elevator, based on how funded the association's reserve study says those components are.

The Community Associations Institute's reserve standards describe three legitimate ways a board can set its reserve savings goal: fully funded, funded to a set threshold, or simply kept above zero. None of the three is automatically wrong, they are different policy choices a board can make on purpose. Whether your state requires the operating budget to disclose the reserve side at all, and on what timeline, varies. California, for example, requires an annual budget report 30 to 90 days before fiscal year end. Check your own state's common interest community statute.

Who actually decides

In most associations, the board adopts the operating budget itself, no membership vote required, because the governing documents give the board that authority. But the board's decision sits underneath several layers of rules it cannot override: federal and state statute first, the association's own declaration and bylaws second, the designated parliamentary authority (usually Robert's Rules of Order) third, then board policy.

Whether members ever get a vote, a veto, or neither over the budget depends entirely on your state and your governing documents. Colorado is a clear example of a state that builds in a member check without requiring a vote to approve:

"a proposed budget does not require approval from owners. The budget will be deemed approved by the owners unless a veto occurs at the meeting."

Source: How the CCIOA Budget Process Works, Altitude Community Law

California takes a different approach entirely: members generally do not vote on the budget itself, but the board cannot raise the regular assessment more than 20 percent over the prior year, or impose special assessments totaling more than 5 percent of budgeted expenses, without member approval. Neither model is universal. Read your bylaws and your state's statute before assuming either one applies to you.

The annual rhythm

Most boards work through the same rough sequence: draft numbers based on last year's actuals and known cost changes, discuss them at a workshop before the vote, then adopt the budget by formal motion at a meeting. Under Robert's Rules of Order, the parliamentary authority most bylaws designate, a budget motion generally needs a majority of the votes actually cast at that meeting, not a majority of the whole board and not a majority of the membership.

How far in advance the budget must be finalized, and what must be disclosed to members and when, is set by your state and your governing documents, not by a single national rule. Confirm your own timeline before you build next year's calendar around it.