Before You Raise Assessments, Review What Your HOA Is Paying to Operate
Every budget season, HOA boards confront a familiar problem. Operating expenses are rising, reserves need more funding, and homeowners are already concerned about another assessment increase.
But before deciding how much more to collect, boards should examine how much they are already spending.
An outdated vendor contract, unnecessary management fees, or recurring repairs that never address the underlying problem can consume money that might otherwise strengthen reserves.
The question is whether the community is getting the best value from every dollar it collects.
Start With What Your Reserves Actually Need
Reserve contributions should not be whatever is left after paying the operating bills. They should be based on what the community’s major components will actually cost to repair or replace over time.
Start with your reserve study. What does it recommend contributing annually? How much is the association currently setting aside? If there is a gap, how large is it?
Then compare that funding target with projected operating expenses and assessment revenue. This gives the board a clearer picture of how much additional funding is needed and whether any of it can come from existing spending.
If the reserve study is more than three years old, consider having it updated before finalizing the 2027 budget, subject to your state’s requirements. Replacement costs, component conditions, and project timelines may have changed since the last inspection.
How the association organizes its reserves also matters. Understanding the differences between pooled and component reserve funding can help boards evaluate how money is allocated for future projects.
The goal is to understand what reserves need before deciding where the rest of the budget can give.
Look at What You Are Paying for Management and Accounting
Management and accounting expenses are worth examining when a board is looking for opportunities to reduce operating costs.
Some associations pay for bundled management services without regularly reviewing whether every component of that arrangement still meets their needs.
Separating accounting from physical management can offer an alternative. Instead of purchasing both functions through one provider, the association can evaluate financial administration and on-site management independently.
Gay Hawkins, board president of Vista de Victoria HOA in Riverside, California, made that shift. She estimates her community is now paying roughly one-third of what it paid under its previous bundled management arrangement.
“We’re trying not to raise our dues,” Gay says. “We don’t want to do that unless we have to. You can use that money for repairs or other things that the community could benefit from.”
Her experience illustrates what can happen when a board reexamines how services are organized and what those services cost.
Accounting requires consistent financial reporting, accurate records, and specialized expertise. Physical management requires attention to property maintenance, vendors, and day-to-day operations. Depending on the community’s needs, having those responsibilities handled separately may offer better value.
The savings will vary by association, and boards must consider the total cost of both functions. But where the numbers work, reducing management overhead can free up dollars for reserves, repairs, or other community priorities.
Fix the Expenses That Keep Coming Back
Not every opportunity to save money involves cutting a service or negotiating a lower price. Sometimes, the most expensive decision is continuing to pay for the same problem.
During an October 2026 Community Associations Institute presentation, I discussed a waterfront community in Stamford, Connecticut, where aging roofs repeatedly caused leaks and interior damage.
The association was spending significant amounts on roof repairs, drywall replacement, and water-damage-related maintenance. But it lacked sufficient reserves for a major roof project and was reluctant to take on the expense.
So the repairs continued, along with the bills.
This is something boards should look for in their own budgets. Are maintenance expenses repeatedly exceeding projections? Is the association paying to repair the same component year after year? Would addressing the underlying problem reduce future operating costs?
A permanent solution may require a larger upfront investment. But continuing to fund temporary repairs can become more expensive over time.
Review recurring maintenance costs alongside the reserve study. Some expenses that appear to be unavoidable operating costs may actually point to capital projects that need a long-term funding plan.
Review Vendor Contracts for Value, Not Just Price
Boards do not need to replace every vendor to find opportunities for savings.
Start with contracts that represent substantial expenses, have not been reviewed recently, or are no longer delivering the expected level of service.
Ask a few straightforward questions:
- Are we receiving all the services included in this contract?
- Has the community’s need for these services changed?
- Are we paying for overlapping responsibilities?
- Are recurring problems being addressed or simply billed again?
- Could another arrangement provide comparable service at a lower total cost?
If a contract is approaching renewal, request updated pricing and consider obtaining competing proposals where appropriate.
Make sure vendors are quoting against the same scope of work. Otherwise, a lower bid might simply reflect fewer services or different specifications.
And remember that the cheapest vendor is not necessarily the best one. Reliable service, responsiveness, and established relationships can prevent additional expenses when something goes wrong.
The goal is to identify where the association can spend more efficiently without sacrificing services that protect the property.
Find the Expenses That Can Wait
When money is tight, boards need to distinguish between essential obligations and improvements that can reasonably be postponed.
During the same CAI presentation, I discussed communities that had budgeted so poorly they were struggling each month to decide which vendors to pay. That is not a sustainable way to operate.
The first priority must be having enough money to cover necessary operating expenses.
Insurance requirements, essential maintenance, utilities, and other contractual obligations cannot simply be ignored to create room for reserves.
But some discretionary projects may be candidates for postponement.
For example, a landscaping enhancement may be desirable without being immediately necessary. A cosmetic improvement might be better scheduled for another budget year.
These decisions should be evaluated individually, considering safety, governing documents, existing commitments, and the long-term consequences of delaying work.
Postponing a nonessential improvement is different from neglecting maintenance. One may preserve financial flexibility; the other can create much larger expenses later.
The key is to recognize problems before they grow. As discussed in our earlier article on what overspending an HOA budget actually leads to, operating shortfalls can eventually result in special assessments, higher dues, or pressure to use reserve funds.
Show Homeowners What You Found
If the board identifies opportunities to reduce operating costs, explain what is changing and how the savings will benefit the association.
If reserves need additional funding, show homeowners the numbers.
A useful budget discussion should explain:
- What the reserve study recommends and what the association currently contributes.
- Which operating expenses have increased.
- Which contracts or services the board reviewed.
- What savings, if any, were identified.
- How those savings will be used.
- Whether an assessment increase is still necessary.
This is particularly important when reserve contributions must increase.
Homeowners may not welcome higher assessments, but a clear explanation helps them understand the financial decisions behind the budget.
And if the board has already examined operating expenses, explored alternatives, and identified potential savings, it can demonstrate that an increase was considered carefully.
A good starting point is to build the 2027 HOA budget from actual spending rather than last year’s budget. That gives boards real numbers to work with when explaining why expenses changed and what adjustments are necessary.
Before You Raise Assessments, Do the Review
Not every association can avoid raising assessments. Some communities face reserve shortfalls and rising operating expenses that cannot be resolved through cost savings alone.
But boards should know that before approving the next increase.
Review the contracts. Examine recurring expenses. Reconsider how management and accounting services are delivered. Identify which improvements can reasonably wait and which repairs cannot.
Then determine how much of the resulting savings can be directed toward reserves.
A dollar saved on an unnecessary operating expense is a dollar that may be available for a roof replacement, paving project, or another future obligation.
The goal is not simply to spend less. It is to make sure the community’s money is going where it will do the most good.
If your board would like help evaluating its accounting costs and exploring whether a different financial management arrangement could provide better value, Community Financials can help you review your options before the 2027 budget is finalized.
Schedule a consultation or call 833-CONDO-HOA.
Important Disclaimer: This post is for educational purposes only and does not constitute legal, tax, or financial advice. Always consult a qualified attorney and CPA for guidance specific to your community.
