Keeping Your HOA Budget in Step with Today’s Dollar Value
If you’re finding it more difficult to stretch the budget to meet everything that your association
needs, it could be time for a reality check. On the surface, no assessment increase sounds good until you stop and think about the value of today’s dollar. The “budget stretching” problem isn’t just that prices have increased. It’s also the fact that yesterday’s dollar had more buying power than today’s dollar. Knowing how to keep your budget in step with the dollar value of today is the secret sauce of managing a flourishing community.
How long has it been since assessments were increased for your community? 5 years, 10 years or more? A good way to understand the impact of no assessment increase on the association’s buying power is to check the U.S. inflation calculator. Just enter the years and dollar amount, and the calculator will show you the cumulative rate of inflation. For example, a typical service for an HOA that cost $100 in 2005 costs around $120 today.
This 20% decrease in buying power is devastating to a community when there are not enough assessment increases to bring your budget in step with today’s dollar value. At the very basic level, it means that community services have decreased over time. While residents and perspective buyers may not recognize decreased services from year to year, the cumulative impact becomes evident eventually.
One economic question that HOA Boards face involves tradeoffs between assessment increases, operating costs and community maintenance. When there are no assessment increases, maintenance and services for the community must be scaled back to balance the budget.
As a Board member, it’s your responsibility to research ways to keep reduce the association budget, fund the reserves and keep assessments reasonable. Likewise, you are accountable for keeping the community at its best. To continue providing the services that your community needs to thrive, it’s important to balance the budget through regular assessment increases that keep step with inflation.
Don’t be misled by the idea of low assessments. Just like a quart of milk or a loaf of bread, products and services cost more today than they did in years past. Make sure that your HOA budget covers all the needs of the association. If your budget doesn’t stretch as far as in the past and you’ve trimmed all the corners, remember that higher assessments aren’t unreasonable. Higher assessments are mandatory to keep your budget in line with today’s dollar value.