December 2023 CT

INFLATION: Where Do We Go from Here? By Michael Mezzo, CPA, MBA, WilkinGuttenplan

“The issue that these increased costs pose is that they can deplete an association’s replacement fund.”

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T is the season! By the time you are reading this article, your Association has likely completed the budget process for the 2024 calendar year or may be tying up the final loose ends in the coming weeks. You don’t have to be directly involved in the budget prepara tion to guess the number one challenge facing association Boards in recent years: rising costs. During the initial year of the COVID-19 pandemic, it was thought that the price increases for consumer goods and services would be short lived. A mere blip on the radar. However, it is clear to see that these cost increases are not only here to stay but will likely be on an upward trend for the foreseeable future. Taking a moment to reflect on the most significant impacts of inflation in recent years will help allow boards to stay ahead of these issues in years to come. As many know, most associations utilize a replacement fund, which can be viewed as a long-term savings account, to help save for large capital projects over time. What we have witnessed since the start of the pandemic is that sites have been blindsided by the increased cost of construction

materials. Even the most diligent boards were unable to anticipate just how extreme the cost increases would be. One of the most infamous materials in recent years has been asphalt. Asphalt is commonly used throughout associations for roadways, parking lots, and roofing shingles. Over the past three years, I have worked with multiple boards who found that the actual cost to complete such projects was almost double what was originally anticipated prior to the pandemic. Asphalt is just one out of dozens of examples of construction materials that have seen similar cost increases. The issue that these increased costs pose is that they can deplete an association’s replacement fund. Even if there is sufficient money in the replacement fund to pay for the proj ect, using those funds will cause other projects to become underfunded. The concept of the replacement fund relies heavily on having sound “inputs”. Knowing an accurate cost estimate for your project is step one when developing a long-term saving plan. Even those sites that were fiscally responsible, and saved exactly what they were told to over the useful life of their roads and roofs, still found themselves

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DECEMBER 2023