Low Reserves and Defaults Challenge Boards Drafting a Budget in Uncertain Times

Even in the best of economic times, preparing a co-op or condo’s annual budget can be a tiresome task, fraught with uncertainty, estimations and shifting numbers. Factor in one of the most harrowing economic downturns in a century, with cash-strapped owners sometimes “skipping” their monthly maintenance fees—or even winding up in foreclosure—and you have a downright daunting task.

The Game Plan

The importance and economic challenges of this year’s annual budget are not underestimated by Martin Kera, a principal of Bren Management Corp. in Manhattan, who says, “There is no magic formula or elixir to drafting a budget, it’s more of a case by case basis. We’ve had a different experience [from other developments]. We’ve been able to collect 100 percent of maintenance charges,”says Kera, who cites that this year’s operating budget was based on the previous year’s budget in which 80 to 90 percent was fixed. “We’ve been able to negotiate for lower insurance policy costs, and union dues go up annually at a consistent rate, but electric, water, gas are going up like crazy and there’s no telling what they’ll be.”

Getting that “plan” into action is no small feat, but does follow a more or less consistent path year after year. Usually, beginning in July or August a building’s management company or treasurer will conduct the upfront preparation, analysis and initial drafting of the budget. As with most things in life, this preparation proves to be the most overwhelming—yet most important—aspect of the budget process.

By September, the first draft of the budget will be presented to the community and after an average of three meetings, a finalized budget is put to vote for approval by the end of December. From start to finish, close to half a year has been devoted to the budget process.

A clear understanding and estimating the minute details of the fixed and variable costs encompassed in the budget will assist buildings and associations in this arduous task, explains Stephen Beer of the Manhattan-based accounting firm Czarnowski & Beer.

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