You know the drill. Every year, Boards of HOAs, condominium associations, cooperatives, and other common interest communities review their previous year’s budget and make their best guess at what the upcoming year will bring. For better or for worse, the decisions made at budget time impact the association’s operations throughout the upcoming year. Set aside too little and there may not be enough money at the end of the year for operating expenses. Set aside too much and home and unit owners cry foul that they are being charged too much to sustain the community. Regardless of how well or how poorly your association’s recent budget preparations have been, they haven’t had to contemplate the harsh reality of inflation, the likes of which we haven’t seen in over a decade.
What is inflation? Who tabulates it? What can an association do about it? These are all great questions. The Consumer Price Index (CPI) is the most common tool for determining the relative costs of goods and services in the United State. The U.S. Department of Labor publishes the statistic and it is widely held as the barometer for inflationary trends. When things cost more, year over year, inflation is the likely culprit. For the past five years, the CPI has hovered around 2%. Prior to that it was even less with some years like 2014 and 2015 holding below 1%.
Inflation has almost been a non-factor this past decade for most community associations. Associations may have seen unusual or unexpected increases on certain line items (insurance, for instance) but generally saw their budgets hold steady year after year because inflation was not a problem. That’s all about to change!
The 2021 CPI is broadcast at 5.4% based on the previous 12 months. The new figures will be out in August and the CPI will most certainly jump. That means, on average, associations should be looking at each of their line items and adjusting for inflation or run the risk of seriously underbudgeting. This isn’t speculation. This is inflation rearing its ugly head in a way we haven’t seen for a long time. To pretend it isn’t happening or to fail to prepare is a formula for disaster for any HOA, condominium, cooperative or other common interest community.
What is going to cost more? Honestly, just about everything will be inflated. Repairs and maintenance items will certainly cost more. Fuel and everything associated with fuel will cost more. Insurance costs are likely to rise. There just isn’t any point in avoiding the inevitable. Your budget will have to reflect the coming inflationary trends or your association will suffer.
How long will this inflationary trend last? Experts are split but there is no doubt it will be with us for the 2021-2022 association year. Perhaps 2022-2023 as well. Community Associations Institute (CAI) has some great resources in their bookstore that are definitely worth checking out. Visit CAI Press at https://cai.caionline.org/eweb/DynamicPage.aspx?site=CAI&WebCode=storeHome and search for “budget”.
Community Financials is no stranger to helping associations prepare a reliable budget. If your association is looking for expert guidance as it prepares the upcoming year’s budget, we can help. Get in touch with Community Financials today and let’s talk about your budget and where inflation is most likely to strike. We’ll help you prepare a budget that is honest and addresses the very real problem created by inflation.