Articles

Inflation and its effect on Association Budgets

by Jenny Templin, CMCA, AMS - Neighborhood Management, LLC

As we enter into a post-COVID era, we are faced with the highest inflation rate since 1981.  Sitting at 8.3% in the United States, inflation threatens to bring many Community Association’s Budgets into deficits.  What is inflation anyway, what can Community Associations expect in 2023 and how can they ease the blow?

Inflation is defined as the “general increase in prices and fall in the purchasing value of money.”  The Consumer Price Index (CPI) measures variations in prices for consumer goods and is the parameter by which inflation is measured.  The CPI is a good indicator of how the cost of living is increasing thus giving Community Associations a good idea of the financial changes they need to make in order to keep up with inflation.

Community Associations can expect increases in contracted services.  As the cost of fuel and goods increases, so will the wages that vendors pay their employees.  This will drive their prices up.  Insurance premiums are also forecasted to increase.  With several Budget line items increasing in 2023, dues will inevitably need to rise to match them.  This may cause an Association’s delinquency rate to spike as most homeowners will elect to pay other bills first.  An Association’s Reserve Account will also be affected by inflation as it drives down the purchasing power of the dollar.  Monies in the Reserve Account will not stretch as far in a high-inflation economy.

As we enter into Budget Season in a few short months, keep in mind some things that all Community Association Managers can advise their Board Members of, which will enable them to uphold their fiduciary responsibility to the Association.  Cut costs where feasible.  Obtain estimates for future work in order to create an accurate financial plan.  Give as much warning as possible to your homeowners that their dues will be increasing and offer payment plans as an option.  Postpone or reprioritize outstanding projects. Adopt a collections policy if you haven’t already done so.  Reserve Studies factor in inflation rates.  Obtaining an official Reserve Study will act as a budget blueprint for Community Associations.  Always remember to check your Governing Documents for dues increase limits.  Implementing these tips will help you to assist your Association in being financially successful despite the current high inflation rates.