Like most companies, co-ops and condos have two important, yet distinct budgets which allow boards and owners to manage the day-to-day and long-term financial requirements of their buildings. The operating budget includes recurring expenses such as salaries, taxes, utilities, insurance and maintenance items. The previous year’s expenses are generally a good indicator for the next year’s budget.
Capital budgets are the long-term budgets that improve building conditions. Capital budget items require a different kind of planning because the expenditures are infrequent and unfamiliar. Capital budgets allow more latitude and evaluation: You have to heat your building (operating expense), but you don’t have to replace the roof (capital expenditure) next year.
Though both budgets support the goals of the building owners by providing comfort and utility to residents, capital budgets allow a well-run co-op or condo to anticipate the needs of residents while balancing them against financial considerations. And, unlike operating budgets, capital expenditures frequently improve the value of an asset.
Capital budgets should span four to six years. Longer term budgets are unlikely to be reasonably accurate. No budget will be perfectly accurate (budgets within 15 percent of actual cost are acceptable), but it will help the board prioritize and build financial reserves (or plan borrowing) for major expenditures. Capital budgets should be reviewed and updated annually.
The priorities in the capital budget are ranked by making an existing conditions assessment or building survey. An architect or engineer can conduct a comprehensive building survey and make a capital budget. The survey will usually include an evaluation of building envelope (façade, roof, windows), mechanical systems (heating and plumbing), electrical distribution, and interior common spaces A good survey will also include an objective evaluation of input from residents, building staff, building management, vendors that provide building maintenance and possibly other specialist design professionals (architects or engineers). It is important that a single, complete report be prepared that sets priorities and lays out the reasoning behind the prioritization. The detail of the survey will vary dramatically depending on the size, complexity and usage requirements of the building.