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Even before Sept. 11, the U.S. economy was showing signs of decline. For months, analysts had warned of a potential recession, predicting increased unemployment and decreased consumer confidence. With the economy in a current state of unrest, the Federal Reserve has decreased interest rates substantially—what will this mean for managers and associations?

Pennies Saved

Many associations will see a decreased yield on reserve accounts. Since most associations maintain federally insured reserves—like bank accounts and treasury bills—managers should expect a decrease in interest income for the coming budget year.

While a decrease in income is bad news for an association, it does not necessarily mean that the board should fret about its investment philosophy, or seek higher-risk alternatives for reserve accounts. Depending on the impact of the projected decrease in interest income, however, an additional increase in assessments might be necessary.

As residents start to feel the impact of layoffs, low consumer confidence, and other financial burdens, delinquencies may increase. While delinquencies are never good news, don’t break out in night sweats just yet. Keep an eye on the big picture, and tend to the details. Devote some extra time to tracking, monitoring, and managing delinquent accounts.

Silver Linings

The decrease in interest rates does bring some good news: financing for capital projects should be relatively low. Associations should seriously consider completing large common-element repair and replacement projects in the near term to take advantage of lower interest rates and the overall savings they provide. Compared to 18 months ago, now associations can plan to save at least ,000 in interest per ,000 borrowed. Depending on the size of the project, the interest-cost savings could be substantial.

There’s no doubt that associations face an uncertain economic future. Some suggest that associations have the power to set a good example and make a tangible difference—if associations hire contractors for large projects, the contractors stay employed, the manufacturers keep producing, and repaired or improved homes enhance property values. Investing in large projects may be what associations can do to help keep the economy strong and help the nation get back to business as usual.

January 2, 2006