Revenue or Reduction Making Tough Decisions

 Budgeting is never easy, not for a family of four and certainly not for a co-op  or condo community of hundreds or thousands of residents. That fact is made all  the more difficult by the lingering effects of the recession, which continues  to wreak havoc with our confidence as well as our overall bottom line. For many  boards, trying to balance a budget these days requires making difficult  choices. If the budget is falling short, what is the solution? Raise more  revenue by raising fees? Or reduce costs by cutting back on services and  amenities? For residents, neither option is likely to win a popularity contest.  

 So how does a board determine the best ways to keep their bottom lines in the  black? And if unpopular choices must be made, what is the best way to break the  news to residents?  

 What’s Flexible, What’s Not

 For co-op and condo communities of all sizes, a budget is not necessarily a  highly flexible entity. In the past, says Richard Apell, a controller at Argo  Real Estate, LLC, a Manhattan-based management firm, “I’ve pointed out to shareholders that up to 93 percent of expenses are  non-controllable. Within that 93 percent is the mortgage, insurance, taxes and  payroll.” For the most part, those prices are fixed from year to year with very little  room for maneuvering unless a mortgage is up for refinancing or it is a new  contract year for unionized staff. Otherwise, the prices that are locked in at  the beginning of the year will still be the same at the end and likely for  several years after that, he explains.  

 Jeff Stillman, CPA, vice president of Stillman Management Inc., based in  Mamaroneck, New York, agrees, defining the major pieces of most budgets as “inflexible.”  

 And the pieces that are moveable usually offer very little in the area of  control either. Fuel costs are a prime example, says Floyd Brigman, an account  executive at Stillman Management. He recalled that the year before they were  working on a fuel budget of a little over a dollar a gallon and this year, it’s more than three dollars. “That’s a $250,000 shortfall,” he says. “You can’t make that up in the blink of an eye.”  

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Comments

  • coopshareholder@aol.com on Wednesday, June 27, 2012 8:51 AM
    “Budgeting is never easy, not for a family of four and certainly not for a co-op or condo community of hundreds or thousands of residents” (Lent, 2012) especially when is seen as a list of numbers without realistic correspondent for many individuals and boards that have never heard about the practical term “efficient spending”. Being sympathetic with comptrollers arguing “that up to 93 percent of expenses are non-controllable” just stop you thinking that 100% of those 93 are predictable variables, and in causal relationship with their spending. Raising versus reducing aligns with the tendency to chose “the easy way” for those in charge, ignoring the fact that changing the status quo and exploring new efficient methods of spending could avoid both. “Small annual fee increases” mentality is a factor that plays an important role in today’s rate of inflation, with complex consequences that could be avoided by an increase in board members’ competency and fidelity to their association or corporation. Foreseen the priorities, unnecessary spending and acknowledging the waste of resources and correct them is a part of financial planning; for many could be just too complicated. Real Estate management focusing on daily operations can’t predict the 50 years old building needs, and when the need of repair comes unexpected is easier to put it in a non-controllable category. Maintenance counts only as expenses for the most of the boards, their performance is never evaluated by a recognized authority; a common management policy is to delegate their obligation to interact with shareholders to maintenance personnel, reducing maintenance efficiency in performing their work; that’s just one example of so many controllable factors that can influence a budgeting process.