Annual Budget Report under the New Davis-Stirling Act

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Disclaimer: The rules and procedures described below are taken from the New Davis-Stirling Act, effective January 1st, 2014. The new law meets the requirements established under the current laws. To revisit the current requirements, review all sections (and subsections) of Civil Code Section 1365.

Annual Budget Report Overview

The Annual Budget Report is one of two main collections of disclosures required under the New Davis-Stirling Act. The second main collection of disclosures is contained in the Annual Policy Report. Formerly, the individual disclosures contained in each report were part of a single disclosure package, often called the “annual budget package.” For information about how disclosures are organized under the New Davis-Stirling Act, click here.

Required Documents

Unless governing documents impose more stringent standards, the association is required to prepare and distribute to each of its members the following documents 30 -90 days before the end of the fiscal year.

Pro Forma Budget

The Pro Forma Operating Budget Summary is completed yearly as part of the association’s Annual Budget Report. The Pro Forma Budget includes a summary of the association’s anticipated income and expenses on accrual basis.

Review the law here: §5300(b)(1)

Reserves Summary

The Reserves Summary is a disclosure to inform members about the association funds available for the replacement and/or repair of major components that the association is required to maintain. The summary of the association’s reserves must be based upon the most recently conducted Reserve Study (§5550), and only takes into account assets held in cash or cash equivalents.

Read more about the Reserves Summary.

Review the law here: §5565

Summary of Reserve Funding Plan

A Reserve Funding Plan should be adopted by the board following the review and analysis of the association’s most recent Reserve Study §5500. The Reserve Funding Plan details how the association plans to pay for the repair and replacement of all major components indicated in the Reserve Disclosure.

Read more about the Reserve Funding Plan Summary requirements.

Review the law here: §5300, §5550(b)(5), §5560

Statement of Funding Mechanisms

The Board will detail which mechanism or mechanisms will be used to fund reserves to repair or replace major components. Funding mechanisms may include assessments, borrowing, use of other assets, deferral of selected replacements or repairs, or alternative mechanisms.

Statement of Any Board Decision to Defer or Not Undertake Certain Component Repairs

As part of the Annual Budget Report, the association must include a statement outlining any decision to defer repairs or replacement of major components, and how the association plans to fund these repairs or replacements. If the Board of Directors has determined to defer the repairs or replacement of any major component with a remaining life of 30 years or less, the association must submit a statement justifying the deferral or decision not to undertake certain component repairs.

Review the law here: §5300(b)(4)

Assessment and Reserve Fund Disclosure

The association must disclose whether the board of directors anticipates or has decided to levy one or more special assessments in order to repair, replace, or restore any major component. If so, the statement should outline the estimated amount, commencement date, and duration of the assessment.

Review the law here: §5300(b)(5)

For the Assessment and Reserve Fund Disclosure Form, click here: §5570

Association Loan Disclosure

The Loan Disclosure declares whether the association has any outstanding loans with an original term of more than one year, including the payee, interest rate, amount outstanding, annual payment, and when the loan is scheduled to be retired.

Review the law here: §5300(b)(8)

Insurance Coverage Summary

The Insurance Coverage Summary discloses to members the association’s property, general liability, earthquake, flood, and fidelity insurance policies.

Read more about the Insurance Coverage Summary requirements.

Review the law here: §5300(b)(9)

Learn about Annual Disclosure requirements.