Creating a budget is essential for the overall health of a Homeowner’s Association (HOA) or condominium association. A well-planned budget allows the community to share priorities, identify necessary operational requirements, and create spending guardrails. It also improves clarity when it comes to decision-making and offers controls when corrective action is required. This is particularly important in unexpected events such as natural disasters or economic fluctuations.

With so much at stake and so many factors to consider, here are some key tips to help ensure a successful budget season:

1. Identify the “who” and the “when”

A community association management firm is responsible for creating the yearly budget in a professionally-managed community, usually in conjunction with the board treasurer or a finance committee. Check your association bylaws for deadlines, requirements and other key dates. Once the budget is completed, make sure to submit it to the board for final approval. Be sure all key players are available and aware of the workflow, expectations, and dates to avoid confusion.

2. Communicate, communicate, communicate

Create a communications plan that is targeted to the residents. Residents should be invited to attend a scheduled budget meeting at least once a year. This is where potential increases will be discussed, and owners can ask questions about the budget. I strongly urge the association to often interact with the residents during budget season, especially if they expect increases. The communication plan should include detailed notes and questions and answers about increases and should always allow room for feedback. One way to interact with owners is by having budget workshops highlighting the process that the committee, or board, is going through to arrive at the final budget numbers. 

3. Stay abreast of new legislation

New condo legislation will require condominium associations in structures three stories and higher to fully fund their reserves based on the Structural Integrity Reserve to maintain the structural integrity of the condominium. All existing condominiums that meet the criteria must do so by December 31, 2024.

For more information on this legislation, check out our YouTube channel. 

4. Remember your reserves

The new legislation will likely impact most association budgets because few have sufficient reserves. In light of recent events, the Florida Structural Integrity Reserve Study features new requirements that many Boards are unsure about. Associations that have voted down reserves for years will likely see a significant impact on their budgets after a review of the study’s requirements. Association will have a tough decision to make in the coming year or so. Those associations that have no reserves at the moment will have to pass a Special Assessment to fully fund the Structural Integrity Reserves or will have to obtain a loan funding such reserves.

If your association has low or no reserves, I recommend setting aside around 10 -15 percent of the total budget this year so you can start the process of putting monies aside for the reserves. Associations have two budget cycles to fix this matter, so it’s essential to start as soon as possible to avoid costlier consequences in the future.

4. Talk to the experts

Seek the advice and expertise of your property management company and/or CPA. These pros have the right insights on potential increases, allowing you to create a more accurate budget.  

5. Make room for staff pay rates and salary increases

The employment market has become very competitive, and you must ensure you take care of your current staff. For example, the minimum wage will be increased to $11 on September 30, 2022, and will increase by $1.00 yearly until it reaches $15.00 per hour. This gradual increase will impact several of your employees, services, and budget.   

6. Review insurance costs

Insurance rates have skyrocketed in 2022, and we don't expect them to come down any time soon. I recommend factoring in an additional 10 – 15 percent increase into your budget for 2023.

7. Contact vendors and other strategic partners   

It's always important to contact your vendors during budget season to understand potential increases. However, this year, it is critical. With gas prices rising, many service providers, such as landscaping and construction companies, are operating at a higher cost. These expenses will be passed on to the consumer. Therefore, you should know what that can look like for your association. 

It's important to know that association budgets are a zero-sum game. When preparing your budgets, you need to have some cushion to protect yourself from increases and even more for factors beyond your control, such as inflation.