Inflation and projects

Hello all, Our HOA budget has taken a hit this year. Heating and cooling costs are up about 50%, everything else is over budget by 10%, and we have had more repair bills than anticipated. How do we generate the income we need? Special Assessment vs. raising HOA monthly dues? A combination of both? What is your HOA doing to fill the gap? Thank you for answering this question.
Christine, St. Paul, Minnesota

In addition to looking at the present, you also need to look forward to plan for cost increases:

You will need an increase in assessments to cover future costs.

Expecting your reserves are properly funded, you may want to consider a contingency line item in the operating budget for next year. A little cushion if the actual costs exceed too greatly the expected costs.

Ways to cover for shortages:

1) Special Assessment
2) Deferred maintenance (tree pruning as an example)
3) Borrow from reserves with a plan to pay back over x years

Christine,
You will need to read your docs and see how your HOA has increases mentioned. It is much easier to increase dues than do a Special Assessment. Many HOA have caps regarding dues increase without voter HOA wide approval. I have seen 10% in the state of Ca. but not sure about yours. If you can do this, it can become effective very quickly after a meeting and notice is given to the community. If you raise your dues this year by 9% you would be able to raise them again the following year if you are still running a deficit. You should also tighten your belt and check every expense.

Something I got approved several years ago 2009 in Ca. was a letter that was sent to every vendor that stated that we needed to know if anyone had a plan to increase contracts by x date. We also said in the letter that if an increased was planned we would automatically go out for bids to shop rates.

It is much harder for contractors to find new business than to keep existing accounts. It worked for us for several years. This way the vendor can share the pain with the HOA if they want your business.

A HOA is ONLY funded by it's members FOR it's members. So where do you think you are all going to cover the additional expenses? The choices are: Raise Dues, Special Assessments, or heaven forbid a loan. Some HOA's are allowed to raise dues aroud 3 - 5% by board vote only yearly. Higher than that, then it takes a membership vote. A special assessment just can't act like a general "fundraiser" event. It has to have a defined purpose. Example: Concrete repair at the pool. Loans still require being paid back. So you will still have to do the first two options anyways.

No garage, bake, or special sales are NOT fund raising a HOA can do. If you do, then there are taxes to be paid. It's NOT considered "income". Neither are fines. Those are punitive. Despite what people think it's so the HOA can pay for stuff...

So time to get dirty and raise them dues. It's not pretty but has to be done.

As others have said, you'll have to bite the bullet and increase assessments. People may howl, but if they've paid attention, the price of EVERYTHING is up and since the association has to purchase certain supplies and goods, they can't expect those contractors not to pass on the increases to their customers.

Since prices have gone up, the next thing to do is take a long look at your budget. What line items went up the most this year and why? It may be time to look around for a vendor with more competitive rates. If those repairs were due to homeowner negligence, you should be going after the homeowner to pay those costs. Some rule changes may also be appropriate - e.g. if you spent more money on pool repairs, it could be because the pool is old or people did stupid things like toss broken bottles in the pool or pee in it. The latter was a problem in our pool, which is one reason we eventually got rid of it. Maybe it's time for people to consider if it's worth keeping certain amenities - they want a pool, they have to be willing to take care of it and pay those costs.

You also said you had more repair bills than anticipated - which areas were hit most often? That could signal you may need to look at some replacement of common area elements, and for that, you'll have to take a good look at reserves. Are you funding reserves according to your most recent reserve study? If your reserve study is over 5 years old, you may have to bite the bullet some more and get an updated study because it'll give you an idea if you're underfunded (most HOAs are) and how much. If people squawk, tell them to reread those stories about Surfside in Florida (underfunding is one reason they got in so much trouble, and sadly we all saw how that ended).

I think Kelly is referring to best practices, not legality. The appropriate reason for a special assessment is for, well, special circumstances that require a one-time chunk of money. Since the OP's problems relate to seemingly permanent increases in their regular monthly operating expenses, the way to handle it is through an increase in regular monthly assessments.

JohnC,
That seems like a large increase IMO. I get it that Management and Landscaping probably make up 60% of your annual budget but doubling that 8% projected increase may raise a few eyebrows. Expect a large crowd at the next meeting. If I were on your board, I would be prepared for the FB Gang and others with lots of numbers and data to justify the major increase.

Interestingly I had a conversation this morning with my PM and asked if they had any plans to increase our charges in 2023 and he said only very minor changes to postal rates and other small changes.

We are looking at budgeting for next year and of course we need to increase our monthly fees to cover increased costs. Many of our homeowners are retirees. One of the arguments we are using to justify our increase (which will be 3.5 to 4%) is that Social Security payments are increasing by 8.9% next year and we are not increasing that much. It only works in communities with a lot of older people.