Board has authority to spend funds to cover variable expenses

The only expense listed was fence painting at an estimated cost of $5,000. At our last board meeting, the board discussed making an additional reserve expense in 2008 related to converting a grassy portion of our common elements to desert rock at an approximate cost of $9,000.

Our management company said that the board did not have to revise the 2008 budget or obtain a vote of the membership since the expenditure is covered in the reserve study under “landscape renovation.”

It appeared that the management company believes that the board alone can vote for the additional reserve expenditure that is not included in the reserve budget. Does the board have the authority to spend dollars for an unbudgeted item? Would a regular board meeting be warranted where this item is placed on the agenda and adequate notice is given to homeowners that the association is using reserve funds outside of the anticipated timeline for landscape renovation?

Next year, it appears that the reserves will not be fully funded and that homeowners would likely have to pay in 2009 to make up the difference in reserve funds on this project.

Does the board have the authority to spend dollars that were not projected in a budget?

A: The answer to this part of the more general question is yes. A budget is just a projection and there are always unanticipated expenditures (often caused by vandalism or misuse of the common facilities or unexpected maintenance caused by nature, etc.). Obviously, you attempt to develop accurate budgets. There are fixed costs and then the variable costs. The variable costs are more difficult to accurately calculate.

Reserve studies are just estimates of time, money and the condition of the required capital improvements themselves. There is nothing in the “rule book” that states that an association cannot accelerate an improvement from the timetable written in the reserve study. Right now, there is a reimbursement program offered by the Southern Nevada Water Authority for associations to convert greenbelt to drought-tolerant landscape. This program may not be available in 2009. Your association board may have discussed this opportunity for reimbursement and agreed that an acceleration of this expense would be prudent.

Under NRS 116.330, subsection 2 allows an association board to install drought-tolerant landscaping in the common elements under certain conditions without the approval of the homeowners as to this change of use of the common elements.

In my opinion, the board has the right to accelerate the landscape improvement. As to the funding of the reserve study, you would not necessarily have to assess owners the difference for the acceleration of this expense in 2009.

You would recalculate the reserve balance requirement by taking into consideration that an expense that you were saving funds for in the future has already been spent in 2008, and that would revise the required reserve balance to a lower amount than what was originally projected.

Your comments about placing this expenditure on the board’s next agenda for comments by homeowners should be done by the association to avoid any future potential conflict from the homeowners.

Barbara Holland, certified property manager, broker and supervisory certified association manager, is president and owner of H&L Realty and Management Co. Questions may be sent to Association Q. & A., P.O. Box 7440, Las Vegas, NV 89125. Her fax number is 385-3759. Questions may be shortened and are subject to editing.