HB 2442

Budget and Assessment Limits

Proposed amendment would cap regular assessment increases at 10% annually and requires boards to hold informal member meetings to explain budgets and address concerns.

Overview

A proposal to amend A.R.S. §§ 33-1202, 33-1215, 33-1243, 33-1245, 33-1802 and 33-1803 to require boards to develop annual budgets, with any assessment increases exceeding the Consumer Price Index (CPI) requiring member ratification; to allow boards to establish reserve accounts for long-term maintenance if authorized by the CC&Rs; to prohibit boards from reallocating reserve funds for purposes other than those specified in the CC&Rs without member approval, except for temporary cash flow considerations for budgeted expenses; to require special assessments and financing decisions to be ratified by a majority vote of members; to deem any action taken or assessment levied not in compliance with these amendments to be invalid and unenforceable; and to require a membership vote to determine future operation of unprofitable commercial facilities owned by associations, among other amendments.

Key Changes

Current Law

Boards have authority to adopt annual budgets and levy assessments as authorized by governing documents. No statutory requirements exist for member ratification of budgets or assessment increases based on CPI thresholds.

Proposed Amendment (Inactive)

  • Annual Budget Requirement: Boards must develop annual budgets.
  • Assessment Increase Cap: Regular assessment increases are capped at 10% annually, unless governing documents provide for a lower cap.
  • Informal Member Meeting for Budget: Boards must call and provide 72-hour notice for an informal special meeting of members to explain the approved budget and address questions or concerns. The board must amend the budget as appropriate based on member feedback. If the board refuses to address concerns raised by consensus of members present, board members may be subject to recall despite any prior failed recall attempt.
  • Reserve Account Authorization: Boards may establish reserve accounts for long-term maintenance if authorized by the CC&Rs.
  • Reserve Fund Reallocation Restrictions: Boards are prohibited from reallocating reserve funds for purposes other than those specified in the CC&Rs without member approval, except for temporary cash flow considerations for budgeted expenses.
  • Special Assessment and Financing Ratification: Special assessments and financing decisions must be ratified by a majority vote of members.
  • Unprofitable Commercial Facilities: A membership vote is required to determine future operation of unprofitable commercial facilities owned by associations.
  • Invalidity of Non-Compliant Actions: Any action taken or assessment levied not in compliance with these amendments is deemed invalid and unenforceable.

Legislative Timeline

  • March 20, 2025 – Held in Senate Committee on Government
  • March 20, 2025 – Senate Second Read
  • March 19, 2025 – Senate First Read; Assigned to Senate Committee on Government and Senate Committee on Rules
  • March 18, 2025 – House Third Read; Passed 31-27-2 as amended and transmitted to Senate
  • March 12, 2025 – Motion for additional Committee of the Whole reading by Rep. Carbone; Floor amendment proposed by Rep. Carter N.
    • The amendments proposed remove the procedure the board of directors must follow if the approved annual operating budget and any supplemental amendment to the budget, except for certain previously approved loan installment payments, would result in an annualized assessment increase from the previous year that is greater than the percentage change in the consumer price index for the preceding 12 months.
    • Removes language prohibiting a condo or homeowners association from initiating any litigation against any party, including dwelling actions, other than for condominium document enforcement or collection purposes, without the prior approval by a majority vote of unit owners or members. Makes technical changes.
    • Passed out of Committee of the Whole with a “Do Pass as Amended” recommendation.
  • February 26, 2025 – Floor amendment proposed by Rep. Rachel Keshel.
    • The amendments proposed remove budget ratification by the members, but require the board of directors to call and provide 72-hour notice for an informal special meeting of the members to explain the approved budget and answer or address any questions or concerns raised by members.
    • Thereafter, the board shall amend the budget as appropriate. If the board refuses to correct or adequately address the express concerns raised by the consensus of the members present, the board members may be subject to recall despite any prior failed recall attempt.
    • The amendments proposed also cap regular assessment increases at 10% each year, unless the governing documents provide for a lower cap.
    • The amendments proposed also prohibit an association from initiating litigation (except for collections and enforcement) without the prior approval of a majority of members voting on the issue at a meeting called for that purpose.
    • Passed out of Committee of the Whole with a “Do Pass as Amended” recommendation.
  • February 24, 2025 – Passed out of the House Committee on Rules with a “Constitutional and in Proper Form” determination
  • February 20, 2025 – Passed out of the House Committee on Government with a “Due Pass as Amended” recommendation
  • February 19, 2025 – Amendment proposed by Rep. Rachel Keshel.
    • The amendment proposed would eliminate a quorum requirement for member ratification and add a process for the board of directors to petition a court for injunctive relief in the event the board believes the members unreasonably withheld ratification of an approved budget, preventing the board from fulfilling its obligations to maintain the common property. If the board fails in the lawsuit, the litigation costs shall not be taken from “association monies.”
    • In addition, for planned communities, the board must set a date and provide notice to the members of the meeting to be held for purposes of budget ratification.
  • February 14, 2025 – On February 20, 2025 agenda for House Committee on Government
  • January 27, 2025 – House Second Read
  • January 23, 2025 – House First Read; Assigned to House Committee on Government and House Committee on Rules

Impact

The 10% annual assessment increase cap would limit boards’ ability to respond to rising costs, though it would apply only when governing documents do not specify a lower cap. The informal budget meeting requirement would create transparency but would not give members veto power over budgets. The recall provision for boards that ignore member consensus introduces accountability but lacks clear standards for what constitutes “consensus” or adequate response to concerns. The requirement for member approval of special assessments and financing decisions would transfer significant financial authority from boards to members. Reserve fund reallocation restrictions would prevent boards from shifting funds without member consent except for temporary cash flow needs. The invalidation of non-compliant actions and assessments creates enforcement mechanisms but may complicate association operations if procedural requirements are not followed precisely.

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