Expenses and Dues are Going Up - Part Three

This is the 3rd in a series of 5 association trends in 2023 for Alabama COA and HOA Group | Facebook.

1. More HOAs and COAs nationally, but especially in coastal and resort areas

2. Owners expect better communication from their boards

3. Expenses and dues going up (Are Dues enforceable?)

4. Automation is mandatory

5. Disputes are on the rise

The Consumer Price Index for shelter increased 0.6 percent in March 2023 after rising 0.8 percent in February.[2]  That would be about 8.4% annually if it keeps up.  Other items such as food are higher.  Without going into a lot of statistics, we can all agree costs are going up.  That means Associations can expect to pay more for recurring expenses for landscaping, management and maintenance, and Insurance.  Associations can also expect to pay more for one-time assessment such as road repair, roof replacement, and other periodic maintenance and repair.  So how do you prepare?

Everything is more expensive today: Associations should budget for ~10% inflation for 2023

Many association bylaws limit the increase of annual dues to 5% a year without a vote of all the members/owners.  Associations must create proposed annual budgets, but the instinct is to try to budget within the previous year’s dues collections.  While that feeling is understandable, it will lead to underfunded requirements and that could lead to reduced maintenance and a decrease in property value.  Increasing annual budget line items based on 10% predicted inflation is a hard but necessary step that boards must take to ensure there is enough money to properly maintain their communities.  Budget wisely, and if by some chance there is an overage don’t spend it!  That will be a credit line on next year’s budget because we expect inflation to continue at some level every year.  Build that budget and schedule the owners’ meeting to get it approved before summer.

Don’t push off big projects – They will only get more expensive

While prices for labor and materials are high, you cannot “time the market” and hope the prices will go down faster than the damage is occurring to the property.  Get three estimates, get an expert if necessary, and pull the trigger.  To address an immediate cash flow problem for “roads and bridges,” a one-time special assessment may be necessary.  Your CC&R or Declaration will provide for such, and if it doesn’t your bylaws will.  Read the bylaws and get legal advice if necessary to ensure you comply wit the requirements for this assessment.  Just last week in Jefferson County a COA lost its lawsuit to enforce an assessment against one owner because they failed to follow the requisite corporate formalities for COAs.  So far none of the other owners have jumped on this bandwagon, but it is a scary time for the Board.

There should be no “trimming the fat” in Association budgets

Unlike household budgets, Associations can’t “trim the fat” on their budgets to hold down dues.  (If there was fat, you should have trimmed that already.)   So, Associations must increase revenues.  There are many options in Alabama to create tax-free income for Associations, from vending machines by the pool to charity BINGO, Associations can lawfully supplement dues with extra income—just ensure you follow the laws and no individual member makes any money in any way.

Rule of thumb:  Association costs will go up every year so have a plan to address the increase

Always use a reputable Alabama Lawyer when you are dealing with real property, whether it has an association or not.

Gregory S. Stanley, Esq. 

(205) 451-4196

[1] Homeowners Associations & Property Owners Associations follow the same laws, Condo Associations have their own laws in Alabama, based on what year they were formed.

[2] https://www.bls.gov/news.release/cpi.nr0.htm