Contemplating Budget Preparation Season . . .
I know you are all enjoying summer and thinking about taking time off to spend with family and friends. As board members, I also know the last thing on your mind is thinking about the 2012 budget for your association. However, if your fiscal year begins on January 1, 2012, toward the end of the summer and through the fall you will be working with your manager on preparation of the budget for your association. If your association is self-managed, that task can be even more daunting.
Please do not misunderstand me; I’m not suggesting that you begin preparing your budgets now. Frankly, you don’t have all of the data you need to make good decisions and you shouldn’t be spending your summer crunching numbers. Instead, as the policy makers of your communities, I would like to suggest that you begin thinking about whether the current assessment levels are meeting your association’s fiscal needs.
Here are a couple of areas to contemplate and related questions to ask yourselves:
Normal Operating Expenses
Are the current assessment levels providing enough income to cover normal operating expenses? If not, what’s going on? Did you have unanticipated expenses? In an effort to keep from increasing assessments, is it possible you were unrealistic in forecasting expenses or anticipated income? Have assessment delinquencies contributed to the shortfall? Have you had to borrow from reserves to cover normal operating expenses? Do you have a plan to get that money back into reserves?
Contributing to Reserves
Are your current assessment levels adequate to enable the association to make contributions to reserves? Have your reserve contributions been adequate? If you’re on the board of a condominium association, are your reserve contributions adequate to support FHA certification? Do you have a handle on major repair and replacement obligations of the association? Have you had a reserve study conducted to provide a good budgeting tool? If you decide not to make routine contributions to reserves, are you prepared to levy a special assessment should it become necessary?
If after contemplating these questions you come to the conclusion that your assessment levels are inadequate and your expenses are reasonable, you then need to have some serious discussions about the feasibility of an assessment increase. Keep an eye out for a blog posting later this summer on dealing with the hot potato issue of increasing assessments.