Inflation

Hi all,

I'm wondering what associations are doing to stay on top of inflation. Are you planning to raise fees by more than originally planned? Cutting services? Considering a loan?

Our assessments are going up 6.5% in January. No major reductions in services, may have some shifting in spending priorities.

I have created a chart that shows our dues over the years compared to inflation, and second chart comparing our dues to home values. Turns out, our dues were strongly linked to home values (which is irrelevant) and not linked to inflation.

In the future, I am going to propose that we raise dues every year in concert with CPI.

Absolute nonsense. I will never again buy a condo in an HOA and there are a lot of other people like me that feel the same way. I would also never consider buying a SFH in an HOA unless it had zero amenities and even then I don't know if I would. Plenty of people will not buy into an HOA.

Your inability to admit you are wrong is absolutely bizarre and at times is a danger to people that come here looking for advice.

Augustin -

I didn't say that I voted to set dues in accordance with home values. I simply created the chart from 2008 and compared to normalized home values, and found that there was a distinct correlation. I didn't join the Board until 2019.

Personally, I think that relating dues to home values is a rather stupid idea, but it's what others prior to me did.

I plan to promote the idea that we link dues to CPI because that makes sense to me.

Our monthly assessments are going up almost 12%. This is based on expected expenses for next year plus a reasonable amount that it is going to cost us for hurricane clean up and replacement of destroyed items, including landscaping. Our treasurer wanted to keep the increase in line with the SS cost of living adjustment since so many of our owners are retirees, but the rest of the board forced him to do a larger amount since all of our contracts are increasing in price and we have a large road project coming up that will lower our reserve amount.

If we tied our monthly assessment to home values, our reserve fund would be fully funded and we would be swimming in cash. Home prices are not a reliable indicator of anything. This year they are very high. Next year they may be really low. Florida is boom or bust. HOA assessments should not be that volatile.

Final budget meeting here was a couple of days a go, but I didn't heat the exact amount of the increase. It's a lot due in part to inflation. High rise condo. In CA we also needed to raise a few security officers' & custodians' wages to the new minimum wage in our county/state. Also big increases in electricity, insurance, monthly management fee

We placed in our restated CC&Rs that contributions to reserves must match the CPI until our reserves are 100% funded.

I highly recommend tracking the inflation rate with each annual budget. Vendors can change pricing and costs can surge following the passage of a budget at the board level, much less the annual meeting's ratification - that's a fair amount of time.

In this economic climate, pounding vendors on price increases isn't offset by "better deals" elsewhere. Look before you leap.

Our association has always considered inflation, the condition of our reserves, and maintenance costs when setting the assessment. Basically, you have to do what most people do when considering their household budget:

- do as much comparison shopping as you can and make sure you're comparing apples to apples

- consider your current vendors' quality of service - if they've done a good job, you may want to consider keeping them even if the price goes up because you do get what you pay for

- evaluate your collection policies. If you have a problem with delinquencies, that will eat into your operating budget and hurt your ability to find reserves. This means you may need to tweak your policy, evaluate your attorneys' performance (before I left my board, we changed attorneys because we felt he wasn't aggressive enough in collections)

- consider your upcoming projects carefully - you might want a major renovation of the swimming pool, but if you have other needs (e.g. streets that need repaving like yesterday and that's not fast enough), you may have to postpone the swimming pool renovations and fix the streets before someone's care falls into the sinkhole/big-all pothole

- ditto for association insurance - are you able to cover a larger deductible if that drives down the premium a bit?

All of this may very well mean you'll have to raise assessments, possibly beyond what you'd like. Make sure you do that according to your documents and be upfront with the homeowners, explaining why this is necessary. They will likely squawk, but considering the price of everything is up, you have to consider what you're willing to do to keep your home and neighborhood in decent order.

Try to avoid loans unless it's for something vital and your reserve fund isn't enough to cover it. If you have that type of need, you may want to try a special assessment first, which will require homeowner approval, so be prepared for much weeping, gnashing of teeth and lots of cussing. either a loan or special assessment will jock up the assessments anyway, so homeowners have to consider what they're willing to live with and accept responsibility for what may happen if they don't.

My previous HOA would do budgets each year and adjust our assessments accordingly.
They also have a line item labeled miscellaneous to provide a buffer/contingency for delinquent accounts, budget shortfalls, etc.
Typically, they had to raise assessments 4% per year.
That board is limited to 5% increase per year without membership approval.

My current Association has zero common area and zero common amenities.
The Assessment amount is located in the Covenants.
There is zero way to increase assessments without amending the covenants.
Again, zero maintenance requirements = super low assessments.

Dues should be based on anticipated expenses. How on earth can raising them on something not related to your expenses make sense? That is a really, really bad idea.

Some HOAs are only allowed to raise dues in accordance with year-over-year inflation rate with no provisions bulk dues rate increases.

The inflation debate is very interesting because if HOA expenses don't track inflation perfectly, you've over-raised your dues. If the HOA board saves their owners money by not tracking inflation, the HOA must rely on hope that there are no pricing shocks or mid-year vendor moves on pricing due to easily observable market conditions.

I'm not sure there's a wrong answer here except that budget writers should not totally ignore inflation. Risk tolerance is a real budget consideration.

Our homeowners would be very pleased to see that we are fighting inflation by only raising dues 2% when inflation is 8%. This is bad thinking.

The reality is that homeowners should be very scared that we are only raising dues 2% when inflation is 8%. That means that we are accomplishing less in the community in 2023 than we did in 2022 since costs are rising faster than dues.

Our HOA is not exempt from Economics 101.

planting 200 trees to reduce park grass cutting from 2.25 acres to 1 acre.
applying for $10,000 city grant. applying for $5000 beautification grant, and we just fired our landscaper who blatantly lied and said the contract allowed them to increase rates 15% when the contract clearly states 3% increase per year. If they would of asked nicely and said due to the crazy inflation, probably would of kept them. instead they just said here is your new rate and when we said why aren't you following the contract they made up some total BS that was insulting our intelligence.

No, our governing documents don't discuss setting dues, inflation, or estimating costs. That's on the Board.

We have a fairly extensive process that I have developed for setting dues, and I'm rather proud of it. Here it goes:

In June, we contact our big vendors (landscaper, property management company) and request that they provide the cost for their service for the next fiscal year (Jan 1 to Dec 31) by September 1st. We don't need contracts, but just need to know the costs. At the same time, we as a Board look at any special projects that we might have for the next year, and work with vendors to get estimates on that.

Then the Treasurer uses that information to put together a preliminary budget for the next fiscal year. We review that at the September meeting and offer comments as a Board. We discuss whether we are happy with the proposed dues or whether we want them to go up or down the next year.

Then based on our discussion, the Treasurer reworks the budget with what we think the dues should be in September. We present the budget to the Board as a whole again at our October meeting, and approve the budget at that time.

Then we call the budget ratification meeting, which is in November. The homeowners have the opportunity to vote down the budget if they choose, but the standards are a bit high and it would be unfathomable that a budget ever failed the budget ratification meeting.

Finally, coupons are sent out to homeowners in December and dues are due starting January 1st.

Honestly, despite the commentary here, I think our HOA is one of the better run HOAs in our area...we are pretty on top of things right now.

That sounds like the process I proposed, and nothing at all like simply raising fees an arbitrary amount because of the national inflation rate.

Per our 40 year old CCR's, we are limited to the CPI as of the previous Dec. This year it's 7%. Have actually been asked when the CPI goes down, it did a few years ago, if there will be a reduction. Our maintenance costs outside of contracts have gone through the roof. Including those that are labor only. Our reserves are funded at less than 15%. We have new roofs and new railings. Biggest expense will be digging up and redoing the parking lot. Doing a $100,000 reserve assessment this year. Last year we did $72,000 with our attorney's blessings. They interpreted the CCR's that a Reserve Assessment might or might not fly if we were sued. Most in our HOA don't have the funds to consult an attorney, so we are taking our chances.

I will think long and hard to ever buy in an HOA again after my 9 years on our board. I'm thinking piece of land, out in the country, even if I have to, and can, put an RV on it. Counting down 2 years until retirement. Not staying here.

Just know what you want and be willing to live where you find it.

We must have looked at over 500 homes in 5 different States before we found one we liked and our offer was accepted.
Everyone we made an offer on I made contingent on reading the Associations governing docs.
There were many that my wife liked and I said no to after I read the documents.

Heck, in one Association, the Board was allowed to waive compliance with the covenants. Easy to see the writing on that wall.

In many, the streets were too narrow and many were using the garage as storage - seeing parking restrictions in the future for those.

In one Association, the builder screwed up recording the covenants and every block in the development had their own set. Hence, I could live on one block and have a fence and my neighbor across my back yard could not.

So, use your knowledge and make an informed decision vs. saying no to anything in an HOA.
We found one with zero amenities and zero common area.
There are two entrance monuments that sit on easements where the Association can't even landscape around without the property owners permission. Assessments are essentially fixed because the amount is recorded in the CC&Rs with zero way to increase them without amending the document - not a problem since there is nothing to maintain.

I think my response is:

An actual budget analysis is ideal, but many boards don't have volunteers that do that type of thing. Even if they have 1 board member who does a detailed budget analysis, the remaining board members likely do not and want an easy to digest idea of what to do with dues. Saying "consumer prices went up by 8%, thus, our dues should do. Old dues were $1000 per new, thus, next year should be $1080 per year" is an easy to digest statement that can be made at a board meeting.

So I would say that if you have a person who is willing to do a detailed budget analysis each year, count your blessing and go with what the person recommends. If you do not, stick with the CPI.

In no case should a Board base dues off of home values.

Tim, it's fine. You and I both approach budgeting the same way.

What I'm saying is that if I wasn't on the board, and we had a bunch of real estate agents on the Board instead, we might find assessment change in line with housing prices, which I think is a bad and incorrect way of doing things. (That is how our board used to do things before I joined). The CPI is a far better metric and takes less than 5 minutes to look it up. I would advocate that an unmotivated and lazy board, which describes many HOA boards, might look at CPI and adjust dues based on CPI rather than based on home values or whim. A detailed financial analysis is better, and that is what I do, but it takes work and there is no guarantee that any random set of board volunteers are willing to do that. Since they don't get paid, there is no incentive to do just that.

I say 8% CPI but I seriously doubt that the actual year over year CPI will increase by 8%. I think that is the monthly gain extrapolated out to a full year. I would be surprised if it actually increases by 8%. Historically it's been more like 2%.

No, it is not. For September 2022, for the previous 12 months, the CPI increased 8.2%. See for example https://www.bls.gov/cpi/ and a buzillion other web sites. Your misinformation is a hazard.

Little aside: Reserve funds that, ignoring recent inflation, represent an X% percent funded figure now (with inflation at Y%) denote a percent funded figure that is lower by a factor of

X ÷ (X+Y)

This means that, to achieve the same percent funded figure, HOAs/COAs have to increase their coming reserve contribution by a number possibly much higher than the rate of inflation. This is to address the fact that all the dollars previously put into the reserve account now has lost value, even taking into account interest from money market and recent CD rates.

I assure you that you've reached beyond the limit at which I'm gonna volunteer more brain cells to HOA operations and budgeting. If we track inflation, plan as best possible and keep the grass mowed/pool water wet, and STILL go broke due to the economy...well...that's the breaks.