One of the essential duties of the HOA board is to review the annual budget and make adjustments when necessary. Unfortunately, not every budget will have enough wiggle room especially when it comes to operating expenses. The good news, however, is that there are other measures that can help trim your budget to more manageable levels. Here are 7 ways to reduce the HOA budget.
What Are the Best Ways to Reduce the HOA Budget?
An HOA board needs money to properly manage the community. If the budget is tight, they may consider raising the homeowners’ monthly dues. However, this can easily lead to widespread community dissatisfaction. Instead, consider these measures to reduce the HOA budget.
1. Review Your Insurance Policy
Insurance is one of the largest expenses in any association budget. An insurance policy is necessary though, as it protects your community assets and residents. It’s important to have a well-rounded policy with good coverage — but that doesn’t mean that it has to be expensive. The landscape of insurance is always changing, so prices don’t stay the same throughout the years. They rise and fall in accordance with the insurance world.
If you want to reduce HOA costs, review your insurance policy regularly or annually. It’s possible that you may be paying more on premiums or deductibles than you need. Consult with your insurance company if it’s possible to lower insurance costs. You can also get insurance quotes from other companies and use that to renegotiate with your insurance company. It’s completely feasible to get suitable coverage at reasonable rates, but it won’t happen on your own. When looking over your budget, always make it a point to review the association’s current insurance policy and prices.
2. Outsource Back-Office Duties
An HOA board cannot manage a community by itself. They will need to hire employees and contractors to perform specific duties for the association such as administrative work, financial management, landscaping, and preventive maintenance. These services, of course, have their respective costs. If you have a larger community, these costs can easily pile up.
If you want to reduce your HOA budget, you can choose to outsource the back-office duties. Hiring one company to remotely handle some or all of the board’s back-office responsibilities can be an effective budget-trimming technique. A management company like Clark Simson Miller can handle vendor contracts, reserve funds, HOA fee collection, and much more. By placing all these responsibilities under one roof, HOAs can save a lot in their annual budget.
3. Analyze Utility Costs
Another effective solution for reducing HOA costs is to analyze your utility expenses — particularly your electric and water bills. Are these figures getting too large? Do you notice any discrepancies regarding usage in common areas versus separate interests? Day versus night? It’s important to analyze your usage in common areas as well as individual units.
If your electric costs are getting too high, you can implement an energy-efficient strategy. Something as simple as replacing old lightbulbs with LED lighting can save the association a lot of money by the year’s end. You can also invest in smart technologies such as motion-sensing switches that turn off the lights when the common areas are unoccupied. Regularly maintaining insulation systems can also reduce energy costs from the HVAC.
Meanwhile, to save on water costs, the HOA can invest in a smart irrigation system that uses less water. These technologies may have upfront costs, but they will save your association money in the long run. There are a lot of energy-saving techniques that don’t require money. For example, simply monitoring the weather and adjusting your watering schedule can also help reduce costs.
Keep in mind that members of the community are responsible for managing utility costs as well. The board can host seminars on how to save electricity and water. You can also include energy-saving tips in the newsletter. The association can also implement rules such as turning the lights off when members leave the room. This is a much better solution than raising HOA dues. Board members should speak to homeowners and make them aware of rising utility costs.
4. Negotiate Vendor Contracts
Board members manage the community, but it’s the vendors or contractors who perform duties such as mowing lawns and installing new windows in community areas. Unfortunately, some of these vendor contracts can cost the association more than they can budget for. If you want to reduce the HOA budget, review vendor contracts before they expire at the end of each year.
Consult with the vendors to find ways to lower the prices. That might mean that the landscapers come once a week rather than twice, but if these measures can save the budget then they’re worth considering. Also, don’t forget that it’s a competitive market and most vendors will offer lower pricing if they think you’ll look elsewhere.
If contract negotiation doesn’t work out, you can consider bids from other contractors that offer lower prices. You might find a landscaper that will accomplish the same work at a lower monthly cost. Just make sure that you are not sacrificing the quality of service for lower costs. You can always ask HOA management for a list of trusted vendors or contractors.
5. Reschedule Non-Essential Community Projects
When cutting HOA budgets, associations have to decide which community projects are essential and which ones can be postponed for the next 1 to 2 years. For example, roof leaks in common areas need to be urgently repaired — especially if it’s the rainy season. However, the refurbishing project can be rescheduled if the money is really tight.
As long as the current aesthetics are not significantly affecting property values, it’s possible to postpone some of the projects in your pipeline. If this becomes an issue with the homeowners, just take the time to talk to them. The board should explain that this is a good way to reduce the HOA budget and avoid having to raise HOA dues.
6. Temporarily Reduce Reserve Fund Contributions
Ideally, HOAs should ensure that their reserve fund is continuously and adequately funded. This cost-cutting measure is only suitable for associations that have a fully funded reserve fund. An updated reserve study will indicate the amount needed for the reserve fund based on the condition of your assets.
While it’s not advisable to dip into your reserves to cover operational expenses, the HOA can consider temporarily reducing the reserve fund contributions. The amount can instead be spent on maintenance costs and expenses. However, once the community is more financially stable, you should revert the reserve fund contributions to the original amount.
7. Inspect Budget for Anomalies or Redundancies
Communities who are in financial distress should also make it a point to review the HOA budget. Poor financial management may be the reason for some of the problems. There may be some anomalies or redundancies that are draining your HOA’s budget. For example, it’s possible that you have two separate vendors performing nearly identical services. It’s also possible that items in the HOA budget are being repeated. These issues can create liability for the board.
If the board does not have experience and expertise when dealing with money, it’s better to seek a financial management service that can handle tasks such as accounting and bookkeeping. This is another measure that will help save the HOA money in the long run.
4 Tips to Keep in Mind When You Reduce the HOA Budget
Reducing the HOA budget is sometimes easier said than done. If you want to reduce the HOA budget properly, here are some tips to keep in mind.
1. Always be strategic when making cost-cutting decisions.
You don’t have to implement all these changes at once. Fixing the HOA budget won’t happen overnight. Try to see which cost-cutting measure will be the most effective. Start there, then you can gradually move on to the other budget-trimming techniques. Being slow but strategic prevents you from making drastic measures that will significantly impact the community.
2. Remember that the community’s needs are the most important.
The main goal of the HOA is to maintain community property and protect the well-being of the residents. You don’t want to adjust the budget to the point that it already adversely impacts the members of the community. It’s possible to make budget cuts that won’t harm your residents.
3. Review your budget regularly.
HOAs should be meticulous when it comes to all financial transactions. Actively monitoring the budget allows you to act quickly. You’ll be able to implement effective strategies to avoid financial distress. For example, having a strict policy for delinquencies can help increase the budget without the need for any cost-cutting measure.
4. Talk to the members of the community.
If tough decisions are inevitable, make it a point to talk to the members of the community. Implementing changes right away without proper explanation might result in homeowner dissatisfaction. If homeowners understand why you are doing these budget cuts, they will be more amenable to the changes. They may even have solutions that can help the HOA.
How to Reduce the HOA Budget the Right Way
As you can see, there are many ways to reduce the HOA budget without immediately raising monthly dues. By thoroughly analyzing your annual budget, you will be able to see areas that are more flexible or suitable for cost-cutting measures. This will allow you to reduce the HOA budget without doing significant harm to property values or the well-being of your residents. It’s also good to remember that board members aren’t paid professionals. It can be helpful to hire someone who can efficiently adjust your HOA budget. If you need more information about professional financial management, don’t hesitate to give us a call.