Just about any property manager can recount head- scratching stories about budget meetings and board decisions whereby the greater good of the association was relegated to the bottom of the priority list in favor of avoiding difficult and sometimes unpopular financial decisions. Decisions which can put board members in uncomfortable positions when passing their neighbors in the hallways or on the sidewalks of the property. How can a board then hit the target when it comes to creating and implementing the annual budget? What are the common issues they face when the tough decisions need to be made? The following is a brief list from feedback obtained during conversations held recently with various property managers.
Resistance to an increase in assessments, even in an effort to plan for future needs
There is a certain irony when unit owners express frustration and objections over annual assessment increases in an effort to reserve for critical common element repairs, but are then angry with the manager and board members at a later date when the critical elements are in disrepair. Remind the naysayers that they didn’t want to increase assessments, and memories can become very short. Nobody likes it when their taxes go up and assessments are often seen on the same plane as assessments since they are levied by an elected body of people, used for a common purpose and paid on a mostly involuntary basis. And while the end may justify the means, nothing gets a unit owner’s attention like an increase in assessments, especially for improvements they feel may not be warranted. A drive through most any neighborhood easily highlights that in any group of homeowners there will be varying definitions of what it means to properly maintain one’s residence. I have been in many a meeting listening to managers explain in great detail the need for a common element repair, only to be dismissed by unit owners who felt the proposed work was unnecessary. What generally follows is a discussion that pits logic and facts with emotion and opinion. In the end, the manager serves at the good pleasure of the board, and it is the board that is charged with making the final decision. So with this combination of unit owner/board resistance and varying degrees of perception as to the importance and necessity of a repair, it is easy to see how planning for future needs can be a challenge for any board.
Lack of preparation for unanticipated expenses
Whether it is the City of Chicago increasing the water tax, an unexpected increase in utility or insurance costs, a harsh winter of colder than normal temperatures and/ or higher than normal snow levels, unexpected costs can create an unwelcome adjustment for a budget in any given year. And since these expenses are considered operating in nature and not capital for the replacement of common elements, reliance on the reserve fund is not a typically valid option. With the budget process being a zero-sum exercise, accurately identifying revenues and
expenses is critical toward success. However, when the unexpected happens, a board needs to have as many of the contingencies covered with the tools available to them. One tool that has become more popular in light of recent court cases and legislation is the operating reserve fund. Different from the capital expenditure reserve fund, the operating reserve fund is set up specifically to provide funds for a shortfall in the annual operating budget.
Lack of focus in the absence of professional management
Many a manager can tell you the frustration they experience on occasion when taking over a property from another management firm. Issues such as getting the documents and information sent over in a timely and organized fashion or the depth of information received. But talk to a property manager about taking over a self- managed property and a whole new level of angst can appear in their eyes; particularly as it relates to budget issues. This is not to say that a property can’t ever be successfully self-managed. The challenges faced by a board in an effort to set and execute a successful budget without the assistance of a licensed and trained professional can produce dire results. A successful budget depends on the management of both income and expenses. If an association were a vehicle, managing the income would be equal to the amount of fuel available to put in the tank. A limited amount of fuel means a long term journey is not an option. A limited amount of assessments from poor collection practices, means long term financial planning, including repairs and replacement of critical common elements, may not be possible. Conversely, controlling expenses would be comparable to maintaining control of the steering wheel in an effort to avoid crashing into a hazard. Seeing down the road far enough to avoid a hazard keeps the driver and passengers safe. Likewise, identifying potentially expensive repairs early through proper planning can keep unit owners safe from the pain of a large special assessment or a potential injury from a neglected critical common element. Having a licensed and trained professional manager helping to generate the fuel and avoid the hazards can make all the difference and allow a board to stay focused on the important mission of having a safe and well managed association with a strong financial position.
Kids games such as Pin the Tail on the Donkey can be fun and help develop skillsy such as a good memory, focus and the ability to take action in an effort to solve a problem. Applying those same skills when creating and implementing a successful association budget can mean your tail never gets pinned.
|
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56
