Aside from the fact that we’re all paying higher prices at the grocery checkout and the gas station, inflation is also impacting organizations like homeowners’ associations (HOAs). Let’s delve into how inflation affects HOAs and what it means for residents:
Increased Dues
As inflation weakens currency, the costs of goods and services rise. This includes expenses like landscape maintenance and janitorial services and the we-all-know-about-it soaring energy costs. We’ve seen increases in management services as well. As a result, HOA dues have also gone up, to cover the rising costs of goods and services. We work with many HOA Boards who are dealing with rising dues, and looking for ways to cut this or that to find reductions. HOA Board members in particular must understand their fiduciary obligations and the need to provide an adequate, realistic budget based on the best information available. While costs are going up, is it appropriate to cut janitorial services, as a cost saving measure? We know from the Great Recession that we can’t stop irrigating the landscape – that only creates bigger problems. Looking for cost cutting measures is more important now than ever, and admittedly, it becomes a balancing act on what items can or should be cut with what items are imperative to remain in the budget. Shopping quotes can be time consuming, but at the end of the day, services that are vital to your community might just be available at a lower cost through another vendor.
Higher Reserves Costs
Inflation’s ripple effects extend to HOA reserve funds, which are essential for covering expenses associated with long-term repairs and replacement of common area improvements. Whether it’s repainting buildings, replacing furnishings, or undertaking renovation construction, inflation drives up the costs for these projects, necessitating increases in dues and assessments to cover the remaining expenses.
Laws governing common interest developments mandate reserve funding. Each year, the HOA Board must include a “Reserve Funding Disclosure” with the annual budget. Given the current trend of rising costs, it’s crucial to ensure that your reserve account realistically aligns with the needs of your community. Collaborating with your Reserve analyst is key, as they should account for inflation in the report. Consequently, the reserve funds will adjust to ongoing inflation, with increases as necessary. Regular updates can help align near-term capital expenses and funding requirements with the impact of current inflation rates.
Dealing with inflation requires careful financial planning and management, especially for HOAs, where finances might be tight; wrestling between assessment collections and inflated expenses. It’s essential to budget against inflation and regularly review financial strategies to mitigate its impact effectively.
At California Builder Services, we understand that today’s rising costs have a big impact on HOAs throughout the state. Our Budget Preparers and Reserve Analysts are prepared to provide expert insights into the long-term planning of your Community’s finances, and are ready to assist you with planning for the continued health of your HOA!
