Stop! Before Raising Association Fees, Try Cost Containment
You know how important your association’s annual budget is, what it means for the future. You know that your fiduciary responsibility is the most important commitment you make to your fellow homeowners. And you’ve planned, and calculated, and followed all the budgeting steps, but you’re still looking at the one thing NO association board wants to do: increasing assessment fees. But first, 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 get more 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?
Insurance and InvestmentsWhere 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.
“When new clients hire FirstService for professional property management, we immediately look for ways to help generate additional income in the cash management space to optimize the budget,” says Drew Ahrensdorf, vice president at FirstService Financial. “It’s rewarding to deliver tangible value by leveraging our bank relationships and proactively providing solutions to our clients."
Chris Petrik is a general manager for FirstService Residential. “When FirstService Residential took over management of the community, one of the first things that we did was ask Drew Ahrensdorf and Michael Pennisi of FirstService Financial to look over all of the community’s reserve accounts,” Petrik recalls. “They were able to create an easy to understand chart of accounts listing what institution each account was presently in, along with the current amount of interest earned for each account. Our banking team went to work to look for the best rates we could find. Following their recommended account moves generated approximately $18,000 more in interest in year one!”
When did you last have your insurance audited? Are you covered correctly? 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.
“We always begin with a review of the association’s current insurance program,” explains Sean Kent, senior vice president at FirstService Financial, the financial services affiliate of FirstService Residential. “It’s easy to make a determination of whether or not they have adequate coverage and looking for cost savings. We drive a competitive bidding process, through our internal insurance managers or coordinators. We do have exclusive relationships with some carriers and we leverage our relationship with those carriers to deliver better terms and conditions at a lower cost.”
Kent says that sometimes coverage can be consolidated and sometimes FirstService Financial can provide access to insurance products the association couldn’t get before. “We have our own D&O (directors and officers), crime and umbrella insurance products and, depending on their previous claims experience, they may be able to save money there,” he says.
Mark Bailey, vice president at FirstService Residential tells the story of a 170-unit mid-rise condo with a significant flood and claim history. “They were dropped by their current insurance carrier this year,” he says. “Their local broker went onto the secondary insurance market and found a quote for $120,000 for the commercial liability package, a $70,000 increase in the association’s annual premium! We worked with FirstService Financial and were able to secure a policy package that cost $1,000 less than the previous annual premium. By leveraging the power of FirstService Financial, the client was saved a potential $70,000 annual expense.”
Vendor Contract ReviewDo you review your vendor contracts on a regular basis or renew them automatically? Does your management company review them? 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.
“When initially looking at all the contracts that were in place at the condo, I decided to meet with each individual vendor to set up clear expectations from the beginning. One thing I noticed right away is that the association had multiple vendors for fire-related items: one vendor for fire extinguisher inspections, another vendor for fire monitoring, another for fire sprinkler maintenance and yet another for the maintenance of the fire pump,” Petrik explains. “We were spending $27,000 annually for these services. I researched to see if I could find companies that could give us everything we needed under one roof and ultimately ended up with a company that is used by other FirstService Residential managed properties. The expenses dropped to $14,000 a year!”
EnergyHow 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 for your community.
“I oversaw an energy efficiency lighting upgrade that was fully funded by a 1-year, no interest loan, rebates and reduced energy consumption costs. The project involved updating exterior lighting to LED and installing smart lights in the common areas and parking garages,” Sean Jordan, director of property management for FirstService Residential recalls. “About 75% percent of the project was covered by energy program rebates and the remainder was paid for in thirteen months by the energy savings. This location has saved, on average, $7,400 a year in consumption costs and while spending nothing on material or repairs for the last 5 years.” That’s a significant amount for any association over time.
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 we can team up with your association to save you money on insurance, financial services, energy and more, sign up today!