FEATURE
Budgeting for a Different World By John Beaman, CMCA, AMS, PCAM, LSM
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eveloping an annual budget is one of the primary tasks for a board of directors. Sometimes it can be challenging. We are in one of those challenging periods that affect all associations in the Coachella Valley. The good news for HOAs is the economy is strong; with low inflation. Housing values have been holding steady; with some uptick. Delinquencies and foreclosures are at a manageable level.
THE COACHELLA VALLEY CHALLENGES The principle challenge for boards in developing a budget over the next three years is the mandated increase in the minimum wage. A large percentage of association budgets are tied to landscape maintenance and security, both of which use employees paid at or slightly above the minimum wage. This also holds true for food and beverage staff and often administrative staff. It also affects related services like delivery truck drivers. The minimum wage has already increased 20% over the last four years. Vendors have worked to absorb this as best they can i.e. delaying equipment purchases, slimming down crews, maximizing their resources, etc. They have run out of opportunities to absorb so the 25% minimum wage increase scheduled over the next three years will be passed on to associations. The challenge for associations and vendors is not just raising wages for the minimum wage employees to comply with the law, employers must also address “wage compression.” For 12
Quorum August, 2019
example, if an employee currently makes $3.00/hour more than minimum wage, if you fail to increase wages commensurate with the minimum wage increases, then that employee may be only making say $1.00 more than minimum wage at the end of the three years. You will lose valued employees because they see new hires earning almost the same as them and morale issues will surface. The minimum wage increase challenge is coupled with a highly competitive job market in the Coachella Valley due to low unemployment and a limited supply of some skilled positions, often due to the reluctance to relocate to the Coachella Valley due to our hot summers. To retain good employees and recruit quality new employees, associations and vendors need to keep wages competitive. As if this were not a big enough challenge, aging infrastructure in many of our older communities is becoming a major challenge – especially for those communities without adequately funded reserves. Associations need to work with their reserve specialists to ensure all components are correctly identified and replacement costs valued correctly. Also make sure that association operated hidden infrastructure, such as electrical distribution systems, are identified and included. Rising utility costs will continue to impact the Coachella Valley. The next drought could be right around the corner. Our water rates are significantly lower than many parts of the country so we do not generate much sympathy when we complain about increases. Our large inventory of golf courses that made the Coachella
