The COVID-19 Pandemic has had, and will continue to have, a wide ranging impact on the global and domestic economy, which will inevitably trickle down to Arizona residents and Arizona community associations. The extent of the impact will vary from community to community; however, all boards should be thinking about the potential ramifications on the community’s budget and finances.

While some communities may need to address its budget and finances for the 2020 fiscal year (in which case, I strongly urge you to contact my Firm for immediate assistance), this article will primarily focus on budgeting for 2021. As the economy continues to re-open, boards should be closely monitoring trends over the upcoming months, including, but not limited to, the community’s delinquency rate, possible increases in bankruptcy filings and possible increases in trustee’s sales.

The following is a simple 3-step plan to budgeting for 2021 in light of the ongoing pandemic:

  1. Gather as much information as possible to determine how and to what extent the pandemic will impact the Association’s revenue and expenses in 2021. Depending on your community’s amenities, there will be some circumstances where common area maintenance expenses may increase (e.g. increase cleaning and sanitization practices); however, for most communities, the biggest impact will be decreased revenue as a result of increased assessment delinquencies. As such, the budget will need to account for a potential decrease in assessment revenue and plan accordingly;
  2. Review your governing documents and relevant Arizona law to determine the procedure for adopting the budget (e.g. determine whether a homeowner ratification or vote may be necessary); and, in the event that the budget calls for an increased assessment rate, review your governing documents and relevant Arizona law to determine the procedure to increase the assessment rate (e.g., determine whether homeowner approval may be necessary);
  3. Prepare a contingency plan. Step 1 above requires the board to make certain forecasts and estimates, however, a number of factors can lead to inaccuracies in those forecasts and estimates. As such, even a well thought out budget should include a safety net. A few possible contingencies to consider include, but are not necessarily limited to: revising the budget during the 2021 fiscal year; evaluating whether expenses can be decreased during the year to offset any increase in lost revenues; determine whether the Association may be eligible for a loan (e.g. PPD loan, EIDL loan or traditional bank loan); determine whether the Association may be eligible for any form of government assistance (state and/or federal); determine whether the Association has the option of submitting a business interruption claim to its insurer; review the governing documents to determine whether the Association can reallocate funds (e.g. reserve funds) to account for a decrease in revenue).

If your board is interested in further looking into your specific situation and planning ahead for your 2021 budget, please contact Mulcahy Law Firm, PC, for assistance.