The practical effect of adopting a budget and future expenditures

[Guest Zev]

The practical effect of adopting a budget and future expenditures

In another thread one of our contributors is of the opinion that a proposed motion to spend more monies on a particular class of disbursements is out of order if the line item in the budget is less than the sum of what has been already spent plus the current proposal.

The more I think about this the more doubts I have.

Background Information for both scenarios: The club has adopted a budget allocating $100 for repairs.

Scenario 1.

Late at night a pipe has burst in the bathroom requiring an after hours visit by a plumber. Later that week his invoice arrives for $200.

Question:

Is the club required to move and adopt a motion to Amend Something Previously Adopted and increase the budget line item to $200 before moving to pay the invoice?

Scenario 2.

Someone in the club has noticed a faulty pipe in the bathroom. A plumber has given an estimate of $150.

Question:

Is the club required to move and adopt a motion to Amend Something Previously Adopted and increase the budget line item to $150 before moving to hire the plumber?

I get the impression that because of its nature, a budget motion has nothing to do with other financial matters that the assembly may consider or binds the assembly to, or prevents the assembly from, any particular course of action or behavior.

My quick answer would have been no and no. However, I want to hear what you have to say about this issue and perhaps I may be persuaded otherwise.

 

[Joshua Katz]

1. Only if there is a rule in place regarding unbudgeted expenditures so requiring.

2. Same answer.

I agree with your overall reasoning here. I'm also not sure what thread you mean. I know there is one about a motion to spend more money than is in the account, where I think your reasoning also implies that motion is in order - and I agree too, if you think that.

[Dan Honemann]

So even although a budget has been adopted that authorizes the expenditure of certain amounts for designated items (as is usually the case), this imposes no limits at all upon what expenditures may subsequently be authorized to be made for these designated items simply by adoption of motions to do so by majority vote?

It seems to me that there's something wrong with this idea.  🙂

 

 

[Gary Novosielski]

5 hours ago, Daniel H. Honemann said:

So even although a budget has been adopted that authorizes the expenditure of certain amounts for designated items (as is usually the case), this imposes no limits at all upon what expenditures may subsequently be authorized to be made for these designated items simply by adoption of motions to do so by majority vote?

It seems to me that there's something wrong with this idea.  🙂

Well, it depends on how you choose to run things.  I belonged to one organization where this was common.  A budget was adopted annually by the membership and managed by the board.  As long as expenditures remained within the budgeted amount, the treasurer was authorized to issue payments to vendors, with appropriate order and receipt documentation.  Any expenditure outside those limits required board or membership approval, depending on the amount, but only a majority vote was required in either case.

[Atul Kapur]

21 hours ago, Guest Zev said:

I get the impression that because of its nature, a budget motion has nothing to do with other financial matters that the assembly may consider or binds the assembly to, or prevents the assembly from, any particular course of action or behavior.

Then what's the point of creating and adopting a budget at all? A budget is "a plan for the coordination of resources and expenditures" -- Merriam-Webster. Approval of the budget is a main motion with continuing force and effect (the plan is for the association's fiscal year).  Altering the plan in the budget (eg: expenditures beyond what was approved in the budget) requires an amendment. So if it needs to be amended then that requires a motion to Amend Something Previously Adopted.

RONR alludes to this when it says "if it is desired that the assembly adopt an annual budget but that the board be empowered to alter it to deal with contingencies that may develop, the bylaws (or the budget resolution) must specifically confer this power on the board" (p.577, ll. 29-33). While this is written as an example of the powers of the board vs the assembly, the clear implication is that dealing with contingencies requires alteration of the budget, aka amendment.

FWIW, Parliamentary Law Question 15 supports this approach.

1 hour ago, Gary Novosielski said:

I belonged to one organization where ....  Any expenditure outside those limits required board or membership approval, depending on the amount, but only a majority vote was required in either case.

Organizations are free to decide to do things this way. However, they would need to adopt a bylaw (or perhaps a special rule of order) to do it this way because it's not supported by RONR. In fact, the Sample Bylaws have a specific provision to do just that, "The Finance Committee may from time to time submit amendments to the budget for the current fiscal year, which may be adopted by a majority vote" (p. 587, ll. 14-16). If amending budgets by a majority vote was the standard approach then there would be no need to specify it in the Sample Bylaws.

At least, that's my $0.02 (which I budgeted when I contributed to the original thread).

[Richard Brown]

19 minutes ago, Atul Kapur, PRP "Student" said:

At least, that's my $0.02 (which I budgeted when I contributed to the original thread).

Where is the original thread?

[Atul Kapur]

It covered two related topics: whether one could adopt two motions that would result in a deficit and, the topic I believe Guest Zev was referring to, whether one could adopt two motions that would result in an expenditure beyond what was budgeted for that category.

[Dan Honemann]

44 minutes ago, Atul Kapur, PRP "Student" said:

Then what's the point of creating and adopting a budget at all? A budget is "a plan for the coordination of resources and expenditures" -- Merriam-Webster. Approval of the budget is a main motion with continuing force and effect (the plan is for the association's fiscal year).  Altering the plan in the budget (eg: expenditures beyond what was approved in the budget) requires an amendment. So if it needs to be amended then that requires a motion to Amend Something Previously Adopted.

RONR alludes to this when it says "if it is desired that the assembly adopt an annual budget but that the board be empowered to alter it to deal with contingencies that may develop, the bylaws (or the budget resolution) must specifically confer this power on the board" (p.577, ll. 29-33). While this is written as an example of the powers of the board vs the assembly, the clear implication is that dealing with contingencies requires alteration of the budget, aka amendment.

FWIW, Parliamentary Law Question 15 supports this approach.

Organizations are free to decide to do things this way. However, they would need to adopt a bylaw (or perhaps a special rule of order) to do it this way because it's not supported by RONR. In fact, the Sample Bylaws have a specific provision to do just that, "The Finance Committee may from time to time submit amendments to the budget for the current fiscal year, which may be adopted by a majority vote" (p. 587, ll. 14-16). If amending budgets by a majority vote was the standard approach then there would be no need to specify it in the Sample Bylaws.

At least, that's my $0.02 (which I budgeted when I contributed to the original thread).

Well done.

[Guest Zev]

The original thread was only mentioned by me in passing. It is not important for this discussion.

I appreciate Gary's answer to this. If the budget is a motion that directs a subordinate body then I can see its utility, even if that subordinate body is authorized to change it, as Atul has mentioned. In this fashion the assembly can keep things in check. In this eventuality the case mentioned by Mr. H does not occur.

The scenario that bothered me was a motion that adopted a budget and did not direct anyone to any particular course of action. It seemed like some kind of throw-away motion without real consequences. However, the adoption of a budget that actually constrains a subordinate body to stay within certain limits sounds very practical and reasonable.

I'm happy.

[Joshua Katz]

48 minutes ago, Atul Kapur, PRP "Student" said:

Then what's the point of creating and adopting a budget at all? A budget is "a plan for the coordination of resources and expenditures" -- Merriam-Webster. Approval of the budget is a main motion with continuing force and effect (the plan is for the association's fiscal year).  Altering the plan in the budget (eg: expenditures beyond what was approved in the budget) requires an amendment. So if it needs to be amended then that requires a motion to Amend Something Previously Adopted.

 

I guess I'll be told I'm wrong, but I think this is all contingent on the motion that adopted the budget, and any applicable rules in the organization. No organization adopts Merriam-Webster (shudder) as their parliamentary authority, but working with what is here, a plan is not a commitment. Here's a question for you - what should be done if revenue falls below the revenue number in the budget? Need the  budget be amended? But wait, what about the period when the organization is on track to meet those numbers, but hasn't done it yet? Is the budget not being followed until revenue hits the target? Or should we say, in line with common sense, that the number in the budget is the amount we plan to take in, but we might end up taking in more or less?

51 minutes ago, Atul Kapur, PRP "Student" said:

 RONR alludes to this when it says "if it is desired that the assembly adopt an annual budget but that the board be empowered to alter it to deal with contingencies that may develop, the bylaws (or the budget resolution) must specifically confer this power on the board" (p.577, ll. 29-33). While this is written as an example of the powers of the board vs the assembly, the clear implication is that dealing with contingencies requires alteration of the budget, aka amendment.

 

What could be more obvious than this statement? Of course the board cannot amend something adopted by the assembly unless there's a bylaw permitting it. I still think the effect of the motion, though, depends on its language and the existing rules.

 

1 hour ago, Atul Kapur, PRP "Student" said:

Organizations are free to decide to do things this way. However, they would need to adopt a bylaw (or perhaps a special rule of order) to do it this way because it's not supported by RONR. In fact, the Sample Bylaws have a specific provision to do just that, "The Finance Committee may from time to time submit amendments to the budget for the current fiscal year, which may be adopted by a majority vote" (p. 587, ll. 14-16). If amending budgets by a majority vote was the standard approach then there would be no need to specify it in the Sample Bylaws.

 

I disagree. I think the organization would need to adopt a bylaw if it wanted its budgets to automatically be binding, or it can insert language into the motion adopting the budget making it binding, or it can adopt a standing rule giving the budget teeth. I belong to an organization, for instance, which allows spending up to 110% of the top-line budget item and does not make the individual line items binding.

I also disagree with you about what we're disagreeing on, apparently. I agree that amending the budget requires the vote threshold to amend something previously adopted. I disagree that adopting a budget, without anything further, binds your spending. Adopting a budget neither spends money nor restricts spending, unless your rules or the motion make it so.

33 minutes ago, Atul Kapur, PRP "Student" said:

It covered two related topics: whether one could adopt two motions that would result in a deficit and, the topic I believe Guest Zev was referring to, whether one could adopt two motions that would result in an expenditure beyond what was budgeted for that category.

I am much more confident that you can adopt a motion which spends more than is in the bank account than I am on this issue, although I think I'm right on both (as people tend to believe).

[Dan Honemann]

Oh, I think that Atul Kapur has it right.

What is said on page 577 makes it rather clear that, in the ordinary case, if a society's assembly has adopted a budget which allows for the expenditure of $200.00 for some purpose, the society's board may not authorize the expenditure of any greater amount for that purpose, even to "deal with contingencies that may develop" (such as a leaky pipe, for example). The society's assembly may itself authorize the expenditure of a greater amount, but without previous notice it will require either a two-thirds vote or a majority vote of the entire membership in order to do so. If the latter were not the case, the former would not be the case. 

And yes, of course some organizations may have rules which provide otherwise, but I think the questions originally asked presuppose the ordinary case.

And yes, officers or boards may take actions in an emergency which they have no authority to take, hoping that their actions will be ratified, but that's quite beside the point.

The income side of a budget is a horse of an entirely different color. A society may control its expenditures.  

 

[Joshua Katz]

2 hours ago, Joshua Katz said:

I guess I'll be told I'm wrong,

 

16 minutes ago, Daniel H. Honemann said:

Oh, I think that Atul Kapur has it right.

Just as I predicted.

 

16 minutes ago, Daniel H. Honemann said:

What is said on page 577 makes it rather clear that, in the ordinary case, if a society's assembly has adopted a budget which allows for the expenditure of $200.00 for some purpose, the society's board may not authorize the expenditure of any greater amount for that purpose, even to "deal with contingencies that may develop" (such as a leaky pipe, for example). The society's assembly may itself authorize the expenditure of a greater amount, but without previous notice it will require either a two-thirds vote or a majority vote of the entire membership in order to do so. If the latter were not the case, the former would not be the case. 

 

I would expect you to say, then, that the same applies to the board itself - if the board adopts a budget, it would need to amend that budget in order to spend more. I have no new argument as to why I disagree, since I don't see a new argument here as to why this follows from a discussion in RONR about boards only being allowed to modify actions of the assembly when a bylaw permits it.

18 minutes ago, Daniel H. Honemann said:

The income side of a budget is a horse of an entirely different color. A society may control its expenditures.  

 

It's a horse of a different color, yet it's the same horse - i.e. the same budget. The argument here is that the very act of adopting a budget, absent any statement as to its purpose in the motion, limits expenditures. Yet for some reason, that same adopted budget means absolutely nothing about revenue, because a society can control its expenditures but not its revenues. I would suggest, instead, that if the same logic cannot apply to a second part of the same adopted document, it would be incorrect to apply it to the first part (unless a rule or the motion itself directs otherwise). And of course I agree that a society may control its expenditures. It can, for instance, adopt a budget, and include language in the adopting motion directing that no expenditures above the budgeted amounts are permitted. It can also, I maintain, adopt a budget for its own guidance and reference, which does not bind it.