Inflation in the United States has reached one of its highest levels in years. In light of this, HOAs and condos may need to pivot by adjusting the year-to-date budget, increasing assessment rates or levying special assessments.
According to CNBC, as of July 12, 2022, inflation in the United States reached a staggering 9.1%. Citizens throughout the United States are experiencing steep price increases in almost every aspect of their daily lives. For example, grocery bills have gone up significantly and the price of gasoline has almost doubled.
Businesses such as planned communities and condominiums are also affected by the high rate of inflation:
- the cost of goods, services, and utility bills has increased;
- supply chain delays are resulting in necessary products not being readily available (ex: chlorine for pools, overseeding materials).
- salaries are being driven higher and higher due to labor shortages;
- it is often difficult to find independent contractors to perform work in associations for large and small construction and maintenance projects; and
- owners are not paying assessments in a timely manner (which has resulted in a shortfall in revenue).
HOAs and condos are facing a severe crisis as a result of inflation; some associations don’t have enough money to pay their expenses. If your association is faced with an alarming shortfall in revenue for 2022, please reach out to our firm to discuss options and a strategy for moving forward in 2022. Some ideas to immediately assist the Association are obtaining a loan from a bank, borrowing money from the association’s reserve account (this would need to be repaid in the future), increasing the regular assessment rate, levying a special assessment, and/or deferring a planned maintenance or a construction project to the future.
In these situations, associations must be cautious not to increase homeowner fees blindly, nor to cut amenities that are important to homeowners. Additionally, associations should refrain from deferring projects to the future since according to the Community Association Institute’s (CAI) recent inflation seminar, deferring a project to the future could actually cost the HOA or condo 30% more in the future.
Most associations will be starting the budgeting process for 2023 this summer. Our firm recommends that associations carefully review our Cheat Sheet on budgeting to help the association properly plan for the expected revenue increases that will be needed in 2023. Further, if your association plans to increase its assessment rate or levy a special assessment, please consult with our law firm to ensure that your association follows the necessary requirements of your association’s CC&Rs.
There are some silver linings to inflation according to the CAI’s recent seminar on inflation. Inflation has created a higher rate of interest return on Certificates of Deposit. If your association has money in CD’s the board should shop around to get the best rates from an FDIC insured bank.
If you have any questions, please contact Beth Mulcahy, Esq. at email@example.com.