The beauty of the changing leaves generally inspires thoughts to kick off the budget process. From our observation, this usually starts with a draft being presented before a board meeting, at which time the board is expected to quickly make decisions that will impact the financial situation of each unit owner for more than the next year
The budget seems to always arrive just days before this decision-making meeting giving board members little to review it, but the truth is this process should be given extra time and attention.
Let’s face it, this is the most important unit owner-related project as it determines how much people need to pay in fees and charges. If money is tight, aspects of the population that live within the building may or may not be better suited to deal with an increase, plus generally speaking, no one really wants to pay more money. When board members submit their names for nomination and take on the leadership role with the board, they make a commitment to serve the interests of their fellow unit owners and we want to assist in doing so.
Let’s put aside any personal preferences and focus on the facts. As a board member, you have a fiduciary duty to do what’s right. If you need more time, you need more time. Try not to make decisions without having a full understanding of the costs, changes, and expected revenues. We understand that you are a volunteer, but your neighbors are counting on you and asked you to serve. The budget is the most important tool for you as a board member for numerous financial matters. These include long-term planning, monitoring, (not only costs but also financial records the managing agent maintains), and a platform to see how the board performed in that area after the year is out.
We all know that year after year unit owners are most interested in knowing what their monthly charge increases will be, and for many of them, it comes down to their personal evaluation of the unit and subsequent expectations without any knowledge or appropriate information.
How can the uninformed make reasonable decisions? Board members must decide what is most important to them – unit owner endorsement or reality.
A thorough understanding of the overall budget and the changes made from year to year is essential to appropriate board review. Instead of looking at the budget and thinking to yourself “we can’t increase charges that much,” negotiate an increase that lies somewhere between hopefulness and reality.
Avoid making the decision on pre-conceived levels or expectations as we see so many board members do. In reality, costs higher than the previous year’s budget should always be expected due to certain non-recurring changes in costs like loan refinancing or instances like the COVID-19 pandemic which caused many cooperatives and condominiums to experience cash flow disruptions.
As much as we dislike it, cost inflation is outside the control of both board members and property managers. By all means, we suggest that you watch each and every dollar you can and pay the best possible prices for superior service and contractors, but don’t let yourself be swayed by political considerations within the building.
Even when there is a large faction in your community that says “no” to paying more, your role is to explain why the changes need to be made and do the right thing. Be sure that you thoroughly understand the changes from year to year and endeavor to have confidence in your final decision, regardless of what other people’s opinions are.
The reality in America is that overtime costs rise. This has been built into the financial system by politicians and the Federal Reserve Board long before any of us evolved into leaders. We ask you as board members to stand tall against the waves of politics because annual increases over time have been averaging 3-5%.
We ask you to be reminded that your role is to set monthly charges at is the level that is needed for this property not anywhere else! In the interest of your community, it is important to set the expectation that there will be an increase every year. Otherwise, the result of not making necessary increases tends to create the need for a future board to increase monthly charges much more than they should or conduct an often time-consuming and costly assessment to clear up the inevitable drain on financial resources.
With over 35 years of experience serving co-ops and condos, the Czarnowski & Beer team can outline specific steps you should take to minimize taxes, maximize loan eligibility, and enhance the value of your property. For more information, contact us at info@czarbeer.com or (212) 397-2970.