Ignoring the Impact of Inflation Can Be Disastrous to Your Community Association Budget

Some of us are old enough to remember the oil crisis and the resulting inflation here in the U.S. in the 1970s. Gas prices soared and soon after so did most goods and services.

While we haven’t had a repeat of that disaster in the past four decades, we are facing a new challenge as we finish up 2021 and head into 2022. There is a substantial rise in consumer prices as indicated by the Consumer Price Index (CPI), which hit 4.2% in April of this year. Many Boards and managers of HOAs, cooperatives and condominium associations haven’t had the uncomfortable experience of running out of money during the fiscal year because of inflation.  That may be about to change if you do not plan accordingly in your community association budget.

Inflation is real and it is here. Ignoring its consequences could be disastrous.

Is Your Community Association Ready?

Inflation is real and it is here. Ignoring its consequences can be disastrous for your condominium, cooperative or HOA.

If the CPI remains high for the rest of the year and into 2022, what are the ramifications for community associations? How will condominiums and HOAs manage their money when the money just isn’t going as far as they predicted it would a year ago when they last prepared their budgets? What if soaring prices for goods and services force homeowners to decide between paying their fees and assessments and putting food on their table? What if there is a spike in delinquencies due to inflation eating up owners’ wages?

Is your community association ready?

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Adjust for inflation in Your Budget

Preparing the annual budget takes forecasting expertise and lots of historical data to accurately predict the upcoming year’s expenses. Some items are fairly constant and some are in flux by their very nature. Most associations have seen spikes in their insurance costs and have adjusted their budgets accordingly.

In adjusting for the cost of living, in recent years, a 1% or 2% increase to other line items was in line with inflation. This year, the budget may need adjusting far beyond that as the CPI is already at 4.2%. If the budget is prepared using a 1% increase, the budget will likely be deficient by more than 3% by the end of next year. That is a plan for failure.

If a community normally experiences a 3% to 5% delinquency rate, which is not uncommon, the budget can be prepared with that expectation. However, if inflation causes an upward spike in delinquencies, the association’s cash flow could be severely impacted, adding damage to the already fragile budget.

Inflation 2a

Other Ways You Can Prepare

If your community association doesn’t already have a Uniform Collections Policy in place, now is the perfect time to adopt one. The community will struggle with an underfunded budget to begin with. It cannot operate without all of the common fees it is anticipating being collected. Axela Technologies can help you prepare a Uniform Collections Policy now so that your community is ready when delinquencies inevitably increase.

If you haven’t already seen the negative impact on your budget from inflation, I have no doubt that you soon will. If you haven’t already experienced an increase in delinquencies within your association caused by inflation, you very likely soon will. This isn’t the time to ignore either problem. Act now and secure fiscal peace of mind for your condominium association, cooperative, or HOA. Axela Technologies can help. Axela Technologies handles all collections on a merit-based system. When we collect, the association gets every penny owed to the condominium, cooperative, or HOA without costing the good-paying members any additional money. Visit our website at https://www.axela-tech.com today and ask to speak to one of our collections experts to make sure that delinquencies don’t damage your association.

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