HOA spending limits and the CPI

Started by MarianneG • 12 replies • 1818 views

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MarianneG (Indiana)
Posts: 170

Posted:

Our Covenant states that our BOD has the authority to "enter into contracts and shall be limited to contracts involving a total expenditure of less than $2500 (adjusted annually for increases or decreases in the Consumer Price Index)". That limit has never been raised since the community was incorporated in 2001, but the BOD now wants to raise the limit to $5000.

1. Does anyone know how to apply the CPI in a situation like this where it has not been done in at least 10 years?

2. Does an increase of $2500 seem reasonable?

Any and all help will be appreciated.

TimB4 (Tennessee)
Posts: 21,059

Posted:

Based on your posting, it sounds like the increase in the limit is automatic. Therefore, if you wanted to apply the CPI it should be adjusted for each year starting from the first year that section of the document was adopted.

The limit of the contract would, in my opinion, be based on what type of work is typically needed and the average cost of services in your area. I've seen contracts for common area maintenance (lawn care) be 3-5 thousand. Road repairs could be $10,000. What were the amounts of the last set of bids for typical services (lawn care, trash/recycling, etc.)? I would think that the Board should be able to enter into those contracts without the need for a membership vote.

Tim

SusanW1 (Michigan)
Posts: 5,202

Posted:

What must happen if the contract is OVER that amount? A vote of the Membership?

At budget time, ALL expenditures are laid out for Membership approval. At that time, it would make sense that they "approve" any expenditure over that certain amount, i.e. road re-surfacing, for example.

I think your rule applies for new contracts or an expenditure that comes up mid-year.

MarianneG (Indiana)
Posts: 170

Posted:

Thanks, Tim. Excepted from the $2500 limit are any routine contracts like lawn care, snow removal, as they are set out in the annual budget. We do not have a reserve fund, and I think the problem arose because there is a need to do some maintenance on wooden fences throughout the community. I suspect the cost would exceed the $2500 limit. Now that you jog my thoughts, it seems to me the matter of fence maintenance should be either budgeted or approval sought in a motion at our annual meeting, which will be in October. I'm not presently on the board, but am chairing the Covenant re-write committee. The matter came up this morning in a conversation with one of the board members.

I think to just say we want to raise the limit to XX.xx$$ is on some shaky ground. If it's written in the Covenant that it is adjusted by the CPI, then I think we either need to follow that direction or take it out of the Covenant.

When I looked up the CPI, I found that it is adjusted regularly throughout each year and can include food costs, housing costs, and other costs that do not relate to a HOA. So, that leads me to wonder how you adjust for the CPI in any case.

MarianneG (Indiana)
Posts: 170

Posted:

Thanks Susan. I think your conclusion is correct.

TimB4 (Tennessee)
Posts: 21,059

Posted:

Quote:

Posted By MarianneG on 08/12/2011 12:01 PM

We do not have a reserve fund,

You may want to consider having the Board perform a Reserve Study.

PetunkaM (Florida)
Posts: 1,009

Posted:

CPI can be flat some years, or go up and down. You have to compute it on an annual basis.

AnnJ1 (Florida)
Posts: 122

Posted:

Hi Marianne,

I've always used the Bureau of Labor Stastics' calculator when determining the CPI increase/decrease for a certain period of time. This calculator has served me well when salary or contractual arrangements needed adjustments.

http://www.bls.gov/data/inflation_calculator.htm

Here are the results when using their calculator....

$250,000 in 2001 Has the same buying power as: $318,636.36 in 2011

HTH,
Ann

PS... There are many calculators to be found on google.... search for "CPI calculators"

MarianneG (Indiana)
Posts: 170

Posted:

Tim, you're absolutely right. A reserve fund should have been established years ago.

Petunka. So is it correct to look at the average CPI for each year and multiply that percentage against the $2500? You do that for the first year (in our case 2001). Let's say the average CPI for 2001 was 3.6%. So the calculation would be 2500*.036=90. Add the 90 to the 2500 for a new limit of $2590. In year 2002, let's say the average CPI is 2.5 so you multiply the 2.5 against the $2590 so the calculation would be 2590*.025 = 64.75. Add that to $2590 (2590+64.75=2654.75). Does that sound right?

MarianneG (Indiana)
Posts: 170

Posted:

Oh thanks Ann. I was writing my response to Tim and Petunka when your post came in. I'll try the calculators you suggest.

PetunkaM (Florida)
Posts: 1,009

Posted:

Yep, I came up with a max of $3K without using a calcutator but, I am be wrong. Am, too lazy to check the figures :-) Sorry you have to do that.

MarianneG (Indiana)
Posts: 170

Posted:

Ann. I just visited the site you gave me and in one easy step was able to calculate the CPI index for our $2500.00. Guess what -- there is no change for the year 2011 so our limit is still $2500.00. I'm very impressed that you knew where to direct me and just wait until our BOD discovers how very smart I am. LOL. (I'll give you the credit after I've gotten all the kudos.

)

MarianneG (Indiana)
Posts: 170

Posted:

Thanks Petunka for working it out long hand.

You folks on HOATalk are great!

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