If you are like me, you are becoming acutely aware of rising costs in our current economic environment. While inflation appears to be cooling off a bit, it certainly is not coming down at the rate necessary for most Americans to see much of a difference. In a post COVID world, we have seen prices of food, goods, and labor soar. And while we are all hopeful for some relief from rising costs in the near future, we must prepare as best we can to live and operate in a high inflation economy.
Homeowners and condominium associations are certainly not immune from the effects of inflation. Vendor costs have risen and most certainly the cost of materials have gone up. So, undertaking maintenance or capital improvement projects have become increasingly more difficult in recent years. Boards of Directors and community managers must prepare for this new reality. Which means some tough financial budgeting decisions are going to need to be made.
In a high inflation economy, some services might need to be scaled back. Crucial maintenance projects might take priority over more frequent landscaping or beautification projects. However, most importantly, assessments will probably need to go up. There is often a mindset among Board members that they must work to keep assessments as low as possible. I have often heard a brag from Board members that they haven’t had to raise assessments in ten or more years! This is not the best way to think about managing a homeowners or condominium association. When community association expenses rise, which they likely have, income needs to rise as well. Most businesses are having to raise prices to keep pace with inflation, and community associations should be no different. Associations are a zero-sum game. There must be enough in the coffers to pay the bills.
Special assessments are often available, however, they many times are limited in how they can be used. For example, they might only be available to undertake capital improvement projects on the common area, instead of helping with a roof replacement project in a townhome community. Similarly, passage may require a membership vote. Both mean, special assessments should not be relied upon in most cases.
Loans are becoming increasingly popular to pay for large projects. However, they can also come with limitations regarding use of funds, and votes required to acquire the funds and pledge collateral. Similarly, interest will be owed upon the loan provided. Meaning there is a cost for the loan.
All of this is to say that proper planning and budgeting is crucial to managing a community association, especially in a high inflation economy. Our community association attorneys at Law Firm Carolinas are highly experienced in assisting our HOA and condominium clients in navigating these financial matters and are always happy to assist your community.
(See also Help, Our HOA (or Condo Association) Needs Money!)