As the 2012 federal legislative fiasco over the debt ceiling—as well as any number of other spending bills proposed since then—demonstrated, balancing a budget can be like pulling teeth. Balancing a condo or HOA community's budget can sometimes seem just as arduous—the task can be incredibly difficult because there are so many moving parts. Making sure that a building or association isn’t wasting money is even harder but budgeting a necessary part of running and managing a building community.
In the case of a condo or an HOA, cutting costs is one sure way to bring a runaway budget under control but cost-cutting comes with, well, costs. Cut too deep, and not only may a board face backlash from residents if services and amenities are reduced, but they may find themselves in an even tougher spot if maintenance issues are left unaddressed and lead to bigger expenses down the road.
There are ways that HOA administrators can reduce waste and save money without neglecting necessary maintenance and services, however—it's just a matter of working smarter and consulting the right professionals.
Boards often react too quickly and don’t make the right decisions. They have to budget and conduct a reserve study or have a strategic plan in mind to account for future expenditures, the pros say. What are some of the ramifications of inadequate reserve planning, and thus inadequate reserve funding? Aside from not being able to complete necessary repair or replacement projects on time—angering many of the unit owners—there are other ramifications. These can include safety issues, lower resale values, mortgage denial to potential buyers, inability of the association to obtain financing, and more.
If there is a serious physical problem that needs to be fixed immediately and the association doesn’t have adequate reserves, it may be forced to borrow funds at higher interest rates than those offered by traditional banks. And if repairs aren’t done in a timely manner, says Mitch Drimmer, vice president of business development at Snap Collections by Association Financial Services, a nationwide collection agency that specializes in community associations, the association may be liable for fines or violations from the town, city or community in which it is located.