Responsibly Budget Association’s Surprise Windfall
Associations, whether large or small, depend heavily on money to operate. Every aspect of keeping a community safe and running smoothly has a cost associated with it. Too often, associations make the news for negative financial reasons—fraud, bankruptcy, or other shortfalls that disrupt the community. However, an association that’s being run effectively combined with a strong local economy could have more money than expected. That’s great news for the association, but it creates the question of how that budgetary surplus should be used.
There isn’t a “one size fits all” rule for where surplus money should be allocated. Having a rule can create trouble. The board should have the flexibility to apply the funds where needed, which will vary from association to association and from time to time depending on the association’s financial and physical needs.
Normally, the biggest issue is whether the funds should be returned to the owners and if so, how you would do it. But the answer to this is probably going to vary from state to state and depend on the governing documents. Often, the funds may need to be returned to the current owners even if the surplus is due to a settlement to reimburse the association for repair expenses. Some might want the prior owners to get a share of the reimbursement. In that case, the board should get legal advice on what it can do with the funds. It’s difficult to rebate surpluses because owners move—so the recipient of the rebate may not have paid the money that generated the surplus. A board could also choose to prepay future expenses to eliminate the surplus.
For information on how to give the board the freedom to make decisions regarding surplus allocation, and tips on what to do if you’re facing a shortfall instead, see “Determine How to Use Association's Unexpected Income,” available to subscribers here.