In this time of pandemic-related layoffs and salary cuts, HOAs and Community Associations should not be mistaken. The number of delinquent fee payments is likely to rise. Now’s the time for property managers and board members to proactively assess expenses and trim budgets. Review major expense items carefully for financial success during and after the COVID-19 crisis.
Consider these suggestions for honing your budget before spending:
Even fixed costs can be cut. Insurance is often a major HOA expense. While you need to make sure the HOA carries liability, Directors & Officers, theft, and cyber insurance, you don’t have to overpay. Assess each policy. You might be able to adjust coverages or deductibles in order to reduce premiums. Don’t be afraid to ask for a rate reduction. As with other vendors, insurance agents may be able to negotiate. If all or several policies are with the same insurance carrier, ask for a multiple-policy discount. If the HOA has not shopped around for a while, ask your HOA-experienced agent to get competitive bids.
Tell vendors what a cut means to you. Talk to your other service providers, like landscapers, pool managers, and even property management companies. Is there anything they can do to help out, even temporarily? Look at quantity cuts where possible, not quality. If landscapers are coming twice a week, consider “cutting” service to three times monthly. Many pools will open later this year, and will most likely have controlled access due to the pandemic. Can the contract be trimmed now in exchange for expanded coverage later. As mentioned above, seek competitive bids for any contracts up for renewal.
Redundancies? Review your service contracts and invoices carefully. You might have two vendors who are performing virtually the same service, or you’re being charged for services no longer used. Think about overlapping maintenance, extra cable boxes, and unused phone lines. These unnecessary expenses can add up over time.
If there’s any doubt… Delay or cancel construction and repair projects that aren’t immediately necessary or won’t negatively impact the community. A roof may have to be repaired, but refurbishing the clubhouse could probably be delayed for a while. Even if the HOA has already signed a construction contract, it never hurts to ask for at least a postponement. Since everything has gone astray, you may find contractors more flexible than in the past. Get changes in writing and make sure the HOA board has approved all. If you haven’t signed, you may find vendors are willing to take substantial concessions to move forward.
Don’t throw all discretionary spending away. Instead of printed communications, like a monthly newsletter or a directory, move communications to email or the HOA website. You can always return to paper (and postage) when finances improve. Use texts and email for more urgent messages instead of mailbox fliers. Evaluate whether you should cancel or postpone summer events. Even if common areas and pools are scheduled to open by Memorial Day or July Fourth, for example, postponing or altering celebrations might be best from both a safety and financial standpoint.
You can’t cut all costs. During the pandemic, cleaning expenses are likely to rise. Common areas will now have to be sanitized more frequently, even twice daily. You might want to install hand sanitizing stations or provide sanitizer throughout. Focus on the safety of your homeowners, but don’t ignore costs while doing so.
Should you let go of reserve fund contributions? This is perhaps the most controversial budget item to reduce or cut. Unless the reserve account is over-funded (we see this fairly often) don’t do it unless absolutely necessary for the community’s survival. Cuts you make to normal reserve fund contributions will come back to haunt you later.
Once you have it all worked out, communicate. Throughout this process, be transparent and keep the community updated on budget changes, as well as their timing. Residents are more likely to accept budget cuts they understand. Be open to homeowner suggestions as well.
You can’t cut or reduce all expenses. But a careful review should reveal ways to trim costs so the HOA can offset any delinquent fee revenue. Please feel free to contact me if you need help reviewing expenses or have questions about the financial health of your community.
~ Neal Bach, CPA