COVID-19: How to Plan for an Uncertain Economy
We have all read the alarming and everchanging headlines about how the ongoing pandemic is inflicting harm on the economy. The record unemployment filings, businesses at a standstill, and residents sheltering at home to slow the spread of COVID-19 are all undeniable factors. While most of us have remained focused on the immediate health concerns of our communities, the economic impacts may soon begin to emerge. It is time for boards and councils to start thinking about how they will handle the economic impact that will follow the pandemic.
First, don’t panic. Decisions related to your community’s financial position should get based on data and trends; acting without that data may paint your community into a corner before the reality of financial impacts emerge.
Each community will be impacted differently by the economic fallout of the pandemic. For example, the structure of your community and infection rate in your state or province will all be factors. States with heavy reliance on travel and tourism will have the most significant challenges.
Review your year-to-date (YTD) budget, including spending trends and delinquency rates. Use this information to track emerging issues with receipts to the association and adjust your projections accordingly.
Go back to the future. It was only 11 years ago that community associations maneuvered through the great recession. To date, that period has had the most significant impact on housing in the United States since the Great Depression. Look at financial reports during that time to understand how delinquencies increased, how the board or council responded, and apply those lessons to the months ahead.
Review each delinquency on its own merit instead of taking a blanket position on waiving late fees, penalties, and interest. Work with each homeowner to address their specific challenges—each resident will be affected differently and may have the ability to seek a mortgage forbearance or other relief to help them stay current.
Deploy payment plans as appropriate. State or provincial law may govern payment plans, and before deployment, you must review how such plans will impact the resident and the association. Offering plans too early in the process may have the unintended effect of hastening liens or foreclosures.
Remember that despite the historic pandemic, as a board or council member, your duty to the financial health of the association has not changed. Even with amenities closed, the association expenses still accrue and need to be paid. However, you must balance enforcement with humanity. Acting too soon can result in negative media attention and potential legislation to curb association enforcement powers.
Educate yourself about the tools available to meet association budget shortfalls. Many jurisdictions allow for borrowing against reserves to help bridge budget needs. Also, with interest rates at historic lows, tapping a line of credit can provide funds at low cost to the association.
Unlike the great recession, the U.S. and Canadian governments have stepped up with programs to help individuals impacted. In the U.S., there are financial tools available for associations as well. Both the U.S. and Canada have implemented enhanced unemployment benefits for those who have lost their jobs, and this will help mitigate financial impacts.
While associations in the U.S. don’t qualify for the Paycheck Protection Program, many of your residents work for companies that do. That means they will continue to get paid and be able to stay current on personal expenses.
Associations in the U.S. do qualify for Small Business Administration Economic Injury Disaster Loans. You can use these low-interest loans for operating expenses, payroll, and other costs for your association. Such loans will be available through December 31, 2020.
As your board or council navigates these historic challenges, always remember that your management company, community manager, and qualified legal counsel are part of your community’s support system. It’s essential to leverage these partnerships with your professionals.
Finally, as we move through this historic time, it’s important to remember that “this too shall pass.” Use data, lessons learned, and advice from your professionals to make prudent, not emotionally-driven decisions on how to meet the financial challenges that may emerge.