This is the time of year when many boards are engaged in the budget and planning process. Unfortunately, this process sometimes results in the unhappy realization that the cooperative does not have enough sources to cover all of its projected uses. What's a harried board member to do? Find the money, of course. But too often the board's knee-jerk reaction is to refinance the building's underlying mortgage. Just because the co-op is a little short of cash does not automatically mean that the building needs a new loan. In fact, in more cases than not, a refinancing is not the best solution.
Origins of Imbalance
A better first step would be to determine whether this budgetary imbalance is due to a permanent shift in the co-op's finances or just a temporary change or onetime occurrence. Since the origin of a problem often involves its timing, a solution sometimes can be found there as well. For example, quick cash could be generated by offering a discount to shareholders who prepay several month's mainte-nance. Certain capital projects might be deferred and others might be staged over a longer period of time. Obviously, each of these measures could affect future operations or cash flows. Therefore, none of them should not be enacted without consulting the co-op's managing agent, accountant and other professional advisors.
Unfortunately, most budget problems are the result of a permanent or irreversible change in the co-op's cash flow. In this case, the solution is usually more complicated; but it still will be achieved through an increase in cash sources or a reduction in cash usesor both. Many board members understand this and move quickly to close the gap by levying a special assessment or increasing maintenance. While such moves may be part of the ultimate solution, neither should be imposed without careful consideration of their long-term ramifications. A history of assessments often implies that a co-op is poorly run and excessive maintenance can impede resales. Again, consult your team of professionals.
Creative Income Ideas
In most co-ops, there are several other ways to boost income. Flip taxes, sublet surcharges, pet premiums, move-in/move-out fees, late payment penalties and fines for house rule violations can each contribute small but meaningful amounts to a co-op's coffers. More aggressive buildings have rene-gotiated their laundry room contracts, increased parking fees and installed vending machines in the basement or mail room. Still others have converted idle cellar space into cash-generating storage rooms with bins of various sizes and prices. Why not rent a corner of that big lobby to the local dry cleaner as a satellite location that is a time-saver for the co-op's shareholders and a money-maker for everyone? Got the picture? Get creative!
Don't overlook the co-op's banking relationships, either. Determine the average balance in each of the co-op's accounts. The bank is using these balances to make more money for it. What benefits does the co-op get in return? If a board member were to ask that question in the right way, the bank might waive or reduce some of its charges. Alternatively, it might provide additional services at no charge. Also, the board should evaluate the performance of the co-op's reserve fund on a regular basis. A reserve fund of $100,000 generates an extra $100 per ffb year for every tenth of a percent increase in yield. Now $100 may not seem like much, but to paraphrase a famous congressmen, a hundred here and a hundred there and pretty soon you have real money.