3 Ways to Balance an Out-of-Control Budget

Phillip Pope

As a newly minted board president, I was excited to optimize our association's operations and create the sense of community that so many homeowners were asking for. That vision was quickly extinguished when, one week after being elected, I received a call that I needed to come to a meeting to review the financials. It turned out that the community was in an astonishing financial situation: $30,000 of debt had been accrued in eight months. How did that happen?

The first thing we discovered was that the management contract included a variety of extra fees. For example, I discovered a fee was being charged to fold violations, another fee to place the violations in an envelope, and a third fee to seal the envelope; this was on top of postage and printing, and with over 650 violations annually, it added up fast.

The next thing we realized was that 80 percent of our monthly operating budget went towards association-maintained utilities, such as irrigation. We found out there were thirteen main line breaks within the community – so billable water had been running constantly for years underground. Finally, the last thing uncovered in the financials was an enhancement to the community gate systems that cost $30,000 – and it was signed off on while the association was already $15,000 in debt. At this point, community maintenance for which the association was responsible – such as painting and pressure washing of buildings – had not been completed. So it’s understandable that after we were installed as a new board, one of every three owners contacted management every day – and rightfully so.

So how did my fellow board members and I get our budget balanced again? The following steps put us on the path to restoring the association’s financial health.

We reviewed our current financials. Before we took any action on the budget, we wanted to fully understand our financial situation. By reviewing a copy of the budget and all the bills for the last few months, we were able to piece together where all of our money was going, which is how we noticed our disproportionately high water bill and other items that seemed oddly expensive. Then we investigated each line item further by contacting vendors, arranging energy audits and asking questions so we could make positive changes based on information about what was happening and not our own assumptions.
We assessed services for effectiveness. As the board and I scrutinized every line item on the budget, we gathered information about the purpose of each service and how each vendor delivered on those services. With this methodical approach, we found that some services we were paying for weren’t effective. For example, the budget included a security service that couldn’t speak to homeowners or take any action on suspicious behavior; it’s only purpose was to drive around the neighborhood as a deterrent. To us, this wasn’t worth the money we were spending, especially in light of the community’s debt. We cancelled this and other unnecessary services to reduce our spending.
We enforced assessment payments. As it happened, many homeowners weren’t paying assessments, and they also weren’t facing any consequences for it. We worked with our new legal team to resolve these delinquent homeowner accounts and provide consistent enforcement in this area going forward. This step ensured that our budget would be funded now and in the future.

While these three steps helped us make tremendous progress with the budget, homeowners must be involved in helping the association resolve any financial problems. When both the board and the homeowners are invested in the goal of achieving the community’s vision, you can resolve any budget issue and go on to create a successful community.