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Creating a budget is essential for the overall health of a Homeowner’s Association (HOA) or condominium association. A well-planned budget allows the community to share priorities, identify necessary operational requirements, and create spending guardrails. It also improves clarity when it comes to decision-making and offers controls when corrective action is required. This is particularly important in unexpected events such as natural disasters or economic fluctuations.
With so much at stake and so many factors to consider, here are some key tips to help ensure a successful budget season:
- Identify the “who” and the “when”
A community association management firm is responsible for creating the yearly budget in a professionally-managed community, usually in conjunction with the board treasurer or a finance committee. Check your association bylaws for deadlines, requirements and other key dates. Once the budget is completed, make sure to submit it to the board for final approval. Be sure all key players are available and aware of the workflow, expectations, and dates to avoid confusion.
- Communicate, communicate, communicate
Create a communications plan that is specifically targeted to the residents. Residents should be invited to attend a scheduled budget meeting at least once a year. This is where potential increases will be discussed, and owners can ask questions about the budget. I strongly urge the association to often interact with the residents during budget season, especially if they expect increases. The communications plan should include detailed notes, questions and answers about increases and should always allow room for feedback. One way to interact with owners is by having budget workshops highlighting the process that the committee, or board, is going through to arrive at the final budget numbers.
- Stay abreast of new legislation
New condo legislation will require condominium associations in structures three stories and higher to fully fund their reserves based on the Structural Integrity Reserve to maintain the structural integrity of the condominium. All existing condominiums that meet the criteria must do so by December 31, 2024.
For more information on this legislation and buildings that must meet these criteria, check out our YouTube channel.
- Remember your reserves
The new legislation will likely impact most association budgets because few have sufficient reserves set aside. In light of recent events, the Florida Structural Integrity Reserve Study features new requirements that many Boards are unsure about. Associations that have voted down reserves for years will likely see a significant impact on their budgets after a review of the study’s requirements. Associations will likely have a tough decision to make in the coming year or so. Those associations that have no reserves at the moment will have to pass a Special Assessment to fully fund their Structural Integrity Reserves or will have to obtain a loan funding such reserves.
If your association has low or no reserves, I recommend setting aside around 10 -15 percent of the total budget this year so you can start the process of putting monies aside for the reserves. Associations have two budget cycles to fix this matter, so it’s essential to start as soon as possible to avoid costlier consequences in the future.
- Talk to the experts
Seek the advice and expertise of your property management company and/or CPA. These pros have the right insights on potential increases, allowing you to create a more accurate budget.
- Make room for staff pay rates and salary increases
The employment market has become very competitive, and you must ensure you take care of your current staff. For example, minimum wage was just increased to $11 on September 30, 2022, and – according to Amendment 2 – will increase by $1 yearly with the goal of reaching $15 per hour by 2026. This gradual increase will impact several of your employees, services and budget.
Most recently, Hard Rock and Marriott International announced plans to increase workers’ salaries ahead of schedule in an effort to increase retention and prevent turnover. The increases are even higher than the required rate in some cases, with Hard Rock increasing starting wages to between $18 and $21 for a variety of workers, like housekeepers, cooks and desk attendants.
For detailed expert insight on Amendment 2 and how it impacts condo associations and HOAs, check out our YouTube channel.
- Review insurance costs
Insurance rates have skyrocketed in 2022, and we don’t expect them to come down any time soon. I recommend factoring in an additional 10 – 15 percent increase into your budget for 2023 specifically for insurance.
- Contact vendors and other strategic partners
It’s always important to contact your vendors during budget season to understand potential increases. However, this year, it is even more critical. With gas prices rising, many service providers such as landscaping and construction companies are operating at a higher cost. These expenses will be passed on to the consumer. Therefore, you should know what that can look like for your association.
It’s important to know that association budgets are a zero-sum game. When preparing your budgets, you need to have some cushion to protect yourself from increases and even more for factors beyond your control, such as inflation.
For more tips like these and additional resources, visit our website at ManagedByAffinity.com. Also, check out our YouTube channel, Affinity Management, for educational webinars featuring local experts. Rafael Aquino is a member of the Board of Directors of the Latin Builders Association, of which Affinity Management Services is a proud member of.
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