Anatomy Of A Budget

System - Wednesday, August 15, 2018

Wondering why your budget is going up this year? Was there a lot of drama at last year’s budget meeting? Here’s a simple primer on an Association budget.

Reserves. Condominiums and Co-operatives are required to include in the budget funds for the repair or replacement of all capital items, loosely defined as items costing over $10,000 to repair or replace. By law, this includes the roof, exterior painting, and paving. By dollars, it also includes items such as the pool, elevators, or emergency generators. Additionally, the Board can opt to include other items. The amount of funds included in the budget are determined by a mandatory formula. HOWEVER: the Board does have the option of asking the unit owners to vote to reduce or waive that reserve funding. Many associations waive reserves each year. Keep in mind, however, that when those assets need repair or replacement, the funds won’t be already set aside and available, but will most likely be raised by a special assessment.

Insurance. The single largest expense item for most associations is insurance, property insurance in particular. Again, Florida Statutes require the types of insurance that associations must carry, including property, liability, crime, fidelity, and worker’s compensation. Unfortunately, insurance rates have increased steadily each year, often as much as 10%. There is little in this category that is controllable by the Board or the Association. At best, they can elect a higher deductible.

Utilities. The next highest category, also mostly uncontrollable, is utilities. This includes water, trash, and common area electric. Some associations also include cable tv. Obviously, water and electric rates are not controllable by the board. Trash often is not either – many times there is only one vendor, so there is little room for negotiation. Cable TV is the one area that is negotiable, but the contracts run up to 10 years, so once signed, you’re locked in. Utilities also increase each year, on average around 5%.

Other items. In addition to the above items, associations contain line items for repairs and maintenance of the common areas, costs for management and janitorial, and contract items such as pool maintenance and lawn care. Each year, the board and their financial advisors try to estimate the expected costs for each of these items. Once all that is done, they then have to try to predict the unpredictable: (1) how many unit owners aren’t going to pay, and (2) what unexpected item is going to break this year – will it be a sewer pipe? Or the fire panel? How do we include funds for the unpredictable? And that risk of unpredictable increases each year, as your building ages.

As you can see, none of this is easy, and most line items are actually outside the Board’s control. You have an elevator – it must be maintained. You have a lawn – it must be mowed. The best they can try to do is negotiate the best possible rates with the vendors. An increase in rates does not necessarily mean that the board is wasting money, or misappropriating it. It can be as simple as the bills of the association have gone up again.

So yes, your maintenance fee is probably going up. Just like your costs at home, the Association’s costs also increase each year. Unfortunately, inflation is a fact of life. So before you start throwing accusations at the board, or throwing out incumbents for new members, study your annual financial report. It will tell you exactly where all your money went.