Finance Committee: General Notes
August 14, 2007
Task List to Date:
#1 To formulate the process by which a budget is produced to operate the homeowners association on an annual basis with a three-year scope.
#2 To formulate the process by which annual dues are set and collected.
#3 To formulate the process by which the annual obligations (expenses) are approved accomplished and paid for.
#4 To set up a process by which the annual budget is approved by the association board of directors and to assist each committee in the association with the budget process specific to the committee’s function.
#5 To maintain a watchdog process by which the funds (both revenue and expense) are received and expended according to the set fiscal budget for the current year.
#6 To review a process by which the homeowners association is fully insured.
Note: All figures and line items in the budget as presented here are for discussion only and are not meant to be in any way considered as a ‘final’ budget.
General Budget Process.
The general process for fixing the budget begins with the review of the revenue stream as defined in our covenants, which sets certain parameters as to the amount and frequency of which dues may be raised (or lowered). Based upon the section 7-2 (a)-(g) in our covenants, our purpose as an association and the obligations that we are required to maintain gives us the amount of revenue that we would need to operate. Certain projections as to the number of new homes, new lot sells and other factors are considered in projecting the yearly income. We have included in this summary a spreadsheet that shows such projections.
Next we review the expenses for which we are obligated as an association to provide as spelled out in our covenants as pointed out above. The final amounts for our budget process would than come from budgets as requested and approved by each sub-committee in the association following the same rules as pointed out above, i.e. using the covenants as a basis for validating an expense item.
Once the budget from each sub-committee has been sent to finance, we will put together a budget for review by the board of directors. The board’s responsibility is to insure that each line item on the expense side is a necessary expense as defined by our covenants and that the revenue projections allow for the payment of such expense. If the revenues fall short, the board of directors will be given options by finance as to the appropriate dues increase necessary to cover the expenses. Once the board of directors approves the budget, it should be sent to all homeowners, landowners for comment/objection. It should be noted that we feel that a vote on the budget by all homeowners/landowners is not necessary but if any objections are raised, then the board of directors should acknowledge this and discuss before approving the budget. Once the budget is approved for the year, it can only be amended by vote of the board of directors. We do feel, however, that each sub-committee may have the flexibility to move expense money between line items as long as the total budget for that sub-committee is not exceeded and that the sub-committee approves such movement of money.
At this point, finance is not sure as to the mechanism by which we oversee the general expense and revenue process. We feel that it will be necessary to sub-contract out to a person or agency, the function of billing of dues, paying of bills, etc. This item does need input from the main transition board as to how we should proceed. At this time, we have in the first 2009 budget put an amount of $1000 per month plus $15 / hour at 3 hours per week for general accounting purposes.
The included budget work papers for 2008 show generally what we expect to see based upon our 2007 history (see also working notes). The 2009 budget, which we feel will be the first actual budget for our association will add the watchdog mechanism expense into the expense budget. Also, at this time, we are not going to produce a budget for 2010 and 2011. We feel that we would be better served to produce this budget after gaining the valuable experience of the 2008 fiscal year to review our process.
Insurance
We basically have extended the insurance as we have known with certain assumptions, (i.e. that premiums will increase over time). As well, as a homeowners association, it will be important for the board of directors to be covered as well.
Summary
These notes are to give the general process by which we feel that homeowners association should use in budgeting, approving, collecting and spending the funds necessary to cover our obligations as set forth in our covenants. The processes themselves need further refinement and input from the transition board and will be done so as we proceed thru the 2008 year which allows us to fine tune the projected outlays and also to get a better timeframe on future amenities that will only raise the amount of annual money to cover our operating expense. At this time, we felt it not prudent to project expenses other than the walking path, which we do feel, will be completed in 2008.
Finance Committee
Nick Picerno – Chair (npicerno@hughes.net)
Maren Anderson – Vice Chair
Bob Zalkan
Todd DeVee
Please feel free to email suggestions to me as all input is welcome at this stage of the process.