Operating Budget

The annual plan that outlines expected income — primarily regular assessments — and expenditures for the day-to-day operations of the association. The operating budget covers recurring expenses such as property insurance, general liability coverage, utilities, landscaping and grounds maintenance, management company fees, administrative costs, legal retainers, and routine repairs. In California, Civil Code Section 5300 requires the board to distribute an annual budget report to all members within 30 to 90 days before the end of the fiscal year, which must include a summary of the operating and reserve budgets, a reserve funding disclosure, and a statement of the association's outstanding loans. The board adopts the operating budget by resolution; member approval is not required unless the governing documents specifically require it. However, if assessments must increase more than 20% over the prior year to fund the budget, a membership vote is needed under Civil Code Section 5605(b). Best practice is to budget conservatively, including a contingency line item of 5% to 10% for unanticipated expenses such as emergency repairs or insurance deductible claims. The operating budget should be prepared in conjunction with the reserve study to ensure total assessment levels cover both operating needs and adequate reserve contributions. Monthly variance reports comparing actual income and expenses against the budget are essential for financial oversight.