Your association board is working on next year’s budget. You know how important the budget is, what it means to the future of your association. You know that your fiduciary responsibility is the most important commitment you make to your fellow homeowners. And you’ve planned, and figured, and followed all the budgeting steps, but you’re still staring at the one thing NO association board wants to do: an increase in assessment fees. Before finalizing that increase, take a long, hard look at cost containment strategies that can save your association money and help optimize your operating budget.
What do we mean by cost containment? Cost containment is maintaining or reducing expense levels to make the most of your association’s budget so you can get the most for your money and hopefully reduce the need for assessment increases. You may be able to save money in budget lines you never considered. What are some of those areas?
How much energy does your association use in common areas? Are you using traditional lightbulbs? Are the lights kept on when no one is using a space? Is your pool or hot tub a few degrees too warm? Are you using the most efficient pool heater for your location and type of property? Is the air conditioning a few degrees too cool? Do your parking garage fans stay on when not needed? Are there areas of your community with excessive outdoor or landscape lighting? All of these are potential places to cut costs.
Some, like changing from traditional lighting to LED lighting, require an upfront investment but pay off that investment very quickly, resulting in long-term savings on energy, maintenance and staffing. Others, like putting light switches on motion detectors so that the lights can’t be left on with no one in the room or changing the temperature of the swimming pool, don’t require much investment to start to see savings.
Skypoint, a high-rise in Tampa, began replacing its lighting with LED in 2016. The first phase of the LED upgrade, which FirstService Residential Vice President Maureen Connolly said was limited to the garage, valet area, loading dock and elevator lobby, saved the association $12,000 in electrical costs in about six months; a second phase included installing high efficiency LED lighting in the hallways resulted in a cleaner, brighter look in the hallways and a decrease in staffing hours and material costs for maintenance. The cost of all installation was recouped in just 13 months, thanks to the related energy savings. Skypoint’s efforts to update and improve lighting earned them the Florida Public Service Commission’s August Triple E Award for Energy Efficiency Efforts, based on projections that the upgrades will save 441,924 kilowatt hours of electricity – about $48,600 per year.
Having the right pool heater can impact your budget as well. Chris Normandeau, director of FS Energy, broke down the costs for both installation and operation of the three most common kinds of pool heating systems for a 3,000-square foot pool in West Palm Beach to 83 degrees Fahrenheit, year-round. As with the LED lighting example, the option with the lowest operating cost is the highest to start up, but you can recoup that investment in lower energy costs very quickly compared to other options.
- Gas Boiler: $24,000 fuel, plus annual maintenance
- Air Source Heat Pump: $7,000 electricity to run plus annual maintenance
- Solar: $1000 to run the pumps plus annual maintenance
- Gas Boiler: $5,000
- Air Source Heat Pump: $12,000
- Solar Thermal: $45,000
Insurance and Investments
Where and how is your reserve fund invested? IS your reserve fund invested? Almost 35% of board members tell us that they are not confident they are getting the best returns on their reserve fund investments. Make sure your money is working as hard as it can for your association. “Through our extensive banking relationships, we are able to offer our associations better rates of return on investments and reduced fees,” says John Lee, vice president of FirstService Financial, the financial services affiliate of FirstService Residential. “We understand how important it is for associations to have investments that are both safe and yield the highest return possible. Reallocation of funds can generate thousands of dollars in returns each year.”
When did you last have your insurance audited? Are you covered correctly? Having the right insurance doesn’t just mean getting the lowest premium. Low premiums often come with high deductibles. It may be in your best interest to pay a little more each month and be better covered in the event of a disaster, or maybe not. Don’t set your policies to auto-renew – every year, work with your broker or agent to assess your coverage and make sure that it is up to date and adequate.
Again, Lee asserts that the depth of resources of FirstService Financial can help his clients get the most for their insurance dollars. “Too many people think that saving on insurance means getting the lowest premium, but a lot more goes into it than that,” he says. “It’s important to take that time every year to make sure you have the right coverage. If something happens, a cheap policy will cost you more than you bargained for.”
Value Engineering and Benchmarking
Do you review your vendor contracts on a regular basis or just let them renew automatically? Does your management company? More than 57% of board members said they are not sure if their management companies take this important step, but this is not the time to take a “set it and forget it” approach. Reviewing your contracts may reveal places you can save money. Or it may show opportunities for your association to get more for the same dollars, perhaps saving elsewhere.
Christian Mora is the manager of procurement and value engineering for FirstService Residential. What is value engineering? “We help associations find or save money, as well as additional value,” he says. “Our professionals will conduct a line-by-line review of your financials, vendor contracts, utilities and operations to identify areas where you can receive better pricing and service from your third-party suppliers.”
Benchmarking, or comparing what communities of similar size and type spend on a number of services, is a powerful tool that tells communities where they stand relative to their peers. It is the second important piece of value engineering, and can only be accomplished by a professional management company of the size to have access to numerous communities to track that data.
So what does the combination of value engineering and benchmarking look like? Imagine an expert sitting down and looking at your landscaping contract in the context of other Florida communities. She realizes that, compared to other properties of your size and type, you are paying 15% more for your landscaping. She then looks more closely at your landscaping contract, line by line. Are you paying for higher-end services? For unnecessary services? Or just being overcharged? That information gives your board and management the leverage to go to that contractor and negotiate better pricing or to find a new contractor who will work within your budgetary requirements.
“It’s amazing how an association can get used to paying for something. Sometimes, all it takes is a phone call to a vendor to see what pricing models they offer to get a better deal,” explains Pamela Caravello, regional director at FirstService Residential. “Contracts need to be evaluated annually so you don’t pay more than you need to.”
All of these things can help your association cut costs and avoid, or at least reduce, the amount of assessment increase you need to implement to meet your association’s budget needs. “I tell associations that it’s better to raise fees, if they need to, by 1% per year,” says Caravello. “It’s a small enough amount to be absorbed and far easier on homeowners than waiting several years and passing a larger increase all at once. Little by little is better.”
We know you don’t want to increase assessment fees for your homeowners. Taking a look at where you can contain costs is a good step toward not having to.
For more information on how a professional property management company can help your association save money on insurance, financial services, energy and more, sign up today!