The annual inflation rate for the United States is 8.5% according to the most recent data from the United States Bureau of Labor Statistics. What you may not be aware of is that inflation locally has been substantially higher – 10.7% - based on the Bureau of Labor Statistics reports for the West Palm, Fort Lauderdale and Miami metro areas.
Inflation is creating big problems for consumers and community associations alike. Almost every community association vendor has had to increase their costs to keep up with inflation, including landscapers, property management companies, pool maintenance companies, roofing companies and painting companies. These vendor increases mean communities will need to increase their dues to offset the new costs or consider cutting service levels.
Inflation is also wiping out community associations’ surpluses particularly in condominiums where insurance renewals came in later in the year dramatically higher than expected. As community associations have watched their costs increase, many will not have a surplus this year, but rather a deficit.
The surplus is typically set aside for special projects that may come up preventing the need for a special assessment, it can be allocated to the reserve fund to be used for the long-term or deferred maintenance and replacement of any assets that the association is responsible for maintaining or it may be used to reduce the assessments in the upcoming budget.
Associations that have wiped out their surplus need to take a hard look at how their cash flow situation is impacted and even consider increasing the budget to build back a healthy surplus to avoid getting into a difficult cash flow situation.
Association auditing firms typically recommend having 2-3 months of operating surplus on hand. This means that at the end of the month/quarter your association should have at least enough cash on hand to pay 2-3 months of bills even if you don’t collect another dollar of assessment income for 2-3 months.
If your association is having issues paying the bills, you are not alone. Click here to read a recent blog post on this.
Throughout the remainder of 2022, we will have a blog post each month discussing this inflation storm and offer tips for your association to ride it out.
