How to Prepare an HOA Budget in Texas: A Board’s Step-by-Step Guide

For most Houston-area associations, fall is budget season. Boards whose fiscal year follows the calendar year spend October and November turning this year’s numbers into next year’s plan, so the budget can be adopted and owners can be told about their assessment before January statements go out. The HOA budget is the single document homeowners read most closely, and it sets almost everything else the board does: what dues will be, how much goes into reserves, which vendors get renewed and how much cushion the community has when a storm or a pipe break hits.

This guide walks a Texas HOA board through the process step by step, from pulling actuals to the open-meeting vote, with a worked example and the Texas Property Code rules that apply along the way. It is written for volunteer directors in single-family HOAs, townhome communities and master-planned communities. Condo boards should also read our guide on how condo association management differs from an HOA in Texas, because condominiums run on a different chapter of the code.

What does an HOA budget actually include?

A sound association budget has two halves that work together: an operating budget for the costs of running the community this year, and a reserve contribution for the large, predictable repairs that come due over the next 20 to 30 years.

Typical operating line items for a Houston-area community include:

• Grounds and landscaping: mowing, seasonal color, irrigation repair, tree trimming and entry monument upkeep.
• Common-area utilities: water for irrigation and amenities, electricity for street lights, gates and the pool.
• Amenities: pool management and chemicals, clubhouse cleaning, playground inspection.
• Drainage: mowing, aeration and erosion repair for detention ponds. Our guide to who maintains retention and detention ponds in Texas communities explains why this line often grows over time.
• Insurance premiums: general liability, directors and officers (D&O), property coverage on common elements and fidelity or crime coverage.
• Professional services: the management fee, legal, accounting, the annual audit or financial review, and tax preparation.
• Administration: postage and printing, bank fees, the website and owner communications.
• Contingency and bad debt: a realistic allowance for unpaid assessments and a modest cushion for the unexpected.

On the income side, most of the revenue comes from regular assessments. Smaller sources include late fees and collection recoveries, interest on reserve accounts, amenity rentals and transfer or resale-related fees where the governing documents allow them.

When should a Texas board start the budget process?

Earlier than most boards think. For a calendar fiscal year, a workable schedule looks like this:

If your fiscal year starts on another date, shift the whole calendar. The key is leaving enough time between adoption and the first due date for owners to absorb any change.

How do you build next year’s HOA budget, step by step?

1. Start with actuals, not last year’s budget

Copying last year’s budget and adding a percentage is the most common shortcut, and it carries every old mistake forward. Instead, annualize nine or ten months of actual spending, then compare each line with what was budgeted. A line that ran 20 percent over this year will not fix itself next year.

2. Check every vendor contract

List each contract’s term, renewal date and price escalator. Landscaping, pool, janitorial and patrol contracts are usually the largest operating lines, so they deserve competitive bids when they come up. Experienced managers also know what comparable communities pay, which is part of how HOA management companies secure better contractor rates.

3. Get insurance numbers early

On the Gulf Coast, property premiums and named-storm deductibles can move more than any other line. Ask for renewal indications well before the workshop so the board is not guessing, and confirm that D&O coverage still fits the community’s size and activities.

4. Update utilities and recurring services

Check current water and electricity rates for common areas, plus any planned changes to irrigation or lighting. Small per-unit increases add up across a full year.

5. Set the reserve contribution from a reserve study

The reserve line should come from a current study of the community’s major components, their remaining useful life and their replacement cost, not from whatever is left over. Our guide to how Texas boards use an HOA reserve study explains how to read a funding plan and update it between full studies.

6. Budget realistically for delinquencies

If 2 percent of assessments went uncollected this year, assume something similar next year. A bad-debt allowance keeps the operating account from coming up short in the fourth quarter.

7. Read the governing documents before setting the number

Your declaration and bylaws may cap how much the board can raise assessments in a year without an owner vote, set the fiscal year, or require a specific method for allocating assessments among lots. Those rules control, so confirm them before the workshop.

How is the annual assessment calculated? A worked example

Here is the basic math, using a hypothetical 400-home community. The figures are illustrative only, not a quote or a typical cost:

• Operating expenses: $520,000
• Reserve contribution: $80,000
• Total spending plan: $600,000
• Minus non-assessment income (interest, rentals, fees): $12,000
• Needed from assessments: $588,000
• Adjusted for a 2 percent bad-debt allowance: $588,000 divided by 0.98 = $600,000
• Annual assessment per home: $600,000 divided by 400 = $1,500 per year, or $125 per month

The same math shows a board exactly what a decision costs each household. In this example, every $4,000 added to the budget adds $10 per home per year. That kind of translation makes the workshop conversation far more productive than debating totals.

What does Texas law require when the board adopts the budget?

For HOAs governed by Chapter 209 of the Texas Property Code, a few rules shape the adoption process:

• The vote happens in an open meeting. Section 209.0051(h) says the board may not approve an annual budget or an amendment to an annual budget, increase assessments or levy a special assessment except in an open meeting for which prior notice was given to owners.
• Notice timing. Under Section 209.0051(e), notice can be mailed to each owner at least 10 and no more than 60 days before the meeting, or posted in a place members can see (or on the association or management company website) and emailed to owners who have registered an address, at least 144 hours before a regular meeting or 72 hours before a special meeting.
• A quorum must be present. Check your bylaws for the board quorum, and see our explanation of quorum requirements for HOA meetings.
• Records stay available. Section 209.005 requires associations with more than 14 lots to keep financial books and records for seven years, and an owner’s records request must generally be answered by the 10th business day after it is received.
• Payment plans affect cash flow. Section 209.0062 requires associations with more than 14 lots to adopt guidelines for alternative payment schedules, with a minimum term of three months. Factor that into the delinquency assumptions. Our guide to handling delinquent HOA dues in Texas covers the payment plan rules and the collection steps the budget should assume.

Rules vary by community, so read these alongside your own documents and your association attorney’s advice. A manager who tracks these requirements is part of how management companies keep boards on the right side of the law.

How should the board explain an assessment increase to homeowners?

Owners accept increases they understand. A short cover letter with the adopted budget should say what changed, why, and what the board did to hold costs down. Show the three or four lines that drove the change, such as insurance, landscaping or the reserve contribution, and connect the reserve line to specific future projects like pool resurfacing or fence replacement.

Give owners a chance to ask questions at the meeting or a town hall before the vote, and keep the answers consistent afterward. When homeowners ask whether their dues can be written off, point them to our guide on whether HOA fees are tax deductible in Texas. Buyers and title companies will also ask for current assessment figures at closing, which is covered in our guide to HOA estoppel letters and the Texas resale certificate.

What are the most common HOA budget mistakes?

• Holding dues flat by starving reserves. It feels responsible in the moment and usually ends in a special assessment later.
• Choosing the lowest bid without checking scope. The cheapest contract is not always the lowest cost, as our post on the hidden costs of bargain HOA management explains.
• Ignoring renewal timing. An insurance or landscaping renewal in March can break a budget adopted in November if no one looked ahead.
• No bad-debt or contingency line. A budget with no cushion turns every surprise into an emergency meeting.
• Adopting it and forgetting it. Monthly variance reports, reviewed by the treasurer, catch problems while there is still time to adjust. Good controls are also central to how management companies protect HOA assets and prevent fraud.

How does a management company help with the HOA budget?

A volunteer treasurer should not have to build a budget from scratch every fall. A full-service manager brings the actuals, the contract calendar, the insurance renewal, the reserve study and the delinquency history to the table in one package, then turns the board’s decisions into owner notices and assessment statements. After adoption, the same team handles assessment collections and payables so the plan the board approved is the plan that actually runs. You can see what a full-service HOA management contract should include, or review our HOA management and community association services.

Sterling ASI is the largest locally owned community association management company in Houston, working with more than 200 communities from four offices. Our teams support boards in Houston, Katy, Kingwood, Sugar Land, The Woodlands and Cypress. If budget season keeps showing your board that the current arrangement is not working, our Texas checklist for switching HOA management companies shows how to plan the change around your fiscal year.

HOA budget: frequently asked questions