Association Budgeting: It’s That Time of Year! By Sara M. Lassila, CPA, Sara Lassila, CPA, Inc.
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question that comes up from the community association member, especially around budget time, is “why are we paying more per month than the Homeowner Association (HOA) across the street or down the road?” While this seems like a reasonable question, it is usually an “apples and oranges” issue. Rarely are two HOAs identical. Often the person posing this question to the Board does not have all the details, only the bottom line. Should a homeowner ask your board this question, ask them to get a copy of that other HOA’s budget for the Board to consider during the budgeting process. Many factors will account for the differences in assessments between two HOAs — including the number and type of amenities, the age of the property, the level of service, and the level of reserve funding. Two HOAs that appear the same from the outside may be very different inside. One may have a pool, spa, and exercise rooms and one may not. One may be maintaining
its amenities by hiring outside contractors and one may have homeowner volunteers who maintain these amenities. While age of the property may seem like an obvious factor, sometimes it isn’t, because an HOA development may have been built in stages. When this happens, it may have been years between when the first phase and the last phase were completed. Not only is there a difference in the age of the buildings, but there may be significant differences in the types of building materials. Levels of service will come into play if one HOA sets a desired level of service higher than another HOA. An example of this in Minnesota is snow removal. Many HOAs contract for snow removal once a depth of 1.5 or 2 inches has fallen in one snow fall. Recently, I worked with a HOA that contracted to have the snow removed at all times. Of course, their snow removal expense was considerably higher than the others, but that was the desired level of service.
Reserve funding can be very different from one HOA to another, because each one must determine what they are responsible to maintain and how vigorously they will fund for future major repairs and replacements. Depending on this determination, 10 to 40 percent of the total homeowner assessments could be set aside for reserve funding. The Board should be aware of what money is being spent and why. Remember to communicate clearly to the HOA membership the assumptions and methods used to develop the budget to prevent the “apples to oranges” comparisons.
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