As annual and quarterly budgets come up for review, HOAs across the state are looking to cut costs anywhere and everywhere they can. But how much more “fat” can be trimmed from budgets that already look stripped to the bone? Happily, there are hidden savings to be found, if you know where to look and are willing to make some changes here and there.
Sweat the Small Stuff
Many times the simplest of cost savings measures are the ones most often overlooked. However these measures can yield some substantial cost savings over the long haul and in the short term.
Case in point: simply using power strips can yield savings of 10 percent per year on energy costs. Likewise, replacing a quarter of the lights in a condominium's high-traffic areas with compact fluorescent or LED bulbs can save double-digit percentages on lighting expenses, according to Ed Corless, who is the vice president of Lifestyle Services for Wentworth Property Group.
“Replacing light bulbs with CFL or LED bulbs can bring significant savings to an association,” he says. “The use of this type of bulb can reduce electricity costs by 60 to 75 percent, and is more environmentally responsible because of the reduction of mercury entering the environment. And from a pure usage point of view, you can save by [installing] lighting controls in areas of the community that are no often used—like closets, bathrooms and storage areas.”
Corless points out other modest measures that can yield savings, such as turning down the thermostat or using weatherstripping to repair drafty windows and doors. Another item that may seem small or inconsequential are legal fees, says David Ferullo, a senior audit partner with The Curchin Group LLC in Red Bank. And he's not talking about the big bucks HOAs may shell out for full-blown lawsuits. "Your legal costs go up in this economy because of collection efforts," he says. "Nobody can do anything about that at this point because of the number of potential foreclosures, but they do need to stay on top of their delinquent receivables for the simple reason that it will cost them a lot in legal fees," he says. Stay on top of it to minimize future losses, he adds.
As fruitful as small savings can ultimately be however, it's important to not get mired in minutia, adds Ferullo. "From my experience," he says, "When you start to nickel-and-dime $25 here or $50 there, I think it can often raise more ill will than savings sometimes—so you may not really be gaining on things like that."
Utilize Your Utilities
"One of my pet things is holding down utility costs," says Bruce Feldman, a CPA and a partner with Feldman Sablosky & Massoni in Jamesburg. "Any way that you can do that, whether it be different energy saving light bulbs, better toilets—anything in that area. Because that to me is just throwing out dollars. You're not getting anything there. If you can do something to hold that ever-rising cost, you've really done something."
Saving on utilities doesn't stop with plug strips and light bulbs, however. Roof and basement insulation both play a key role in regulating a building's temperature and by extension, its utility bills. Knowing how well your insulation is serving you (or not) is the first step in improving its performance—and that can be determined by an energy audit. Energy audits, which most electric companies offer, can prove to be a useful tool to any association seeking energy cost savings. Energy efficiency programs and audits vary from state to state, but they can typically be carried out by an engineer or an HOA's energy provider for a reasonable cost. “There are many companies offering these services in the past few years,” says Corless. “Energy use is a significant part of a community’s budget and always an area of potential savings due to advancements in technology. Proper maintenance of HVAC and other equipment can also lead to cost savings for repair and replacement. These experts always present cost saving opportunities—though an association may have to invest money to save over the long term.”
An energy audit will evaluate insulation levels, as well as the efficiency of heating and cooling systems, lighting, and the general energy use profile of the condominium as a whole. According to experts, implementing the recommendations of an energy auditor can net a condo or association double-digit savings.
Water is another utility that can yield savings if properly assessed. “In fact,” says Corless, “an association should not only review their water usage to determine if they can make it more efficient, but also institute programs to encourage homeowners to save water. Encouraging the installation of low-flow shower heads and faucets is an example. They may also consider waterless urinals and instant hot water systems. And remember; when you're talking about water efficiency, you're talking about energy efficiency as well, because of the energy needed to heat the water.”
Water can also be saved outside individual units and buildings. Landscaping and lawn care are huge users of water resources, according to Corless, and a creative, more long-term approach to saving on irrigation and maintenance expenses is to opt for native or more adaptive, drought-resistant plant species when replacing existing landscaping, or even letting common lawn areas revert back to their natural, pre-landscaped state. Both approaches can reduce or even eliminate the need for costly irrigation and chemicals. That may be asking a lot if your HOA is very attached to its golf course-worthy turf, however. A more palatable move might be improving on an existing irrigation system, installing moisture sensors and automatic sprinkler system. The sensor technology works by determining the already existing water content of soil and shutting off timed sprinklers if water content is high.
There are several major areas where expenses could be lessened, according to Michael A. Mongelli, CPA, and director of real estate industry services at Sax Macy Fromm & Co., PC, in Clifton. One is utility usage, second is examining the condo's real estate taxes; and third, shopping around for the best insurance rates.
A big saver today is installing energy-efficient lighting, Mongelli says. "And when you look at utilities, there's not much you could really do conventionally negotiating with a utility company for how much the rate is," he adds. “Energy-efficient lighting replacing old lighting systems—incandescent bulbs or maybe outdated fluorescent bulbs—are being replaced with things like LED lighting or induction lighting," which uses less wattage. "They're well-suited for things like common area hallways or lobby areas that stay on 24/7. Even parking garages are an area where there's constant lighting on 24 hours a day, 7 days a week, 365 days a year. There's a relatively quick payback," he says, adding that rebates and tax incentives might also be available.
Anybody who has ever saved a bundle by purchasing a bale of, say, toilet tissue at a wholesale club rather than shelling out for four-packs at a convenience store knows the value of buying in bulk. Associations and buildings can take advantage of placing large orders as well—as long as they do it cautiously and don't make too many concessions on quality.
“Buying in bulk reduces waste,” says Corless, “both in trash costs and transportation and delivery costs, and reduces the greenhouse gases associated with the operation of the community. Generally, there are cost savings associated with the bulk purchase, though associations can't benefit as much from this approach due to a lack of storage space.”
Certain products, such as office supplies, plastic and paper products, and certain landscaping materials lend themselves well to bulk purchases, says Ferullo—but only if bulk buying is done intelligently. "In most cases the landscapers provide the supplies and the material, but if the HOA does buy their own supplies for any reason—and you can buy almost anything in bulk—they can save as long as laying out that money today isn't too long-term. It makes no sense having a big warehouse full of office paper if it takes you 20 years to use it."
Bulk purchasing isn't limited to Post-it notes and lawn fertilizer, however. Electricity is a commodity which may not immediately come to mind when discussing bulk buying, but due to the deregulation of electric suppliers, certain HOAs now can significantly lower costs.
Another way is combining services, according to Bob Rogers, AMS, CMCA, of Taylor Management. "On a larger scale, having a contract with a vendor that is multi-faceted can prove to be a considerable savings," says Rogers. "For instance, one of my sites has the same vendor for landscaping, snow removal and irrigation. Being able to price that out as a package is almost certainly going to save the community some money as opposed to hiring three different vendors for those services."
All the cost-saving efforts in the wold can be undermined very quickly if HOA administrators fail to maintain their community's high-ticket equipment properly. Regular, preventive maintenance is vital to maximize the life span of items like furnaces or hot water heaters. According to Corless, simple proper maintenance of equipment reduces operating and replacement costs. "Maintaining HVAC, elevator and hot water systems can reduce costs related to energy use and repairs, and will increase the life of the asset—which means you reduce your capital expenses.”
Also important are the big-ticket items that might at first appear purely aesthetic—things like asphalt walkways and drives, or exterior painting. Sure, both contribute to how appealing an HOA looks, but functionally, they're just as important in upkeep as a boiler or furnace. “Painted wood has a life expectancy to it. It is a fragile product,” says one contractor. “If not painted regularly the cost will skyrocket as wood will need to be replaced.” He also cites the importance of annually sealing cracks and periodically doing a seal coating to asphalt areas. “Asphalt has a 25 year life to it. Fail to maintain it properly, and you will cut 10 to 15 years off that life span.”
Along with actual physical maintenance of the property comes the question of who's doing the maintaining. Many HOAs outsource most of the work needed to contractors—but some are reassessing and opting to use in-house talent—either paid staff members, or even volunteer committees—for smaller jobs. Considering that labor costs make up a big chunk of those services, some feel that savings can be found by keeping services in-house either with established staff or volunteers. Many boards and managers might be completely unaware that someone in their community loves gardening and would be delighted to take that on. Finding out might be just a matter of sending out a simple email.
“Outsourcing can often save money and reduce liability for the association,” Corless says. “Professional companies are sometimes able to reduce costs related to labor, materials and supplies and processes, which can save the HOA money. There is also a reduction of risk of liability related to employee management, which the association may also prefer.” Trash disposal is one such service that would fit into the category of comfortably outsourced. Trash disposal companies price out trash removal in one of two ways: a fixed fee or fee by weight. If done by weight condominiums can do much in the way of offsetting costs by recycling.
Another often-unsung avenue for cost savings is insurance. Just as with energy usage, HOAs looking to cut costs would be well advised to take a critical look at their policy coverage and carriers regularly, just as they would any vendor or service provider. "If you have employees," says Ferullo, "you need to monitor their benefits. Health insurance is skyrocketing, as we all know. There are multiple plans that can be used, whether the HOA pays for their employees insurance or whether they contribute to their insurance, such as higher deductibles with lower premiums, for example. But it all depends on who pays for it. The more the association pays for that insurance, the more beneficial for them to find a higher deductible plan with cheaper premiums."
“An association should review its insurance needs on an annual basis,” says Corless. “Frequently this occurs at the policy renewal time, rather than at budget time. The review should include a review of the coverage required by the governing documents and community assets. The community might consider increasing their deductible, which will reduce the cost of their premium, but which could create a potential for exposure which may be greater. In New Jersey, communities may adopt the tort immunity clause, which would allow them to better manage their insurance premiums.
According to Feldman, “Associations should go out to bid on their insurance portfolio each year. That's a cost area that is continually creeping up. And in certain years where there are worldwide catastrophes, the percentage increases are quite dramatic. Right now we're in one of those stagnant periods where insurance is relatively leveled. But even in those leveled times, you should go out to bid, as long as you're getting the same coverage. If it's cheaper elsewhere, the association should hop on that.”
Corless agrees, and stresses that insurance coverage is a two-way street: it's also important to review the certificates of insurance presented by any contractors providing service to the HOA. If the contractor does not have the proper insurance, there may be a hidden cost when the workers compensation auditor inspects the community records, or worse, if there's an accident or incident of any kind that results in litigation.
Be it re-evaluating insurance policies, buying in bulk or implementing more aggressive preventative maintenance, every cost cutting effort undertaken by an HOA's administrative team works towards the common goal of savings. Condominiums may just prove that nickel-and-diming themselves to savings can have a big impact on their bottom line. At the end of the day, says Feldman, it comes down to a very simple question.
"'Do we need to do this now? Can this repair wait? Is this landscape enhancement necessary? Most importantly, do we have the funds?'"
Hillary Pember is a freelance writer and a contributor to the New Jersey Cooperator. Hannah Fons and David Chiu contributed to this article.