4 a : a statement of the financial position of an administration for a definite period of time based on estimates of expenditures during the period and proposals for financing them b : a plan for the coordination of resources and expenditures c : the amount of money that is available for, required for, or assigned to a particular purposeThis definition includes all sources of financing and all expenditures. Unfortunately, the boards over the past six years have only considered revenues and expenses (income & expense items) only, which has underestimated the finances required, and helps to explain MOA's deteriorating financial condition. __This is also a policy issue for building trust with members. An interpretation that avoids disclosing the true budget conditions to members does not build trust with members. __(added 2009 Mar 23) A prior email to the board discusses the concept of Annual Approval of Operating Plan and Budget at [http://swagman.typepad.com/michaywe_poa/2006/10/annual_approval.html] Don Nordeen ========== Click Continue for Post Continuation plus Comments.
- History:xx
- 2009 Mar 23 — Added link to prior discussion of the concept.
- 2007 Jan 10 — Initial Post, but indexed to the date of the email, 2007 Apr 03.
- Links:xxRecommended Bylaws Provision re Operating Plan and Budget at [http://swagmanmwpoa.blogspot.com/2007/04/recommended-bylaws-provision-re.html]
- Key Words:x Financial Information, General; Governing Documents, 2005-7 Amendment Initiative; Governing Documents, General; MOA Board of Directors; MOA Governance; MOA Members & Members' Rights; MOA Operations, General/Total; planning; plan; budget; balanced budget
Recommended Bylaws Provision re Operating Plan and Budget (continued) __ _From: Don Nordeen ____Date: 2007 April 3 18:59:47 EST ____ _To: Floyd Burchard, Bill Martella, Tad Latuszek, Bob Olszewski, _________Vicky Rigney, Carolyn Study, Kirk Yodzevicis ____ _Cc: Bill Nowacki, Robert Felt, Don Nordeen, Bob Allaben, Bob&Jackie _________Kish, Jack Barry, Mike Buckley, Phil Curtiss, Bill Fish, Gary Hyatt, _________Dick Nelson, Kate Nordeen, Diane Shockey, Pam Tavernier, _________Jim PagelsO, Dick&Joyce Thams, Christine Zarichney __Subject: Recommended Bylaws Provision re Operating Plan and Budget Date: 2007 April 03 ___ _From: Don Nordeen_____ _To: Floyd Burchard, Tad Latuszek, Bill Martella, Bob Olszewski, __________Vicky Rigney, Carolyn Study, Kirk Yodzevicis _____ _cc: Bob Allaben, Jack Barry, Mike Buckley, Phil Curtiss, Bill Fish, __________Gary Hyatt, Bob Kish, Don Nordeen, Dick Nelson, __________Bill & Penny Nowacki. Kate Nordeen, Jim Pagels, Vicki Rigney, __________Diane Shockey, Pam Tavernier, Dick Thams ______cc: Christine Zarichney (for MOA file) __Subject: Recommended Bylaws Provision re Operating Plan and Budget Re: Recommended Bylaws Provision re Operating Plan and Budget __This responds to the discussion concerning Operating Plan and Budget at the Special Board Meeting on Mar 29. I had the writing assignment on this provision. At the Mar 14 bylaws cmte meeting, there were a number of decisions on content, but not full agreement on the language. My email (Appendix) on the revised language was sent to the bylaws cmte on Mar 15. A lot was done at the last moment in putting the bylaws package together, so a few glitches are not unexpected. __The discussion at the Mar 29 board meeting was a very good one. Since the members control the money by having to approve both the dues cap and any special assessment, and since the members are unlikely to ever assign any part of that to the board, a way must be found to connect the members with the operating plan and budget. The operating plan, budget, dues cap and special assessment all go together. Even though the decisions are made by the members, the board has a major role in the process. Trust is essential. ************************************************************************ __With regard to trust, consider a few aspects of how the board views the members as evidenced by the actions taken on Mar 29. The qualitative scoreboard is:
Favorable to the Board — Many Favorable to the Staff — Many Favorable to Members — Zero (so far) Unfavorable to Members — Many__And this only counts the direct actions. Many, perhaps all, of the actions that are favorable to the board and staff are unfavorable to the members. Why?
- Aren't the directors elected to represent the members?
- Why are the board and staff more important than the members?
- Did any current director state in the election biography and reasons for seeking election that they intended to vote against the members?
- Does the board have the obligation to protect the rights of the members?
Section 7.xx. Operating Plan and Budget — The board shall develop an operating plan and budget for the following fiscal year and include both with the mailing of the annual dues billing on or before 60 days prior to the beginning of the fiscal year. Members may provide comments and recommendations to the board prior to the beginning of the fiscal year. The board shall consider members’ comments and provide a final operating plan and budget to the members by first-class mail no later than 30 days into the fiscal year.__Click Return to go to the beginning of this post. Don Nordeen (989) 939-8240 =====Appendix — Bylaws Provision as Submitted to Bylaws Cmte===== #BylawsBalBdgt Date: 2007 March 15 __To: Bob Allaben, Mike Buckley, Bill Fish Gary Hyatt, Dick Nelson, _____Don Nordeen,Kate Nordeen, Jim Pagels, Pam Tavernier __cc: Christine Zarichney (for MOA file) Re: Balanced Budget Provision Article VII. Board of Directors __Balanced Budget Provision ____Current Provision — The Board shall not approve an annual budget in which the projected expenses are in excess of the projected income (revenue) unless approved by a majority vote of the members voting in person or by proxy at a Members’ Meeting. The notice of the meeting shall provide complete and balanced information on the annual budget. ____Proposed Provision as a New Section — ____Section 7.xx. Operating Plan and Budget — The board shall develop an operating plan and budget for the following fiscal year and include both with the mailing of the annual dues billing on or before 60 days prior to the beginning of the fiscal year. Members may provide comments and recommendations to the board prior to the beginning of the fiscal year. The board shall consider members’ comments and provide a final operating plan and budget to the members by first-class mail no later than 30 days into the fiscal year. ____The Board shall not approve an annual budget in which the total unrestricted operating revenues are less than the total operating expenditures. Budgets shall be based on operating trends adjusted for changes reflected in the operating plan, usual and customary business analyses and methods used to develop operating plans and budgets, and shall be conservative (may need a better word). Any budgets with projected increased revenues require a business analysis based on no increase in revenues, which shall also be provided to the members with the dues billing. ____For the purposes of this provision, total operating expenditures means the sum of total unrestricted operating expenses, principal payments on long-term notes and obligations, capital investments in new and/or expanded facilities, the net of required reserve funding minus depreciation, and required transfers to any other restricted accounts or funds. ____Monthly projections of year-end results are required with the above requirements applied. A budget or monthly year-end projection not meeting the stated requirements requires approval by a majority vote of the members voting in person or by proxy at a special members’ meeting called within 5 days for this purpose. The notice of the meeting shall provide full and accurate information on the annual operating plan and budget and applicable year-end projections. ______Rationale — The proposed provision corrects the deficiencies in the current provision by reflecting all of the operating revenues and expenses. By including the operating plan and budget with the dues billing, members can relate what they are paying to what will be provided. The dates reflect timely action by the board. The 30-day requirement reflects approval of the year-end results for inclusion in the fourth quarter business review. The second paragraph defines requirements to avoid unrealistic budgets, which requires Plan B (no revenue increase) if Plan A is based on a revenue increase. The third paragraph provides the accounting detail to ensure that expenditures do not exceed revenues. The last paragraph requires monthly evaluations by the board for which unbalanced budgets or projections require prompt approval by the members. The CPA should review the third paragraph to ensure that the accounting details are properly stated. ______Further Explanation — The operating plan and budget are logically bound together as hand in glove. The parts members may have difficulty understanding are the accounting details in the third paragraph. A qualitative understanding is provided by the first, second and fourth paragraphs. Barron's accounting dictionary defines expenditure as "Payment of cash or property, or the incurrence of a liability to obtain an asset or service." That is what is intended to be described. The CPA should also verify the default for reserve funding equal to the depreciation. Don Nordeen Tel: (989) 939-8240__Explanation — Since the operating plan and budget interact with each other, they need to go together. Mailing with the dues billing further ties the operating plan, budget and dues together. Note that the word preliminary is not used. Most of the year's revenues and expenses are known by the end of September so the estimates can be reliable. A special board meeting would be required in early January to consider the members' comments and to refine the operating plan and budget as final. It should be then published to the members with the fourth quarter business review mailed in January.__The Board shall not approve an annual budget in which the total unrestricted operating revenues are less than the total operating expenditures.__Explanation — This is the balanced budget requirement expressed in simple terms. All members should be able to understand the principle involved. The complexity is in the definitions of what is included. "Unrestricted" excludes the restricted funds (reserves, etc.) from the statement, but the transfers to the restricted funds may be part of the expenditures. "Operating" is a key word as well which excludes extraordinary items, such as a profit or cash from the sale of an asset. The next paragraph provides the definitions.Budgets shall be based on operating trends adjusted for changes reflected in the operating plan, usual and customary business analyses and methods used to develop operating plans and budgets, and shall be conservative (may need a better word). Any budgets with projected increased revenues require a business analysis based on no increase in revenues, which shall also be provided to the members with the dues billing.__Explanation — This is a definition for "be realistic". Part of being realistic is not using optimistic projections of revenue for balancing the budget. Hence the requirement in the last sentence. I hope the meaning is clear: no budgets that are only an exercise in arithmetic.__For the purposes of this provision, total operating expenditures means the sum of (a) total unrestricted operating expenses, (b) required principal payments on long-term notes and obligations, (c) capital investments in new and/or expanded facilities, (d) the net of required reserve funding minus depreciation, and (e) required transfers to any other restricted accounts or funds.__Explanation — I have inserted letters in the text above to aid the explanation. Since members may not understand these details, they are in a separate paragraph. Perhaps the bylaws should be written with a "lettered" list. Probably better, the CPA should specifically review these definitions.As a way of validating the language, the above could be applied to the results for 2002 through 2005. __Monthly projections of year-end results are required with the above requirements applied. A budget or monthly year-end projection not meeting the stated requirements requires approval by a majority vote of the members voting in person or by proxy at a special members’ meeting called within 5 days for this purpose. The notice of the meeting shall provide full and accurate information on the annual operating plan and budget and applicable year-end projections.
- (a) "Unrestricted" means not including revenues earmarked for restricted funds.
- (b) I have added the word "required" in the text. The budget has to be balanced based on the required payments. Discretionary payments such as might occur from the sale of an asset would be excluded from both the revenue and expense sides.
- (c) These are the discretionary investments (example is the $100,000 in most of the prior year budgets).
- (d) This should be better worded as "the greater of depreciation and the reserve requirement from a professionally-conducted reserve study". Since both depreciation and reserve calculations are based on useful lives of the assets and since project-by-project repair etc is more expensive than if done as part of a larger project, the professional study should yield a higher number than depreciation. The use of depreciation establishes a minimum allocation to the reserve fund which would be reflected in more meaningful financial statements.
- (e) Restricted accounts can also be established by the board or could be established by members' resolution. For example, a fund should be established by the board for the repair of the pool so that the operating expenses related to the repair and the payments from the insurance companies would not distort the operating expenses. The language has been crafted to avoid any implied resolution of the questions about the CI/DR Dues.
____Explanation — The basis for determining status should always be the projected year-end results. When conditions change that affect projected revenues and/or expenses for remaining months, those adjustments should be immediately made in projecting year-end results. The year-end results made each month should be approved by motion of the board. As part of the determination of unfavorable projected year-end results, the board should have debated alternatives for keeping the budget balanced. That is the information needed for the notice. If the result by approved motion is unbalance, the only time required to the mailing the notice is the time to prepare and reproduce the notice for mailing. It is a short time. Delays are costly. No deferring or waiting until next month.
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