By Trisha K. Harris, White Bear Ankele Tanaka & Waldron
It’s August, and that means one thing: Budget season is upon us. With budget season comes the age-old question for many boards and managers; Should we raise assessments? Is there any chance we could actually lower assessments this year? There are many factors that go into such budgetary decisions. The following are considerations that go into either choice.
Raise the Roof
- Does your association have deferred maintenance that can no longer go unchecked? If so, an assessment increase may be inevitable in order to avoid a large special assessment at some point in the future.
- Has your association been lagging in saving reserve funds in line with your reserve study? If so, you may need to consider raising assessments to get your reserve fund caught up to the level recommended by your reserve study.
- Does your association desire to make certain larger-scale improvements, such as adding new playground equipment or upgrading landscaping? If so, it may be prudent to raise assessments to fund such projects over time, rather than imposing a special assessment.
- Is your association consistently busting your budget each year? If so, it may be necessary to take a hard look at your budget line items to determine where budget shortfalls are occurring, and increasing assessments to give the association more breathing room in your contingency line item.
- What is your current delinquency rate? If owners are struggling to pay assessments at the current rate, will an increase in assessments create more collection problems for the association?
- Is owner approval required for an assessment increase? If your community is a post-CCIOA community (meaning it was created on or after July 1, 1992), you must follow the budget ratification process set forth in CCIOA in relation to ratification of your budget and any assessment increases contained in your budget. The same budget ratification process applies to pre-CCIOA communities (those created before July 1, 1992) unless your declaration sets a maximum assessment amount or limits any increase in an annual budget to a specific amount and your proposed assessment is within those limits.
Lower the Bar
- Have your assessments been set higher in recent years to get the association caught up on reserve funding? Are you now caught up? If so, it might be possible to lower assessments, or at least keep them at a steady level.
- Does your association consistently end up with a healthy surplus of operating funds at the end of each year? If so, you may be setting your assessments too high for the actual needs of the association.
- Has your association recently gone out to bid for recurring or continuing services, such as landscape maintenance, management, accounting, or legal? Are there savings that may be gained by negotiating new contracts for such services that could lead to the ability to decrease assessments?
- If assessments are lowered, consider how that might impact, from a political perspective, any future increases that may be necessary in the future.
Decisions about the rate of assessments, especially when an assessment increase is contemplated, are not always easy decisions for a board to make. While it might be tempting for board members, who are also owners who pay assessments, to forgo an assessment increase, or even lower assessments, in the end, the decision must be made based on the good of the entire association. As with any decision, the board needs to make sure it is making the decision in an informed and reasonable manner.
Trisha K. Harris is a senior associate with the law firm of White Bear Ankele Tanaka & Waldron. White Bear Ankele Tanaka & Waldron serves the needs of residential, commercial, and mixed-use projects throughout the State of Colorado, and provides advice and counsel to project developers, property owners, and residents on a wide range of issues. WBA also represents homeowner and commercial associations, as well as metropolitan districts that are responsible for covenant enforcement and design review, operations, and maintenance of common and other public areas, together with required collection activities.