Fall is typically the time for developing Condo Association budgets. This is because most Condo Associations run on a calendar year fiscal cycle and most Bylaws require a 30-day Owner comment period. Budgeting is an extremely personal exercise – every community is different, with different amenities, costs, and tolerance for Condo fees. Nonetheless, there are several tips that are helpful for Condo Association budgets of all sizes.
Review Your Projections From Last Year and Identify Major Variances
One of the most important activities is to look at your projections from the previous year and identify any major variances. Certain items can spike without being budgeted for – these might include snow removal when you have an unseasonably snowy winter, or legal expenses if you got sued (or had to sue someone). Conversely, expenses like utilities or contracts might be gradually creeping up due to external factors and represent a trend. For example, the Affordable Care Act may have led to increased costs from health insurance on your Association employees. These will impact Condo Association Budgets indefinitely.
Look for Waste
Little-used amenities and contracts which haven’t been re-bid for multiple years are two examples of possible waste you can eliminate. Amenities are always a touchy subject, as there may be a small, but vocal, user base that will be frustrated if they are eliminated. Always make sure to properly outreach to Owners before taking such actions. Contracts, on the other hand, are easy to check for waste. Ensure you’re rebidding major contracts like landscaping, garbage, cleaning, etc., every three to five years to ensure you’re getting the best price for your Association.
Time to Look at Reserves
Have you performed a reserve study lately? Do you have indications that certain systems may be getting creaky and need refurbishment? Now is a great time to look hard at major system expenses. If you have a major shortfall and imminent major system failure, you may not have many options beyond a special assessment. But if you’ve got more time, a few extra percentage points of Condo fees going towards reserves may make a substantial difference in five years. Think long and hard about increasing reserve contributions if you think you’ll need them. Remember, over 70% of communities are underfunding reserves – don’t be one of them.
Think About Budgeting for a Beautification or Security Project
If your budget allows, you might consider budgeting for a single tangible project that contributes to your Association’s aesthetics or safety but does not have a significant maintenance cost. Good examples might be investing in improved lighting, replacing existing cameras, or a new sign for your building. These projects have immediate tangible value. Once they’re done, Owners can see that they were put into place and the immediate and lasting impact. Second, the lack of a substantial maintenance tail means that these items don’t bring overhead with them, making them more valuable. If you have the budget space to do a single project like this every year, or even every other year, within five years you’ll be able to point to significant quality of life improvements for your Association. Including these items in Condo Association budgets makes a big impact over time.
Good Fiscal Management is a Full-Time Responsibility
Although Condo Association budgets are drawn up once a year, managing your budgets and finances is a year-round activity. A Board’s fiduciary duty is codified in the Bylaws, and is one of the big three. That said, the budget cycle is a great time to take a step back and be strategic about the financial direction of your community.