Financial Focus: Understanding Annual Budget and Assessments

Every year, when the Board of Directors passes the new annual budget, a common question comes up among owners: “Why do our monthly assessments keep increasing each year?”

It is a completely fair question. As a board, their primary fiduciary responsibility is twofold: to maintain the physical integrity and beauty of your property, and to protect your property values. Achieving this requires balancing a realistic budget against real-world economic pressures.

To provide transparency into where our assessment dollars go, here are the four primary drivers behind recent budget increases.

1. General Inflation & Vendor Costs
Just as the cost of groceries, insurance, and utilities has risen for individual households, it has also risen for our community associations. The contracts we sign for building maintenance, elevator servicing, snow removal, and janitorial supplies have all increased in price over the last few years. To maintain the same level of service without cutting corners, our budget must adjust to meet these rising operational costs.

2. Fuel and Material Surcharges
When you look at our landscaping and waste management (trash removal) contracts, the base pricing is only part of the story. Over the past couple of years, many service industries have stabilized their pricing by implementing mandatory fuel and material surcharges. Because these companies operate large fleets of trucks and heavy machinery, their increased costs at the pump are passed down to their clients, directly impacting our monthly operating expenses.

3. Skyrocketing Property Insurance
The insurance market for multifamily buildings and condominium associations has become incredibly challenging over the last several years, driving up premiums nationwide due to two main factors:

• The “Rebuilding Cost” Surge: Due to inflation and the dramatically higher cost of construction labor and building materials, the actual replacement value of our property has jumped. Because the board is legally and financially required to insure the building for 100% of its current value, we are insuring a much more expensive asset than we were just a few years ago. Higher property values naturally mean higher premiums.
• Fewer Insurance Providers: Many major insurance carriers have scaled back or completely stopped writing policies for condominium associations in our region. With fewer insurance companies competing for our business, the remaining carriers have significantly increased their rates and deductibles.

4. Strict New Federal Reserve Funding Rules (The 15% Rule)
The biggest shift on the horizon comes from federal lending giants Fannie Mae and Freddie Mac, which dictate the rules for conventional mortgages.

To protect aging infrastructure and ensure buildings are financially stable, they have issued a major policy update: Starting with the 2027 budget, condominium associations must allocate a minimum of 15% of their total annual budgeted income directly into their reserve accounts (up from the historical 10% requirement).

Why this matters to you: If our building does not meet this strict 15% reserve allocation, buyers will not be able to secure conventional mortgages to purchase units here, and current owners will find it incredibly difficult to refinance. To ensure our building remains fully compliant and highly marketable, the board must proactively step up our reserve savings over our upcoming budget cycles.

The Bottom Line
Putting more money into reserves isn’t an “expense” in the traditional sense—it is putting money into our community’s savings account. It ensures we have the cash on hand for major future capital repairs (like roofs, facades, and mechanical systems) without having to hit owners with massive, unexpected special assessments down the road.

If you have any questions about the budget or the upcoming federal guidelines, you are always welcome to attend our next open board meeting or to reach out to your property manager.