Fall is the time when most homeowner associations count last year’s costs and crunch next year’s numbers hoping to squeeze blood out of the HOA’s turnip. Often it’s so dry, there isn’t even any turnip juice left much less any O positive. But crunch you must. Here are some of the ways to make the cash flow more freely.
Adjust by Inflation. This is a no brainer. Check the area Consumer Price Index – CPI (governmentese for “tax increase”) and raise all budget items by at least that amount. An exception is utilities which often enjoy a larger rate increase based on the utilities the utility companies expect not to sell added to the cost of maintaining antiquated power generation plants plus a fudge factor they hope to slip by the utility rate commission (a bit of budget humor).
Add a Contingency aka Slush Fund. A contingency is 5-10% of the total budget which is used to either cover all those things you forgot to include or could not foresee.
Looking Back for Future Savings. Next year’s budget should be based on prior years’ actual expenses. Do a side by side comparison of the last three years’ actual costs. You may learn something like seeing large and unnoticed utility cost variances. You may catch a cost savings that got passed by unscrutinized.
Leave Out Potential Income. Late fees may not happen so don’t count on them. Besides, it’s a bit insulting to plan on owner delinquency.
Assign Expenses by Category.
1. Administrative. Management Contract, Legal, Reserve Study, Accounting, Office Supplies, Postage
2. Utilities. Water/Sewer, Electrical, Phone, Gas, Cable & Internet
3. Maintenance. Landscape Contract, Gutter Cleaning, Pool Maintenance, Elevator Maintenance, Janitorial.
4. Reserve Contribution. To fund painting, roofing, fencing, etc. See Reserve Study for details.
Itemize Significant Expenses. It’s important to know where significant monies are being spent. For example, rather than lumping everything into “General Repairs” divide it among “Plumbing Repairs”, “Electrical Repairs” and “General Repairs”. If this hasn’t be done in the past, start doing it in the future. In other words, when a significant bill is paid, assign it a proper description so that next year the Budget Committee can assess whether there is a trend.
Reserve Intelligently. Reserves are funds collected to pay for periodic maintenance and repair to roofs, siding, paint, pools and other common area components. It’s critical that these relatively expensive events be forecast at least 30 years out so that this year’s budget collects a fair share of future expenses. Failure to forecast and collect from all owners inevitably leads to special assessments. Special assessments are the product of poor planning. Since costs can be accurately predicted, why not let all share the expense rather than penalizing a few? The Reserve Study analyzes these future costs and provides a annual contribution recommendation that can be included in the budget. Reserving properly is one of the most fundamental factor for HOA success.
Include Board Education. While the board members are unpaid volunteers, the HOA should invest in educating them to improve their performance. Subscribe to The Regenesis Report, a monthly HOA management newsletter at www.Regenesis.net. It’s free, informative and will return enormous dividends as director competence improves.
Other Cost Cutting Hints:
Irrigation Water Costs. Does your system have a rain override that kills the sprinkling cycle when appropriate? You would be amazed how cheap this technology is. Budget for and get it installed before the next irrigation season.
Control Pool Temperature. A solar blanket can pay for itself very quickly. A 3-5 degree reduction in pool temperature heating can result in significant savings.
Solar Pool Water Heating. A pool is one of the HOA’s biggest energy hogs. Solar heating can significantly reduce this cost and pay for itself in a few short years.
Lighting Conservation. Swap common area lighting for LED lights. Add solar or clock devices to control exterior lighting.
Pay for leaky faucets and toilets. Even though fixing unit owner plumbing is not an HOA responsibility, the resulting water bill is.
Install Programmable Thermostats. For common hallways and clubhouses, these inexpensive controls can slash heating and cooling costs.
Xeriscape. This concept reduces landscape turf area in favor of local, drought resistance bushes, plants and ground covers. Besides reducing or eliminating mowing costs, water savings are impressive.
Crunching the budget is not near as hard as you thought, now is it? When you see the savings pile up, that “crunch” will sound oh so sweet.
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