Condo Media - September 2015 - 53

David Abel,
CMCA, Senior
Manager at
First Realty
Management
Like Brawley, Abel
advises boards
to scrutinize
the monthly financial reports so
there won't be any budget surprises.
His managers highlight significant
variances between expected and actual
expenses and revenues. But what
qualifies as "significant" depends on
the size of the budget, Abel says. A 10
percent shortfall in a $100 budget item
is "meaningless." But in a $300,000
item, it is likely cause for concern.
When dealing with significant or
potentially significant shortfalls, it is
important for boards to be proactive,
Abel says. If the budget is seriously
off-target at mid-year, with winter and
snow removal costs looming, "you know
the situation isn't going to improve,"
he says. Therefore, you want to address
the problem before it gets larger. A
temporary increase in the common area
fee would be one way to prevent a yearend deficit and avoid the need to make it
up the following year.
The board's goal should be to create
a realistic budget. But some boards
want their budgets to be perfect, with
expenses estimated to the dollar. The
problem with budgets drawn this tightly
is they don't leave any room for the
unexpected, Abel says. "If you cut every
number as low as it could possibly be,
it's a mathematical certainty that some
costs are going to be higher than you
expect and you're going to end up with
a deficit. What you want is a reasonable
midpoint, with some estimates too high
and others too low, so that it will all average out at zero at the end of the year."
Carrying a small deficit forward and
budgeting to eliminate it the next year
is a reasonable strategy, Abel says. "But
if you end up with that deficit two years
running-and a $5,000 deficit grows
to a $10,000 deficit-you have to do
something about it. A condominium isn't
like a corporation. It doesn't have a lot of

discretionary expenses. Eliminating the
corporate jet isn't an option."
Not paying the electric bill isn't an
option either. Associations have to cover
their costs. One option, if expenses
are outpacing revenues, is to skip the
annual reserve contribution, which
frees up cash to cover the bills. That's a
reasonable way to deal with a one-time
deficit, Abel notes. "No one yells at you
if you're not paying yourself." But it
shouldn't be a regular practice.
To deal with a surplus, boards can
consider several options:

When dealing
with significant
or potentially
significant shortfalls,
it is important for
boards to be proactive.

■ Leave the funds in a checking account,

don't include them in the following
year's budget, "and see what happens"
that year. The board can determine
whether the surplus was a one-off
event (most likely) or a pattern trustees need to address.

■ Incorporate the surplus in the next

year's budget. Although that may avoid
a fee increase, you could be setting
yourself up for an even larger increase
the following year.

■ If the surplus is large enough, deposit

some or all of it in the reserve account.

Some board members worry about
how to explain a surplus to owners
because they think owners will view
anything other than lowering fees as
"a waste of money." But as a practical
matter, any surplus is likely to be small.
"No one ends up with a 20 percent
surplus," he says. In most cases, the
amount involved is so small there's
no need to mention it. And if the
surplus is significant, applying it to the
association's reserve account would
be anything but wasteful and easy to
defend, Abel suggests. "No one has
enough money in their reserves."

■ NENA GROSKIND IS PRESIDENT
OF ECONTENTPLUS, PROVIDING
EDITORIAL CONTENT FOR
WEBSITES, PRINT AND ELECTRONIC
NEWSLETTERS, AND MAGAZINES.

September 2015

53
Condo Media - September 2015

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