Last Minute Budget Advice for Washington Communities
By now, many communities in Washington will already have prepared, and maybe even had budgets approved, for 2019, but we wanted to get in one last reminder that because WCIOA’s budget section applies to all condos and HOAs, your budget may be a little different this year, and you may have a little explaining to do at the budget ratification meeting. But whether the application of the WCIOA budget provision at RCW 64.90.525 is simple or not depends upon whether you are working with an HOA or Condo. Below are some highlights of the differences you may have to explain to owners.
While most people are familiar with at least a form of budget ratification process that is required by WCIOA because the Condo Act and many governing documents have always required this procedure, it is easy to miss the significance of the fact that WCIOA, like the Condo Act, expressly ties approval of assessments to the approval of the budget. This may affect HOAs and condos in different ways.
Under WCIOA, all budgets and the assessments levied based on those budgets, are now approved by “ratification,” where unless more than a majority of owners show up and vote against the budget, the budget passes. But the real conflicts come into play when considering what affect WCIOA has on language in the governing documents that require an affirmative vote to pass budgets or approve assessments (or an increase in assessments) independent of the budget vote.
For HOAs, the effect is relatively clear. Based on specific language in WCIOA’s applicability section, HOAs should simply follow the procedures in WCIOA (RCW 64.90.525), regardless of any conflicting provisions in the governing documents that require anything other than ratification for the budget, or that require some other threshold vote for assessments separate from the budget. WCIOA provides that this language is “superseded” (or trumped) by the WCIOA provisions.
For Condos, however, the effect is less clear. Condos are specifically directed in WCIOA not to follow the Condo Act or HPRA provisions for budgets (the HPRA doesn’t actually have any), but appears to say that condominium associations must follow both RCW 64.90.525 and the governing documents because WCIOA “does not invalidate” the governing document provisions. Unfortunately, WCIOA does not say what to do if those provisions conflict.
The majority of “Old Act” condos do not have any provisions requiring owner approval for budgets or assessments, but the lack of language would not really be a conflict with the statute. Thus, for these Old Act Condos, the statutes seem to require them to follow the budget ratification provisions of WCIOA.
Most “New Act” condominium declarations require a budget ratification similar to WCIOA’s, so the effect will be negligible, but there are some that do have affirmative vote requirements for assessment increases or separate provisions for approving assessments and budgets. In that case, the community simply cannot follow both WCIOA and its governing documents, and until the legislature clarifies the language, there is significant risk involved in doing either one. In that case, the best practice for 2019 budgets is probably to do whatever avoids the problem. In other words, if an affirmative vote is required for an assessment increase, it might make the most sense for a community in this position to simply wait one more year for clarification on whether WCIOA intended to “supersede” those provisions like it did for HOAs.
One final note is that WCIOA’s provisions relating to how to disclose proposed reserve funding do differ from the HOA and Condo Acts, so if you are simply using last year’s budget disclosure form, you may want to ensure that it meets the new requirements of RCW 64.90.525.
As always, Barker Martin is ready to assist any community association with budgeting and other legal issues.