COLUMN: Barbara Holland

Q. Our association usually schedules the budget ratification at the same time as the annual election of directors. This year the annual election took place a month early and the budget ratification was not included.

Homeowners were notified by newsletter that the budget would be discussed at a special meeting. As we know, not too many owners attend these meetings. If turnout for the vote is too low, the budget is automatically ratified.

Since the budget was not included on the ballot when we voted for the new board, would it not have been incumbent on our board to send out ballots for the ratification vote? We have a number of owners who do not live on property. The board knows that we never have a quorum.

My concern is that the budget shows no funds earmarked to go into the reserves. At the end of the year, our reserve account was about $11,000 short of the reserve study guidelines. The treasurer said the reserve was adequate.

The treasurer also stated that a new reserve study would be initiated once all of our repairs were completed in accordance with an agreement between the owners and the builder. Our association believes funds from the agreement by which our homes are under repair will be left over to go into our reserves.

How can the board assume that there will be funds left over? Is it not mandatory for the board to continue to fund the reserve account? Should the board give the balance of funds to the homeowners after the repairs are complete, or should fees be reduced? What about our new budget?

A. First, state law does not require the association to send out ballots or proxies for the ratification vote on the budget. Second, state law specifically requires a membership meeting to vote on budget ratification. Owners who do not live on property and cannot attend the meeting may ask the board to send them a proxy ballot.

Your association has already obtained cost estimates regarding repairs to the association, and once repairs are completed, that will greatly affect your reserve study. For example, new roofs would have a new life expectancy. Instead of replacing roofs, say, in five years, the schedule for replacement may be 15 or 20 years. The treasurer is correct, a new study will be needed after the repairs.

It is very difficult for a board to justify an increase in dues to fund a reserve account when millions in repair funds are sitting in reserves. Interest on the repair funds will be used to pay taxes to the federal government with the balance used for either additional capital improvements or to fund the reserve account.

Once the new reserve study is complete, the association can review its financial position. If there is not enough money left over after repairs are made to properly fund the reserve account, the board still has the opportunity to increase dues. Obviously, the board will need to review the governing documents regarding the procedure for such an increase after an initial budget has been set for the year.

Can the balance of the remaining funds be given to the owners or the dues be reduced? The dues would only be reduced if the amount of money needed to contribute to the reserves were reduced in the revised reserve study. Remember that dues are primarily used for normal operating expenses. Some of the operating expenses may be reduced as a result of the repairs.

Owners should receive funds only if they had to pay out-of-pocket expenses to correct problems because they were unable to wait for a settlement. If the board decides to reimburse owners, all of the owners' expenses should be properly documented to ensure they did incur those costs. Whether or not everyone should receive a portion of remaining funds is a question for the board and legal counsel once all other obligations are met.

Questions for Barbara Holland may be sent to Association Q. & A., P.O. Box 7440, Las Vegas, NV 89125. Her fax number is 385-3759.

Barbara Holland, Certified Property Manager, is president and co-owner of H&L Realty and Management Co. She is a member of the Institute of Real Estate Management and is the author of two books on the subject. Holland is a past president of the Greater Las Vegas Association of Realtors.

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