For many community associations and managers, budget season is in full swing. At the same time, our government is currently shut-down because a budget hasn’t been passed to fund it. I sincerely hope that that your associations manage their budgets with less acrimony than our friends in Washington DC.
Money is of course a primary component of any budget. For many owners, it’s the only component of the budget that they care about. “How much do I have to pay?” is their one and only concern.
Unfortunately, associations often adopt budgets that are based as much or more on what they want to pay than what they should be paying. Here are just a few “red flags” that might indicate a Board is trying to budget based on what they want to pay as opposed to what they should be assessing:
-Discussion regarding raising assessments by “X” percent. Associations sometimes evaluate increases in assessments by applying a percentage increase to the prior year budget without getting into deeper analysis. An across the board increase of assessments is a bit like throwing darts in the dark. You might get close but it’s likely by luck or accident.
-Discussion regarding assessments that “other” associations are levying. The discussion often focuses on the Association’s desire to make their property attractive to potential buyers. It’s a legitimate issue and one that should be considered, but it should not drive or dictate analysis of the actual anticipated cost to fund and operate the association.
-Discussion regarding the hardship that will result from raising assessments. It is not unusual to hear owners discuss the financial hardship that some of the owners are experiencing. Board members are human and should never ignore the fact that their actions impact the lives of owners in their community. However when it comes to budgeting, it’s important to have a realistic budget based on actual expected expenses and reasonable reserves. Anything less fails to represent the true cost of ownership.
Whenever budget discussions shift away from the actual expected expenses and reserves, make sure the focus eventually comes back to the fundamentals. It’s not always the most popular or pleasant approach to assessments, but it’s the only way to do it right.
As always, please keep the team at Barker Martin in mind if your association is in need of legal services. Feel free to call if you have additional needs or questions.