HB 2277

Overview

HB 2277 would materially constrain how community associations, boards of directors, and management budget, collect, and control association funds by converting many governance practices into mandatory statutory requirements. Boards would be required to prepare prudently estimated annual budgets with heightened transparency, while management would need to support expanded financial reporting and posting obligations tied to budget approval. For larger communities, meaningful assessment increases, supplemental budgets, special assessments, and most financing decisions would shift from board-level authority to owner ratification, reducing operational flexibility and lengthening decision timelines. The bill also centralizes financial control at the board level by requiring association-titled accounts and direct board signature authority, limiting the extent to which financial control can be delegated to management. Collectively, the bill increases compliance, administrative, and risk exposure for associations by making non-conforming budgets and assessments legally unenforceable and by imposing explicit fiduciary-style duties on both boards and those managing association finances.

Key Changes

• Amending A.R.S. 33-1243 and 33-1803 as follows:
  • To require boards to develop, or have developed, an annual operating budget for the fiscal year based on a prudent and good faith estimate of the common expenses reasonably necessary to satisfy its obligations to the owners to manage cost and to provide for the maintenance and operation of the common elements/areas or other services required by the CC&Rs, the reasonable and necessary operating and administrative expenses of the association and appropriate allocates to reserve accounts;
  • A copy of any proposed budget and the current year-to-date budget comparison shall be either posted on a community website or provided to any owner present at the board meeting where the board will consider approval of the proposed budget;
  • For associations with fifty or more members, requiring owner ratification of any board-approved annual budget that results in an assessment increase of 5% or more over the prior year’s initial annual assessment (not including installment payments for previously approved financing);
  • Setting owner ratification as the affirmative vote of a simple majority of the owners voting, regardless of whether quorum is met;
  • Requiring boards to manage the association’s expenses within the approved budget;
  • Permitting associations to develop and approve an amendment to an annual budget (and supplemental assessment if required) if “unanticipated and unbudgeted association expenses become necessary and are not able to be accommodated within the current approved budget;”
  • Requiring owner ratification of any budget amendment and supplemental assessment;
  • Deeming an association’s budgeted allocations to reserves to be “committed expenses” that may not be reduced to address unbudgeted expenses without owner approval;
  • Establishing a new board duty “to act in the best interest of the association and to ensure that reasonable prudency is applied to the commitment, protection and expenditure of association monies;” in furtherance of this duty, boards shall:
    • Consider this duty in the solicitation and review of competitive bid proposals and the negotiation and award of any contract for goods or services;
    • Boards may not agree to any provision of a proposed contract that is unconscionable to the interests of the association and the owners as a whole;
    • Provide for oversight over every contractor providing services to the association;
    • Ensure that the services of the contractor comply with this chapter, meet the expectations of the association and provide value to the association commensurate with the cost of services;
    • Ensure that all association monies are deposited in accounts established in the association’s name alone that the association retains control over, and that at least one current board member shall have signature authority over;
    • Allowing associations to assign deposit and withdrawal authority to a designated managing agent or certified public accountant subject to board oversight;
    • Provide for a detailed review of any financial reports provided by the association’s managing agent, certified public accountant, treasurer or financial institution, to validate that only authorized and appropriate expenditures have been withdrawn from association accounts.
    • Requiring investigation and resolution of any discrepancies or concerns identified before board approval of the financial reports;
  • Permitting an association, if authorized by the CC&Rs, to establish and fund specified reserve accounts; Any expenditures from these accounts must be reasonably related to the CC&Rs’ authorized purpose and the owners’ reasonable expectations for the accounts and funds;
  • To require ratification by 55% of all allocated votes in the association for any special assessment or financing that assigned the association’s future revenues as collateral or assigns a security interest in the common elements;
  • To void and deem unenforceable any assessment not ratified by the owners as required by subsections D or G.
• Amending A.R.S. 33-1254 to provide that any surplus monies of the association’s operating account shall be refunded to the owners, but allowing the association to submit the question to the owners of whether the association shall instead apply surplus monies in the operating account to long-term major maintenance reserve accounts, which may be approved by a simple majority of the owners voting, regardless of whether quorum is met.

Legislative Timeline

• January 20, 2026 – House Second Reading
• January 15, 2026 – Introduced; House First Reading; Assigned to House Government and Rules Committees

Impact

Overall, HB 2277 aims to increase financial accountability, transparency, and owner involvement in decision-making processes, while ensuring prudent management of association funds and protecting owners’ rights.