August Is Budget Season: Why Illinois Associations Should Start Planning Now
If you missed our earlier article, Time for Back Yard BBQs and Budget Review, August may still feel like the middle of summer, but for many Illinois condominium, townhome, and homeowners associations, it is the ideal time for the Board to begin planning next year’s budget. Waiting until October or November can leave a Board scrambling to make important financial decisions, particularly regarding:
- vendor pricing
- insurance costs
- utilities
- reserve contributions
- inflation
For self-managed associations, starting early is especially important. A well-prepared budget should be more than last year’s numbers with a percentage added. It should reflect the actual financial needs of the property and the Association’s plans for the coming year.
Reserve Contributions
One of the first items to review is the Association’s reserve funding. Boards should compare current reserve balances and annual contributions against the Association’s reserve study and anticipated future projects.
Roofs, pavement, siding, mechanical equipment, drainage systems, and other major components eventually require repair or replacement. Reducing reserve contributions may make assessments more attractive in the short term, but chronic underfunding can eventually result in special assessments or deferred maintenance. If the Association has a reserve study, budget season is an excellent time to review and update its recommendations.
Vendor Contracts
Landscaping, snow removal, janitorial services, pond maintenance, elevator service, waste hauling, and other contracts can represent a significant portion of an Association’s operating expenses.
Boards should identify contracts that are expiring or contain automatic increases and determine whether pricing remains competitive. This does not necessarily mean selecting the lowest bidder. Reliability, responsiveness, insurance coverage, scope of work, and familiarity with the property all have value. However, Boards should understand what they are paying for before simply carrying the same number into another year.
Insurance Renewals
Insurance has become one of the most important budget considerations for Illinois associations. Premium increases can significantly affect the overall budget, and Boards should avoid assuming next year’s premium will remain unchanged.
Contact the Association’s insurance professional early. Ask about anticipated premium changes, deductibles, coverage adjustments, property valuations, and potential steps the Association can take to improve its risk profile.
Utility Projections
Electricity, natural gas, water, sewer, and waste expenses should be reviewed using actual historical consumption and recent rates whenever possible. Whether your Association is in Wheaton or Naperville, none are immune to utility increases. Associations should definitely consider known or anticipated municipal utility increases when projecting next year’s costs.
Additionally, compare year-to-date expenses with the prior year and investigate significant changes. Why bother? A large increase in water usage, for example, may indicate leaks or other maintenance problems rather than simply higher rates. In fact, utility bills should be scrutinized at each billing period.
Inflation and Operating Costs
Inflation affects nearly every Association expense, including labor, materials, repairs, professional services, supplies, and contracted services. Simply copying the current budget into next year can create an operating deficit.
Boards should review actual expenses rather than relying exclusively on budgeted numbers. If a category has consistently exceeded its budget during the current year, determine why and adjust the next budget accordingly.
Capital Projects
Budget discussions should also include major projects anticipated over the next several years. Asphalt replacement, roofing, painting, siding, concrete, drainage improvements, and other large expenditures should not appear as financial surprises. Delivery services for dirt, asphalt and many other items are set up in zones, and therefore deliveries to Naperville, for example, based on fuel surcharges or distance will vary year to year, trending upwards.
Determine which projects are necessary, which can reasonably be deferred, how much money is available in reserves, and whether additional funding will be required. Beginning these conversations in August gives the Board time to obtain estimates and make informed decisions.
Remember the Governance Requirements
Budget preparation is also a governance process. Illinois associations should review their governing documents and applicable statutes carefully before adopting the annual budget. Depending on the type of association and the governing law that applies, notice and owner-review requirements can affect the adoption timeline. For many Illinois condominium associations, owners must receive a proposed budget at least 25 days before the Board meeting at which the budget will be adopted, while governing documents or an association's practices may require a longer period, such as 30 days.
Keep in mind, Illinois law also provides owner petition procedures in certain circumstances when a newly adopted budget increases total assessments by more than 15% over the prior year. Because the precise requirements vary by association type and governing documents, Boards should confirm the applicable procedure before establishing their adoption calendar.
Start Early and Avoid the Year-End Rush
Beginning the budgeting process in August provides time to gather information, speak with vendors, review reserve needs, investigate unusual expenses, and make thoughtful decisions.
For self-managed Boards, the goal should not simply be to keep assessments unchanged. The goal is to establish an assessment level that realistically supports the Association’s operations, reserves, maintenance obligations, and long-term financial health.
few hours of careful planning in August can prevent difficult financial decisions in December—and potentially much larger financial problems in the years ahead.
About the Author
Paul is a founding partner of PMI Service Group and has more than 24 years of experience owning and managing investment properties in Illinois and Indiana. Paul manages the Association side of the business today, working with HOA and condominium associations across the Western suburbs of Chicago, including Naperville, as well as commercial properties throughout northern Illinois. His experience includes board governance, reserve planning, construction oversight, capital improvement projects, collections, and Illinois community association operations.
About PMI Service Group
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