What Are Some Budget Goals to Keep in Mind?

It’s budget time…get out the calculators, put on your “money” hat, and get ready for hours of frustrating number crunching. Does this sound about right? Is that how your Association approaches the budget process each year? It is a necessary, but tiresome task and the most important rules are 1) that the budget balance and 2) that the assessments not be raised (or raised very minimally). Is this your concept of the budget process?

Stop! Before even entering into the numbers portion of the budget process, some overall budget goals need to be discussed. The budget is an important financial tool, but it is also a way to communicate with the members of the Association. It is a way to look forward while reviewing the past. It is a means to evaluate the obligations, needs and expectations of the Association to its members. It is much more than just columns of numbers!

This FAQ will explore four basic budgeting goals:

1. To protect, maintain and enhance the value of the Association.
2. To determine and maintain a particular standard of living and/or lifestyle
3. To encourage a sense of community.
4. To use the least amount of resources to obtain maximum benefits.

Protect, Maintain, and Enhance the Value of the Association
For many unit owners in community associations, their ownership interest is one of their largest, if not THE largest, investment they have. Thus, it should be important for those owners to protect, maintain and even enhance the value of their unit. This applies whether it is a primary or secondary residence, a rental unit, or a vacation home. It applies regardless of their income status.

The budget process needs to start with this consideration. Look around the complex. What needs to be done to protect, maintain, and enhance the value? It may be necessary repairs or replacements and at other times it may be enhanced services such as longer guardhouse hours or lifeguards in the pool area. It may also be eliminating outdated and outmoded decorations or equipment. With this is mind, the budget process also must look to future owners as well as current owners, and to potential owners. It may seem reasonable to spend as little money possible today to patch a roof, but in the long run, if the expense will end up costing more, affects the overall value of the property, and may cause damage to units in the future, then the budget needs to consider the future, as well as current, costs.

Once a decision is made based upon this consideration, then communicate to the members why an expense has been authorized in the upcoming year. Explain the fact that the budget will protect, maintain, and might enhance their property values. Possibly, an explanation of the justification may make an assessment increase easier to accept if there is a corresponding value offset to the unit owner.

Determine and Maintain a Particular Standard of Living and/or Lifestyle
Every Association has its own personality. There are reasons that unit owners chose to purchase in that particular community. Within a community, people purchase units in a community association for a variety of reasons. There is no one reason or one personality in an Association. But, overall, a general sense of lifestyle or standard of living for the majority of the unit owners generally makes itself apparent. Those involved in the budget process need to strive to understand that. It is also important that the “few” do not dominate the community as a whole.

An example of two different Associations follows. Association 1 was built and sold as “close to golf courses”. A putting green was included in the common areas and the streets were even named with golfing terms. The majority of the unit owners were golfers, so monies were expended in various means to promote this form of recreation. It would seem reasonable that the budget would be drawn up considering these items. Association 2 was not built as a “golfing community”. However, four of the five board members were avid golfers. They decided that the tot lot should be torn out to put in a putting green.  They were not looking after the lifestyle of the majority of the unit owners.

Standards of living and lifestyles directly affect the budget process. The budget preparer needs to be acutely aware of what is expected from the unit owners. A high rise luxury condominium building in a large city has vastly different lifestyle expectations than a low-income housing development in that same city. Other associations may attract more young families, working partners, retired individuals, etc.

Take time before the budget process begins to ensure that there is an understanding of the expectations of the members. This may require surveys, town hall meetings, one on one discussions, or posted web-site inquiries. Lack of understanding of the needs and expectations of the members with regards to their perceived standards of living or lifestyles may result in budget choices which are not in agreement with the community. Once again, everyone cannot be pleased at all times, but the overall sense can be obtained.

Encourage a Sense of Community
CAI has found that associations are finally realizing that they have a responsibility to promote community within their associations. In the budget process, this becomes important in two ways.

1. If particular interest groups, especially those in the minority, have control over the budget process and are able to have their personal agenda items funded by the members’ assessments, the sense of community could be destroyed by the possible divisiveness that this may have created.  The community at large needs to feel that their overall best interests are being met in the budget process.


2. The Association should consider budget line items which specifically promote a sense of community. Depending on the community, this may be as simple as a newsletter or a community bulletin board, or may be an annual barbecue or similar social event. It also could be budgeting for “welcome packets” for new owners, or front yard signs announcing new babies or special events. The possibilities are endless.

If a budget is approached in the manner of the lowest dollars to be expended, items promoting community or encouraging activities which benefit the most unit owners may seem to be unnecessary or even frivolous. When the budget preparers step back and see the bigger picture and consider the benefits as compared the costs, using the budget to  encourage a sense of community is very worthwhile in most cases.

Use the Least Amount of Resources to Obtain Maximum Benefits
This is probably the best understood purpose of the budget, but it is still not fully utilized. Often this is interpreted as the “cheapest is the best”. This is not always the case.  Consider the various “resources”. Not only is money a resource, but time is also a resource. It may be cheaper to hire an employee for minimum wage to paint the clubhouse. However, who is going to interview the person, ensure that the proper tax and insurance procedures are followed, supervise the job and control the expenses. If this is left to the volunteer board members, their time must be considered in the process. Also, future resources must be considered as well as current resources. If there is higher risk involved which could incur additional time or money in the future, then it may be better to use more of the Associations’ resources NOW to avoid potential problems later.

Then the benefits need to be seriously considered. In the paint example, if the surface is not properly prepared, if the correct paint is not purchased and if the application is not correctly done, then the resulting benefit may not be what the Association expects. This is also true of services. If you hire a professional, but do not receive quality results, useful information or cannot communicate with the person, the benefits are not maximized.

There must be value received in the transaction. That value may be found in reduced time or effort on the board’s part, increased assurance as to quality and/or completeness, or compliance with regulatory or government regulations as well as viable warranties, visual satisfaction or usefulness of the product, just to name a few. So, do not be swayed just by the “numbers”.

So, do you still feel that the budget process is still just a mind-numbing, numbers crunching event? Hopefully, before you begin the next budget process your association will step back and look at the overall goal of the budget. Consider the importance of those budget decisions in the community as a whole and use the budget to define the future of the Association.