Your HOA Budget Is Going Up. Here’s What Your Board Should Be Asking Before Raising Assessments

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For most HOA and condominium board members, budget season comes with an uncomfortable reality: almost everything seems to cost more than it did a few years ago.

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Insurance premiums rise. Landscaping contracts increase. Snow removal gets more expensive. Utility rates change. Aging roofs, roads, fences, mechanical systems and other common elements still need to be maintained.

Eventually, many boards arrive at the same question:

Do we need to raise assessments?

Often, the answer is yes. Keeping assessments artificially low can create much bigger financial problems for a community later.

But before approving an increase, your board should understand exactly why the budget is going up, what can reasonably be challenged, and which expenses may actually be protecting the community from larger costs down the road.

Here are some questions worth asking.

1. What changed from last year?

Start simple.

Instead of looking only at the total proposed budget, compare it line by line against the current year.

Ask:

• Which expenses increased the most?
• Which increases were expected?
• Are there any new expenses?
• Did actual spending last year come in significantly above or below budget?
• Are we budgeting based on real historical costs or simply adding a percentage to last year's numbers?

A $50 increase across several smaller categories may not deserve much attention. A $40,000 jump in insurance, landscaping or repairs probably does.

Your management company should be able to help the board find the largest year-over-year changes and explain what is driving them. A board shouldn't have to decipher a spreadsheet on its own to understand where homeowners' money is going.

2. Has the insurance market changed—or should we be shopping the policy?

Insurance has become one of the biggest budget pressures for community associations.

If your premium increased significantly, don't automatically assume there is a less expensive carrier waiting around the corner. Market conditions, claims history, property age, construction type and coverage requirements can all affect pricing.

But your board should still ask questions.

Was the policy marketed to multiple carriers? Have deductibles changed? Has coverage changed? Are there risk issues the association could address that may make it more attractive to insurers in the future?

The goal isn't simply to find the cheapest policy. It's to understand whether the association is receiving competitive pricing for proper coverage.

It's important that your management partner has a dedicated insurance division focused specifically on reviewing community association coverage, marketing policies to carriers, and helping boards evaluate both premium and coverage options so your board can make a well-informed decision every single year.

To learn more on what questions you should ask before raising assessments, visit our Board Assessment Blog.

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