2. Planning and Oversight/ Executing the Plan
Every association should be working under the guidance of a well thought-out, accurately planned budget each year. If there isn’t an annual budget in place that is voted on and approved by the board of directors, the “wall” is in danger of falling and a Joffrey Baratheon- like character will be at your doorstep shortly to take over your throne. As Joffrey had been known to say....”Everyone is mine to torment.” An association without a budget is leaving itself open to torment.
However, even the most well-intended and thought-out budgets cannot anticipate every expense. And while a good budget will anticipate the unexpected to a certain degree, there is always going to be the possibility of an extreme circumstance. This past winter was a good example of an extreme circumstance. With 82 inches of snow; 45 inches over the average, even the best-planned budget was stretched when it came to snow removal. Budgeting for the unexpected through contingency line items in a budget will help to soften the blow when the unthinkable happens. An article written in the Chicago Tribune by the late Mark Pearlstein (Feb 7, 2010) addressed this issue well. The question asked was whether or not reserve funds can make up deficits in the operating budget. Mark’s answer was as follows: “The better practice for your association is to adopt an operating reserve fund. This fund is a separate account , not mandated by statute, used for emergency operating expenses. As an example, an operating fund can be used to cover an unexpected increase in seasonal utility costs.”
The operating reserve fund may end up creating a larger budget, and goes against the idea of keeping monthly assessments at the lowest point possible. However, a well-built “wall” was not well built because corners were cut. The budget has to be created in such a way that it accounts for the upcoming expenses, provides for the unexpected, and adds to your reserve fund level each year. Creating an operating reserve fund may not win you any smiles from some of your fellow unit owners who may be more interested in a lower monthly assessment. However, when the choice is between having a strong or a weak “wall”, accept the criticism with the knowledge that you are keeping Westeros safe for another year.
3. Reserve Fund
Section 9(c)(2) of the Illinois Condominium Property Act states “All budgets adopted after July 1, 1990 shall provide for reasonable reserves for capital expenditures and deferred maintenance for repair or replacement of the common elements”. The reserve fund is arguably the most overlooked and misunderstood item in the world of community associations today. However, when it comes to protecting and building your “wall”, a proper level of reserve funds is essential. As often as property managers stress the importance of maintaining appropriate reserves to the board members they serve, board members can be hesitant to build appropriate levels. Reasons include criticism from unit owners who see the increasing reserve balances as an unnecessary accumulation of funds, pressure to keep monthly assessment levels low, and a lack of understanding as to what repairs are on the horizon and the corresponding
"I made a promise to defend the wall and I have to keep it"
- Samwell Tarly |
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