Stretching budget dollars is usually a problem in homeowner associations. It’s challenging to balance anticipated expenses with assessments. Covering unexpected expenses adds to the stress. Yet, many HOA Boards try to keep assessments low to please more homeowners, which intensifies the problem. It’s impossible to run a successful community and maintain property values with an inadequate budget. Here are some common budgeting pitfalls that your HOA Board should avoid.
Sidestepping Assessment Increases. How long has it been since your last assessment increase? 2 years, 3 years or maybe 5 years? Assessments must keep up with inflation. Unrealistically low assessments result in less maintenance, fewer repairs and escalating problems throughout the community. The U.S. Inflation Calculator shows 10.9% rate of inflation since 2009, which means that a service that cost $10,000 in 2009 now costs $11,087. It’s little wonder that your budget won’t cover community needs without an increase.
Using Reverse Budgeting. Do you begin your budgeting session with the expected assessment revenue and then try to make it work for the different line items? If so, you’ve probably found that you have to omit some expenses or levy a special assessment. A better way to budget is to assess all anticipated expenses and then determine the assessment amount required for the expenses. This helps keep you on track for a thriving community.
Dipping Into Reserves. Don’t take money from your reserves to balance the HOA budget. Prolonged underfunding means more catch up in the future, which results in larger assessment increases or special assessments. Develop your annual budget so that you can fully fund reserves and avoid financial transfers that are not included in the reserve study.
Playing tricks with assessments. Most homeowners find it easier to accept regular assessment increases each year instead of paying special assessments. So, don’t create the illusion of low assessment fees, and then require a special assessment. Special assessments should only be used for an unanticipated expense — not to balance your annual budget. Effective budgeting includes line items for regular and recurring expenses as well as reserves. In addition, you need to consider expenses that occur every two to three years instead of annually.
Being cost-conscious is part of being a good steward of the association’s money. Consistent assessment increases, funding your reserves and good budgeting techniques are part of being a good steward. Your Board is entrusted to keep the association at its best…be the best steward that you can be.
Wise Property Solutions is a property management company serving East Tennessee with offices in Knoxville, TN and the Tri-Cities, TN-VA. Specializing in Condominium Association Management, Home Owners Association Management, HOA Management and Gated Community Association Management. The firm is East Tennessee’s only Accredited Association Management Company (AAMC®).
Tri-Cities, TN-VA: 423-926-7373
Knoxville, TN: 865-643-8989