Dues Increases – No Resident Wants It, But Every Association Needs It
Most Associations have a traditional calendar fiscal year (January-December), which means soon we will be entering budget season for 2023. Back to basics, your operating budget is what sets the “dues” amount that people will pay each month/quarter/year. Each Association is different in what they are responsible for funding, but operating budgets should account for all contracted services (lawn/snow, landscaping, pools, elevators, garbage, management, etc.), utility services (electricity, water/sewer, gas), maintenance issues (exterior or interior repairs), discretionary items (administrative costs, community parties, etc.), insurance, and contributing to the Reserve Fund. Looking back on 2022, there’s no doubt that there were a number of budget busters. Material costs have risen sharply due to raw material shortages over the past two years. For example, paint costs alone have gone up 30% since 2021. Your “touch up” paint job just got more expensive. Labor shortages in many of the trades has caused increased pricing for many service areas. For example, lawn/snow providers have had a hard time staffing and have begun cutting non-profitable clients or making significant adjustments to cover their increased costs in fuel, wage increases to get people to work, increased fertilizer costs, etc. And speaking of fuel costs, check your garbage hauler invoices, you may have been getting surcharges for fuel prices being over $4 per gallon. The insurance market for the multi-family/associations continues to be volatile as Minnesota remains in the top 3 in the nation for claims paid out over the past few years. Experts continue to predict a 15-30% increases for your renewals. The economy and inflation have been all over the news this summer. It’s no surprise to anyone that everything has increased in price. So, keep this in consideration when budgeting for 2023. An even more careful look at your Budget vs Actuals report is imperative as you project your 2022 year-end numbers. A detailed look at your General Ledger should help as you begin realistically budgeting for your 2023 needs to reflect the current economic realities. No one likes to hear it, but the truth is every year dues should go up. Inflation is real. Things don’t get cheaper. To stay fiscally healthy, dues should, at a minimum, go up to reflect inflation. Looking into 2023, you may want to be even more aggressive, considering our current economic climate.
Overcoming Decision Making Paralysis
There is nothing more frustrating for members, managers, and even homeowners, than a Board that is collectively stuck in the muck, having trouble coming to a decision. It is a condition that is all too common. Perhaps it is a complex construction project, a delicate homeowner situation needing resolution, a complicated budget crisis, or maybe it’s the uncertainty that comes with a vendor change. Many things are thrown at Boards, and frequently it is difficult to get to a point where you are ready for the all-important motion to vote. There are three things that may help you as an individual Board member, and as a collective group. Accept that you will never have 100% satisfaction from all stakeholders. Being on the Board means making tough decisions that are best for the Association as a whole. The sooner you can accept that unanimous acceptance is rare, if not impossible, the sooner you can move on to make the necessary decisions and move forward. Similarly, realize that Board consensus can be difficult to achieve, and accept that it’s okay. Naturally, the more complicated the topic, the more likely you are to have varying opinions. It is good to hash it out by considering all angles, thoroughly researching the issue, consulting experts when needed, etc. – but eventually you’ve got to call the vote. Everyone moves to comfort, clarity, and ultimately commitment at different speeds. If a majority is ready to make a decision, then make that a reality. Have a good facilitator in the group. There is nothing more important to group dynamics than for someone to take on the role of task master. Perhaps it is the President acting as the Chairperson. Sometimes it is the Community Manager, a neutral party, who helps facilitate the meeting along. Whoever it may be, a group needs this person. Their primary skill should be recognizing when a debate is over, or just plain unproductive, and then calling the subject to a vote for resolution. All too often decisions get “tabled” for the next meeting. If it gets “tabled” once, you may as well just move on entirely. You’re probably stuck on the two points mentioned above and will always be there. Consider these remedies if decision-making paralysis is plaguing your Board. Decisions should always be made wisely. A lack of action, or too much indecision, could harm your Board and Association as a result.
Welcoming New Residents to the Association
As a new owner buying into an association, you will receive a “Welcome Packet” from Sharper on behalf of the association. This Welcome Packet includes instructions on logging into the webportal, a listing of key contacts such as the Community Manager and Accounting representatives, options and directions on paying dues, etc. As fellow residents, however, you can also do your part helping new owners become accustomed to the neighborhood. Here are a few things you can do to welcome new residents to the association and area: Stop by and introduce yourself. Moving to a new city or neighborhood can be stressful, so your neighbors will be grateful to meet someone from the community. You can exchange contact information if they ever need anything, and you can talk more about the association and its rules. Bring over baked goods. If you’re not the talkative type, just delivering some baked goods or a handwritten note can go a long way. It’s a kind gesture that lets the new residents know that they’re in a nice neighborhood, and they’ll surely enjoy the treats after the move-in process. Make a list of things to do around town. Create a helpful list of some popular spots around town like restaurants, parks, movie theaters, shopping centers, etc. While they can search online for some things to do, it helps to have a recommendation from someone in the neighborhood! Invite them over/hangout in a common area. It’s a kind gesture to invite your new neighbors over for a drink or a meal, ask them to go swim at the pool, or spend some time outside. They’ll be grateful to make connections and friendships. If there are any events happening in the area, it’s nice to invite them as well. Think about what you wanted when you moved in. When you moved in, did you want to make connections and friendships? Could you have used a guide to local happenings? Did you have questions about the association? Essentially, think about what you would have appreciated when you moved in. As always, keep noise to a minimum to create an inviting space for new residents. Sharper Management is a locally owned, mid-sized property management company located in Eden Prairie, MN. We offer a full-suite of premier services to the Minneapolis-St. Paul seven-county area.
Keeping Your Home Safe While on Vacation
Summer is coming to a close, and many families are heading out on vacation or weekend getaways to soak up these last few weeks. When going out of town, it’s important to make sure your home is secure, as burglaries peak during the summer months. Here are some things you can do to keep your home safe while away: Set timers on your lights. Keeping a light on for a few days drives up the energy bill, so use timers to turn on your indoor and outdoor lights. A completely dark home signals to burglars that no one is home. Pause your mail or ask a neighbor to grab it. It’s pretty obvious that you’re not at home when mail starts to pile up on your porch, especially packages. Pause your mail and newspaper deliveries or ask a neighbor to pick them up and hold them for you until you’re back. Bring in any spare keys. If you’ve got a spare key hiding under the doormat, bring it inside or give it to a neighbor for safekeeping. Check that all windows and doors are locked. Double-check that every entrance to your home is locked. You should also lock the door that leads to your garage in case someone does manage to break into it. That way, the inside of your home is still protected. Don’t leave valuables in plain sight. Put away any laptops, gaming consoles, or other expensive items. If someone looks through your window, something valuable will only give them more reason to try and break in. Ask someone to house sit. One of the surest ways to prevent break-ins is to have someone house sit. Burglars are unlikely to try and break in when they know that somebody is home. Arrange lawn care (if not handled by HOA). If you’re going to be gone for an extended period of time, make sure someone will be mowing your lawn. Overgrown grass is another sign that no one has been home for a while. We hope you can relax and enjoy your vacation knowing that your home is protected!
Association Funds: Operating vs Reserve
Since most associations are on a calendar fiscal year, your Board of Directors and Management will soon start working hard to establish your 2023 Operating Budget. This budget, essentially, sets your “dues” – so we thought it would be a timely opportunity to explain the difference between the “operating budget” and funds VS the “replacement reserve” schedule and funds. Operating Budget Each association varies, of course, but an overwhelming majority treats operating and reserve (or capital) funds differently. Your association works within an operating budget to pay for your necessities and recognized amenities. These items are set by your Governing Documents. Common examples include lawn care, landscaping, snow removal, insurance, management services, repairs and maintenance, association covered utilities, amenity costs for pools or other recreation, etc. These are the costs to run your association on a day-to-day basis. This budget makes up your monthly/quarterly/annual assessment – commonly called “dues.” Little known fact – for most associations, did you know that your monthly dues payment is technically called an annual assessment? The common practice is to break it up into 12 equal monthly installments and call them “dues.” But, for most associations, the adopted operating budget and your share of those expenses (be it by ownership percentage in a condo or your equally divided share of the planned community) is legally recognized as a yearly assessment. Reserve Fund The association’s reserve, or capital, fund is essentially the savings account to pay for large replacement projects such as re-roofing, re-siding, concrete and asphalt replacement, etc. Most associations work off of a professionally developed Reserve Study that lays out the plan for which components should be replaced which year, and a funding plan to pay for those replacements. So, how do these funds work together? The reserve fund is contributed to via an expense listed in the operating budget. If the Reserve Study says in 2023 the association should contribute $120,000 to the Reserve Fund, typically each month the association will take $10,000 generated from your dues revenue and deposit into the Reserve Fund account. This is a set line item in the operating budget. It’s a lot like a savings and checking account. You deposit your paycheck into your checking account, which you use to pay your regular bills. It’s your “operating account.” You might also plan an amount each month you send to your savings or retirement account to pay for those big expenses down the road. It’s your “reserve account.” Hopefully this helps to explain two very different funds your association is working with!