Organize the operating section The operating section of the budget is divided into two major sections, revenue (or income) and expenses. The operating budget identifies the categories of revenue and expenses (referred to as line items or accounts in a chart of accounts) for the routine, day-to-day activities of the association. Expenses are anticipated to occur on a regular basis, daily, weekly, monthly, quarterly, and annually. Income section This section includes income from assessments, as well as
Special accounts Special accounts that are frequently encountered include: ● Limited common elements : If the association maintains certain limited common elements (LCE) at the expense of only those members who are entitled to use those limited common elements, then the budget must include a separate schedule for revenue and expenses that pertain to those limited common elements. Example : A covered parking space or garage. ● Member expenses : In a condominium or cooperative, if such expenses for members are required, they are not counted as expenses that are collectible through assessments, generally related to disclosures during developer control of the association and therefore do not appear in the budget. ○ Example : Maid service that is available on a pay-as- wanted basis but is not a common expense of the association. ● Capital contribution : Refers to monies paid to the association at the time a unit or parcel is conveyed from one member to another. It is usually equal to one to two months of assessments, collected at the time of purchase of a unit/parcel. The documents must specifically allow the collection of capital contributions. ● Recreational leases : Rent for commonly used facilities under a recreation lease refers to any facility that the association uses but does not own. It pays rent directly to a lessor or agent of a recreational facility under a recreational lease or lease for use of commonly used facilities. The use and payment are a mandatory condition of association ownership and is not included in the common expenses or assessments for common maintenance paid by members to the association. ○ Example : A large-scale mixed-use community association (composed of multiple homeowner sub- associations as well as a condominium association) is part of a recreation association that operates recreational facilities serving association members. Members who are also members of the recreation association pay assessments directly to the recreation association therefore this expense is not part of the regular assessment and is included in the budget solely for disclosure purposes. ● Bulk services : These are services common to many community associations, such as television, Internet, and telephone, are provided to the members as part of their common expenses of the association. The association negotiates and enters into this agreement on behalf of the members to obtain a more favorable rate than each member would be able to obtain through an individual contract. Important considerations for budget preparation related to bulk services include whether the common expenses are allocated according to a certain percentage stated in the governing documents or an equal per-unit basis. Does the contract include a provision for an annual increase? If so, at what amount, or percentage will that increase be? Have any members opted out of the bulk service because they are either sight or hearing disabled, or are receiving certain public assistance? Insurance is another essential part of a community association’s budgetary obligation. Community associations are required to carry insurance, as required by the applicable community association statute and its governing documents.
other non-assessment income, such as: ● Screening fees (new owners/tenants) ● Vending or Laundry machine income ● Late fees ● Estoppel fees ● Returned check fees (NSF)
● Clubhouse rental ● Interest income ● Miscellaneous fees Expense section Expenses are divided into major categories, such as: ● Administration
● Contracts ● Insurance ● Repairs and maintenance ● Salaries and benefits (if applicable) ● Utilities
Sometimes an association decides to include a one-time expense, such as an expensive piece of equipment, in the annual budget. It may list the item, and other such planned purchases, under a section titled capital expenses , to differentiate them from the regularly recurring expenses typically referred to as ordinary expenses. Account creation There are no hard and fast rules here. For example, an association may choose to include a contracts section because it allows management to easily identify certain fixed costs. Alternatively, it may choose to simply include the cost of a contract, such as landscaping, with other non-contractual and variable landscaping related costs such as plant or flower replacement, pest control, and tree In addition to the accounts identified earlier associations may create and use other budget accounts. They can also create sub-accounts to provide more specific information about certain expenditures or revenue categories. Management may recommend to the board to create sub-accounts, such as lawn maintenance, pest control, tree trimming and plant replacement, under the landscaping account. Why? This type of organization generally provides easily identifiable cost information regarding all landscape-related services. Better control and understanding of services/items that don’t necessarily fall under the contract. trimming, under a landscaping account. Selection and organization of accounts The budget must show the beginning and end dates of the fiscal year (the budget period). The budget will include the association’s name and specify the assessment amount that is to be paid by each member. For condominium and cooperative associations, the proposed budget must include the amount budgeted for the current budget year and for the proposed budget year.
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