By Bob Gourley
I found myself in quite a pickle recently. For the first time since my presidency of the Board of Directors at my condominium association I had to adjust my annual budget proposal to include a new item – “Delinquency”. What is “Delinquency” and why is it a part of the association’s annual budget? More importantly, why isn’t it part of yours?
Over the past two years, I have seen the poor economy strike several of my condominium neighbors. I am sure you have as well. Record unemployment and underemployment (folks not making what they are accustomed to) have led to a record number of late payments of common fees, foreclosures, and underfunding of annual budgets at HOAs in Connecticut and all across the country. The end result can be devastating to a condominium association that counts on its revenue supply in the form of common fees and/or special assessments to pay its bills in timely fashion.
With the new CIOA laws upon us, it has become very clear to me that protecting the association’s assets and levying the appropriate level of common fees is more important now than it has been in years. While reviewing the cash flow of my association, I noticed that in any typical month, roughly 10% of revenues were lagging 30 days or longer. We were paying our bills and residents were ultimately paying their fees and late charges but the 10% number remained consistent from month to month. While I do not doubt that the association is in overall good financial health, I decided it was time to tackle our delinquency issue before it became a crippling disorder.
After taking the usual data into account to prepare the annual budget, I arrived at what would be a typical budget presentation – a Balance Sheet with Expenses on one side and Income on the other. Everything added up so that our Expenses would be covered and our Reserve Fund would receive a healthy contribution to as well. As a Board President, I always find it encouraging to present a balance budget with a planned contribution to the Reserve Fund that doesn’t ask fellow residents to dig too deeply into their wallets.
The big difference this year was that after the balanced budget was presented, I then asked for an increase to common fees to help defray the potential damage that would be brought on if our current level of delinquencies were to increase. I explained to my fellow residents that if such delinquencies were to continue, surely the association would suffer in the form of services not being provided due to the lack of available funds. I offered three choices – do nothing, or increase common fees by 5% or 10%. The vote went in favor of the 5% increase to help offset potential delinquencies. It was not unanimous nor entirely popular, even amongst my fellow Board members.
I am very proud of my condominium association and I am pleased to report that with proper explanation, you, too, can achieve a financial victory in these troubled times. Adding a “Delinquency” line item is long overdue for many associations. All of the industry experts have been warning associations to protect themselves from financial stress. If your association is suffering from routinely delinquent collection of fees, I encourage you to take action immediately. This simple line item is likely to be is just what the doctor ordered when it come to being able to pay your association bills on time without having to present an unpopular special assessment.