Talking about money is usually right up there with religion and politics – it’s uncomfortable, and no one really wants to do it. However, there’s no real benefit to skirting financial realities just because it is contentious or a difficult subject.
There’s an entire process when creating the budget, followed by a sophisticated implementation protocol. However, some homeowners think that the budget process is shrouded in mystery and that they are not allowed to be party to it. To avoid this, consider a quarterly or semi-annual communication that lets homeowners know how the association is doing on budget compared to actuals – if you’re over budget, let homeowners know what’s going on so that it’s not so much of a shock that there’s an increase for the following year.
Cynthia Graffeo, director of client relations at New York based- Argo Real Estate, suggests that financial discussions within condo communities are always based upon past precedent.
The level of effort to which associations go to communicate an increase to their homeowners will vary. Some associations also have an open meeting with all residents to explain budget changes and the reasoning behind them. Other communities will send a mailing to keep everyone on board.
“Finances are one of the biggest components of the building, so shareholders want to make sure the board is meeting their financial obligations,” says Graffeo. “You want to be open to them with annual financial statements and letters that explain when a board decides to increase the maintenance or do an assessment.”
Condo communities in Florida strive for administrative transparency, as Florida law requires it. According to the Florida State Attorney General’s Office website, “Florida began its tradition of openness back in 1909 with the passage of Chapter 119 of the Florida Statutes or the ‘Public Records Law.’ This law provides that any records made or received by any public agency in the course of its official business are available for inspection, unless specifically exempted by the Florida Legislature. Florida’s Government-in-the-Sunshine Law was enacted in 1967. Today, the ‘Sunshine Law’ establishes a basic right of access to most meetings of boards, commissions and other governing bodies of state and local governmental agencies or authorities.”
Monthly financial reports should be generated to keep residents informed of all budgetary concerns. This report contrasts actual expenses with where the operating budget should be. The report covers any and all financial aspects of the association in question.
When homeowners have questions or disagree with a line item in the budget of a fee increase? When it comes to feedback, it usually comes in response to letters announcing the increase. Letters are signed by the boards, but the questions are fielded by management.
“If a board decides they don’t want to be really open, they don’t publish their operating budget,” says Graffeo, adding that an operating budget includes such expenses as salaries, taxes, utilities, maintenance fees and insurance. “Residents often don’t understand that it’s a working budget and then have questions and concerns about what’s spent,” she says.
Although it is understandable that most boards don’t want to account for every dime spent, it is a better policy that keeping a lid on things. “I’m puzzled when I see a board that is keeping things really close to the vest. I see it fairly often and I find it a little disturbing,” says Christine E. Evans, CMCA, PCAM and regional vice president at Associa, Inc. in Florida.
“Minimally, I feel like there should be something that an owner can get at any given point that says what we’ve spent and what was taken in. I think that maybe because board members are volunteers, they may be a little concerned about the depth of questions from particular unit owners that might have more financial knowledge than they do. They might be asked questions they don’t know the answers to and they don’t want to give the impression that they are not in control.”
“Let’s say that there is a major structural repair that needs to be done,” says Graffeo. “It is a hidden condition, but it’s going to cost the building $1 million to do it, but there’s no reserve money. If any money that’s coming in can’t meet the expenses an assessment needs to be done and a plan of action needs to be created, such as obtaining a loan. This plan needs to be put into place and disclosed to the shareholders and unit owners. They should receive a summary of how the board expects to make the repair and that an assessment will be coming down the line in the near future. It’s all about disclosure for people to understand exactly what’s going on.”
Association Specialty Group offers community association management for South Florida. For more information about ASG’s hoa management services, contact us at (954) 458-5557.