We see the news headlines. We feel it at the grocery stores and at the gas pumps. Prices are high. Annual inflation rose to a three-year high of 4.2% in May, which is the highest we have seen in the past 3 years. Prices are increasing across the board on goods and services, and associations are not exempt from these rising costs. Inflation is real and associations need to plan accordingly.

Start Planning Now
Whether your association’s fiscal year aligns with the calendar year or not, your Board should be contemplating your association’s 2027 budget. I’ve been stressing to Board Members for years that “budget season” is a myth, because Boards should be reviewing monthly financial statements against budget figures and continually planning for future years’ budgets through thoughtful short-term and long-term financial planning. That said, for most associations we’re already halfway through the fiscal year, reserve studies are being updated, and we need to start contemplating budget numbers for 2027. As you plan ahead, don’t forget to account for inflation. The reality is that your association’s vendors are also facing rising costs – from gasoline, equipment, and supplies to insurance and overhead – so it is reasonable to expect them to increase their product and service fees to cover the higher costs of doing business.

Be Fiscally Responsible
I recommend planning to increase your budgeted expenses by at least the rate of annual inflation. For the past decade I have heard Board Members boast “…we haven’t raised assessments in X number of years!” To me, that’s not something to celebrate or wear as a “badge of honor.” When a Board Member makes such a statement, what I actually hear is “…we’ve delayed necessary assessment increases despite inflation, potentially shifting today’s financial responsibilities onto future boards and homeowners.” The fiscally responsible approach is to increase your annual operating budget by at least the annual rate of inflation. This ensures your budget keeps up with the rising price of goods and services and that you are responsibly planning for the association’s future.

Exceptions
There are obviously always exceptions to this, as with any advice. If your association’s reserves are 100%+ funded and you’re running an operational surplus consistently month-over-month, then clearly you do not need to worry about increasing your budget to keep up with inflation. If you’re one of these fortunate associations (it’s very rare, so congratulations), then it probably makes sense for you to keep assessments flat year-over-year until you’re no longer running an operating surplus.

Additionally, if your Board feels there are enough expense reduction opportunities, without undermining services, to stay ahead of inflation, then you’re probably okay to keep your budget and assessments flat year-over-year (for now).

Investments Can Help Offset Inflation
To help offset some of the impact of inflation, PMP proactively reviews our association clients’ cash balances, reserve funding levels, and upcoming liquidity needs to identify communities that may benefit from investment options for reserve funds or excess operating monies. When appropriate, your Regional Controller or Community Manager will reach out with information about PMP’s “Choice Banking” platform and potential investment opportunities to help maximize returns while maintaining the liquidity necessary to access funds for planned common area projects. In fact, PMP is one of the only management companies to offer “Choice Banking,” a program developed through our network of banking partners to provide competitive investment solutions designed to seek stronger returns, safeguard principal, streamline reporting, and help maintain full FDIC insurance protections. While returns on association investments are not going to completely offset today’s inflation numbers, they can help mitigate some of its impact in the short term.

Consider Adopting a Multi-Year Plan
While planning ahead to your 2027 budget is commendable, why stop there? I often encourage Board Members to treat the association’s business like a typical for-profit business, creating one, three, and five-year business plans to project for common area reserve maintenance and replacement needs, capital improvement projects, and other anticipated expenses. Are projected reserve savings adequate to meet future common area repair and replacement spending needs or should you increase reserve contributions now? Will a special assessment be necessary, and if so, how much? And have you considered a loan to fund future projects so that you don’t have to deplete reserve funds or wait until special assessments are fully paid to commence projects? Through PMP’s “Choice Banking” platform, we have experts to assist with loan procurement needs and loan options with flexible terms at competitive rates.

For questions related to annual budgets, financial planning, and investment options, please feel free to email Brad Watson, President and CEO of PMP Management at bwatson@pmpmanage.com.