2020 HOA Budget Trends: What Has Changed?

Wednesday August 12, 2020
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From virtual board meetings and events to amenity closures and policy changes, 2020 has been challenging and unpredictable for many community associations and high-rises. 

The question is – are these changes affecting association budgets? More importantly, will these changes have an impact on your budget in the year ahead? 

In our 2020 HOA Budget Survey, board members from across North America weighed in on budget planning and changes in the wake of COVID-19. By looking at these results, associations can gain insights and best practices to apply to their current and future budgets. Read on to see 7 HOA budget trends that have shaped associations and communities in 2020. 

Trend #1: Association budgets remain mostly stable.

While the responses were fairly split, 44% of surveyed board members said that the COVID-19 pandemic has not impacted their association budget. This data indicates that many boards are forward thinking and have adapted well to the challenges. They plan their budgets with the future in mind and have enough operating funds to adjust to emergencies. 

On the other hand, a number of board members (35%) said their budget is being negatively impacted by the COVID-19 pandemic, and nearly a quarter of board members (21%) said they weren’t sure how it would affect their budget. Keep in mind that even if you’ve been negatively affected by COVID-19, this doesn’t necessarily mean you will have issues with your budget going forward. The fact is, emergencies happen. The good news is that you can use this experience as an opportunity to adjust and prepare even better for future challenges. 

Looking ahead: As you and your board plan your budget for 2021, remember that keeping your long-term vision in mind is just as important as dealing with short-term challenges. You can’t predict the future, but you can account for future expenses. Work closely with your manager and management company to ensure you’ve adequately budgeted for emergency expenses. You may also want to use this time to create an emergency preparedness plan.

Trend #2: HOAs are not suspending assessments.

While it’s important to show empathy with residents (particularly during an economic downturn), it is also crucial to know the risks of suspending assessments during a crisis. The good news is that most board members understand that risk – in the 2020 survey, 73% said that they are collecting assessments as they normally do. 

Bobet Bennett-Marshall, senior vice president of financial services at FirstService Residential, said, “Don’t suspend collections, especially in times of trouble. Board members have an obligation to continue to fund and run the association to the best of their ability.” Assessments allow the association to continue paying staff and third-party vendors, keep up essential maintenance and landscaping, maintain amenities and common areas and pay insurance, utilities and attorney fees. 

Looking ahead: As you collect assessments in the months ahead, keep in mind that communication (paired with empathy) goes a long way with residents. Always communicate the “why” behind assessments, including funding maintenance, landscaping and capital improvements, which help enhance property values and the resident experience.

Trend #3: Budgeting for capital improvements is still important.

In our 2020 HOA Budget Survey, nearly 60% of board members said they were not delaying or canceling capital improvement projects. Associations continue to invest in important initiatives that will enhance their community and strengthen their reputation in the community at large. 

However, some boards are moderating their spending on capital improvements (28% said they are considering delaying or canceling capital improvement projects that aren’t required by law). Your association may need to temporarily adjust spending on non-mandatory projects or be more conservative with capital improvements, and that’s okay. No matter what you decide to do, transparency with your community is key.  

Looking ahead: Sit down with your association manager to review current and upcoming capital improvement projects. (To see more best practices on categorizing capital improvement projects, watch the webinar, Post-Crisis Reserve Funds and Cash Management.) Even if you need to temporarily dial back on larger projects (e.g., a full gym remodel or golf course renovation), make sure you build capital improvements into your budget going forward. They are key to sustaining your reputation and property values.

Trend #4: Boards want to optimize their budgets (especially with utilities, landscaping and preventive maintenance).

Half of all board members surveyed said they are looking for ways to optimize their budget in the coming year, particularly in the areas of energy and utilities (41%), landscaping (33%), preventive maintenance (32%) and insurance (32%). Proactive boards consistently look for value in their budget, no matter what is occurring externally. In good times and in a crisis, maximizing the value of your budget is key to a healthy association.

A great management company will help you find value in your current budget by assessing line items on a regular basis. For example, one association that transitioned to FirstService Residential had been paying ongoing costs related to plumbing repairs and maintenance. After the management team performed an in-depth cost analysis, the board realized they would continue to bleed money if they didn’t undergo a full re-pipe. The association obtained a loan and took a special assessment to pay for the repairs, which allowed them to increase their reserve fund percentages over the 5 years that followed.  

Looking ahead: Whether your association is operating in an economic downturn or in a stable environment, find ways to optimize your budget. For a full list of recommendations on utilities, landscaping, maintenance and more, fill out the form on this page to get the 2020 Budget Survey Results.

Trend #5: Associations continue to be focused on the big picture (with one caveat).  

Most boards understand that even when an unexpected crisis occurs, the vision and budget goals remain the same. To that end, when asked about their most important budgeting priority, 45% of board members said that they want to make sure assessments support their community’s vision, and 37% said they want to use their budget to stay relevant and plan for unexpected expenses in the future.

While long-term planning was the primary focus of boards, there was one caveat. 47% of board members also said that keeping assessments at the current level was a priority. Some boards want to avoid raising assessments so that they don’t look like the “bad guy,” but incremental increases to assessments can be vital to your HOA’s health. The key is to share the “why” behind assessment increases (e.g., rising utility costs, continued improvements, etc.).

Looking ahead: A highly aligned board will be more adept at pivoting and making changes with the big picture and the best interest of the community in mind. To learn more about the importance of board alignment, read the article, Is HOA Alignment a Unicorn? 3 Boards Share What It Takes.
  

Trend #6: Spending priorities differ, depending on the type of association.

Does landscaping still make up the biggest portion of association budgets? In most cases, yes. In fact, nearly 50% of all board members surveyed said that taking care of landscape is the biggest cost for them. 

However, that percentage can change depending on the type of association. For instance, in a breakout of self-managed association board members versus all association board members, 67% of individuals who are part of self-managed or contracted communities said that staffing costs (including wages and benefits) make up the biggest chunk of their budget (that’s compared with 35% for all surveyed board members). Every HOA is different, but make sure that you’re handling staffing costs appropriately and investing into capital improvements and landscaping, which also help enhance property values.

Looking ahead: As you’re planning your 2021 budget, take the time to review your budget in detail with your manager and management company. This is a great time to see areas you may want to optimize in terms of value (see trend #4) or opportunities for investment. 

Trend #7: Board members continue to have a great grasp on budget knowledge (but confidence has dropped).

Most surveyed board members said that their HOA budget knowledge is excellent or good overall. But that number has changed a bit year over year. In 2019, 53% of board members rated their comfort level as excellent, while in 2020, less than 40% said they have an outstanding handle on financials. 

The good news is that you don’t need to know everything about their budget and financials or the economy at large to have a healthy association, but it’s important to surround yourself with people that do. In fact, 31% of surveyed board members said they were somewhat concerned about the quality or quantity of information they were getting from their management company.

Looking ahead: Make sure that your manager and management company provides you with timely and accurate information to help you plan your budget for 2021. Work closely with them to ensure that they have access to financial services partners, experienced managers and budget resources to help you build a budget that will position you for success.

 

Disclaimer: This article is provided for information purposes only and does not constitute legal advice.

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Wednesday August 12, 2020