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How Does an Association Amend Its Budget?

September 17, 2018 12:39 PM | Talia Lionetti (Administrator)

By: David Hartwell

Updated By: Lauren Peddinghaus
Haus Financial Services, LLC. 

Question: Last fall our condo board approved the association’s annual budget, which included a special assessment to cover expenses for a painting project.  At that time the board was still reviewing bids and, for budget purposes, included the higher-end bid of $120K and special assessment model of $70K in the budget.  (The rest of the project was being funded through reserves). 

Since the time the budget was approved, the board ultimately accepted a lower bid of $70K and special assessment model of $45K.

Is it appropriate to amend the budget with the new figures?  What are the ramifications of changing the budget once it’s approved?

Answer: If a budget contains a line item for a capital improvement project to be started in that year, then a special assessment would not be necessary.  However, if the board sought funding for a project that was not previously budgeted for, then a special assessment would be necessary and must be passed consistent with Section 18(a)(8) of the Illinois Condominium Property Act (“Act”). 

If the cost of the painting project was part of the budget, then theoretically under this set of facts, there would exist an operating surplus at the end of the year due to the significant disparity of the lower project cost.  If this occurs, the board should then consult the declaration to determine how operating budget surpluses are to be addressed for that association. 

Depending upon the fiscal year of the association, I would likely recommend that the board consider amending its budget to reflect the actual cost of the painting project. The board should also consult with its accountant during this process.  Alternatively, if the painting project is being funded from a special assessment, the board should first look to the special assessment resolution to determine if it only specified the painting project or also addressed other maintenance, repair and replacement of common elements. If the latter is true, the additional sums collected could be used for other contemplated projects and the board would need to vote on the additional expenditures at an open meeting; otherwise, the special assessment should be amended to reflect the actual cost of the project.  The Act allows owners to petition for a vote on any adopted or special assessment if it would result in the sum of all assessments payable in the current year exceeding 115% of the total of all assessments payable in the prior year. When calculating the threshold, the amount need only exceed 115% of all assessments issued in the prior year. 

For example, If an association had a $98,000 annual budget in 2017 as well as a $5,000 special assessment, the total of the annual assessments would be $103,000 for 2017. If the 2018 annual budget is $100,000 and a $16,000 special is considered, the special would have to exceed $18,450 in order to meet the threshold (115% of the $103, 000 total assessed in 2017). 

Lastly, the board could consider levying the original special assessment thereby avoiding the need to draw on reserves. As a practical matter, every board should act consistent with its governing documents and should act in the best interests of all of its owners. In my experience, most owners want to see the board acting in a fiscally responsible manner, especially when it pertains to a special assessment.

As set forth in 18(a)(6) of the Illinois Condominium Property Act, the board must send out the new amended budget at least 25 days prior to the date of the meeting at which the board intends on approving it. 

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