How-To

How to Prepare an Annual Budget Report for Your California HOA with a Free Template

Preparing an annual budget report is required for all California HOAs. Understand the distribution timeline and the required components of the report from the Davis-Stirling Act to keep members informed about the community’s financial status.

a month ago • 8 min read

By reTHINK HOA

feature image — Prepare a California HOA Annual Budget Report

As a member of the board of directors for a homeowners association (HOA) in California, one of your primary responsibilities is to prepare and distribute an annual budget report to all association members. It's important to note that the annual budget report is not the same as the annual budget itself. While the annual budget outlines the projected income and expenses for the upcoming year, the annual budget report provides a comprehensive overview of the association's financial health, including its reserves, insurance policies, and outstanding loans. The annual budget is actually a key component of the annual budget report, ensuring that all financial information is communicated clearly to the members. This is a guide on preparing an annual budget report for your California HOA.

For more information on preparing the annual budget, check out our previous post on How to Create a HOA Budget: A Step-by-Step Guide with a Free Template.

The annual budget report must be sent out 30-90 days before the end of the HOA's fiscal year to meet Davis-Stirling Act requirements.
Key items to include in the report are the pro forma operating budget, reserve summaries, and insurance policy details.
The report must be provided to all association members.

When to Distribute Your Annual Budget Report

According to the Davis-Stirling Act^[²^], the annual budget report must be distributed to all association members 30-90 days before the end of the HOA's financial year. If your HOA's financial year ends on December 31st, the annual report must be distributed to members between October 1st and November 30th.

Who Should Receive the Annual Budget Report

The HOA must distribute the annual budget report to all association members, homeowners and renters, and any mortgagees or lien holders requesting a copy. The report must be distributed via first-class mail, personal delivery, or electronic delivery if the member has agreed to receive the report electronically^[³^].

Components of the Annual Budget Report

The list of items for the annual budget report includes:^[²^]

	Pro forma operating budget - This detailed budget outlines the projected income and expenses for the upcoming financial year.
	Summary of the HOA's reserves - This is a summary of the association's reserve accounts, including the balance in each account and the purpose of the funds^[5].
	Summary of the reserve funding plan adopted by the board - This is a summary of its plan for funding reserves, including how much the HOA plans to allocate to each fund and how the HOA intends to use the funds^[4].
	A statement as to whether the board has determined to defer or not undertake repairs or replacement of any major components with a remaining life of 30 years or less, including a justification for the deferral or decision not to undertake the repairs or replacement.
	A statement as to whether the board, consistent with the reserve funding plan, has determined or anticipates that the levy of one or more special assessments will be required to repair, replace, or restore any major component or provide adequate reserves. If so, the statement shall also indicate the estimated amount, commencement date, and assessment duration.
	A general statement addresses the procedures used for calculating and establishing those reserves to defray the future repair, replacement, or additions to those major components that the association is obligated to maintain. The statement shall include, but need not be limited to, reserve calculations made using the formula described in paragraph (4) of subdivision (b) of Section 5570^[6] and may not assume a rate of return on cash reserves over 2 percent above the discount rate published by the Federal Reserve Bank of San Francisco at the time the calculation was made.
	A statement as to whether the association has any outstanding loans with an original term of more than one year, including the payee, interest rate, amount owed, annual payment, and when the loan will be retired.
	A summary of the association's property, general liability, earthquake, flood, and fidelity insurance policies. For each policy, the summary shall include the insurer's name, the type of insurance, the policy limit, and the deductible amount, if any. This summary of the association's policies of insurance provides only certain information, as required by Section 5300 of the Civil Code, and should not be considered a substitute for the complete policy terms and conditions contained in the actual insurance policies. Any association member may, upon request and provision of reasonable notice, review the association's insurance policies and, upon request and payment of reasonable duplication charges, obtain copies of those policies. Although the association maintains the insurance policies specified in this summary, the association's policies of insurance may not cover your property, including personal property or real property improvements to or around your dwelling, or personal injuries or other losses that occur within or around your dwelling. Even if a loss is covered, you may be responsible for paying all or a portion of any applicable deductible. Association members should consult with their individual insurance broker or agent for appropriate additional coverage.
	When the common interest development (CID) is a condominium project, a statement describing the status of the CID as a Federal Housing Administration (FHA)-approved condominium project according to FHA guidelines, including whether the CID is an FHA-approved condominium project. Certification by the Federal Housing Administration may provide benefits to members of an association, including an improvement in an owner’s ability to refinance a mortgage or obtain secondary financing and an increase in the pool of potential buyers of the separate interest. This common interest development [is/is not (select one)] a condominium project. The association of this common interest development [is/is not (select one)] certified by the Federal Housing Administration.
	When the common interest development (CID) is a condominium project, a statement describing the status of the CID as a federal Department of Veterans Affairs (VA)-approved condominium project according to VA guidelines, including whether the CID is a VA-approved condominium project. Certification by the Federal Department of Veterans Affairs may provide benefits to members of an association, including an improvement in an owner's ability to refinance a mortgage or obtain secondary financing and an increase in the pool of potential buyers of the separate interest. This common interest development [is/is not (select one)] a condominium project. The association of this common interest development [is/is not (select one)] certified by the federal Department of Veterans Affairs."
	A copy of the completed “Charges For Documents Provided” disclosure identified in Section 4528^[1]. For purposes of this section, “completed” means that the “Fee for Document” section of the form individually identifies the costs associated with providing each document listed on the form.

Additional Documents to Include with the Annual Budget Report

In addition to the annual budget report, the board must distribute an Assessment and Reserve Funding Disclosure Summary Form^[²^]. This form summarizes the association's reserves, reserve funding plan, and assessment history. A copy of the form can be found in Section 5570^[⁶^] and included in the template for our blog members.

Final Thoughts

Preparing an annual budget report for your California HOA is a important responsibility. By adhering to the guidelines outlined in the Davis-Stirling Act, you can produce a comprehensive and informative report that meets your HOA's obligations. Remember to distribute the report to all members promptly and include the required Assessment and Reserve Funding Disclosure Summary Form. With careful planning and attention to detail, you can prepare a report that provides valuable information to your members and supports the long-term success of your Association.

Footnotes & References

California Legislative Information. Civil Code 4528. Article 2. Transfer Disclosure
California Legislative Information. Civil Code 5300. Article 7. Annual Reports.
California Legislative Information. Civil Code 5320. Article 7. Annual Reports
California Legislative Information. Civil Code 5550. Article 3. Reserve Planning
California Legislative Information. Civil Code 5565. Article 3. Reserve Planning
California Legislative Information. Civil Code 5570. Article 3. Reserve Planning Assessment and Reserve Funding Disclosure Summary

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Annual Budget Report Template

To make the process of preparing an annual budget report easier, we've included a template. This template contains all the components of the report and provides a clear an organized format for your HOA's Annual Budget Report.

Sign-in or Subscribe to download the free template today.