Budget Improvement 2018

There are many challenges to accomplishing budget improvements. It requires the control of budgets which is not easy in a large and aging association. Performing maintenance and infrastructure work in a timely and proactive manner has the potential of reducing future breakdowns and future maintenance costs. It also spreads these costs more equitably among owners, both today and in the future. Annual efforts to control costs with no reduction in services is also essential.   From time to time boards may be inclined to handle budgets by "kicking the can down the road". This my be accomplished by delaying certain maintenance and projects. Since 2010 it has been my position that such delays are a critical mistake. I am of the opinion that once an association falls behind, it becomes difficult or impossible to catch up. This is particularly true if associations don't acquire and build the necessary funds.

These budgets are the fuel to accomplish all things in running the business of the association. Money is a tool. It must be used with caution and for good purpose.  Of course, when an association fails to accumulate the funds necessary to perform infrastructure work or repairs, there are several approaches:

1. Delay work until the required funds are accumulated.
2. Increase fees to allow the accumulation of the required funds.
3. Borrow money to fund the work.
4. Simultaneously do some or all of the above. 

The trend line in the following chart indicates that if the association had continued on the path followed from 2001 to the present day, our budgets would be 10.2% higher today than they are. That also means that owner fees would be 10.2% greater than they currently are.

Fees from Budgets 2001-2018

The association prepared the proposed budget for 2018. This was reviewed and discussed by the four board members during the October association meeting. We currently have four board members because insufficient owners voted during the annual election. The election is being re-run and we'll see if sufficient owners become involved to elect the three candidates. That would give the association seven board members. However, the budget process cannot wait; it must be done in a timely manner.

The budget process for calendar year (CY) 2018 was straightforward. The association projects a surplus to the Operations and Maintenance budget for 2017. That's helpful as it does indicate that the budgeting for 2017 was conservative and it also validates the budget approach and controls used by the association. Those numbers assist the board in identifying problem areas.  However, one must be cautious.  A lot could happen during the remaining three months of the year.

One of the issues our association has is determining actual year end numbers based upon September 30 books. There is a certain amount of guesswork involved.  In general boards would much rather achieve a surplus than a shortfall. Any surplus will flow to reserves as of December 31, 2017.

The association has sent the proposed 2018 budget to all of the owners. There were three owners present for the budget meeting.. One of these owners is a former treasurer and Architecture & Maintenance director for the association. He made the observation that the board is doing a good job with the budgets.

It has taken some years. As can be seen in the chart at the top of this post the annual budgets stabilized in 2013 at about $1,320,000. Boards have made some effort to stabilize costs while performing maintenance and infrastructure work. As a consequence the projected budget for 2018 is about $1,350,000. In other words, the association budget for six years 2013-2018 has increased by about 2.25%. While this is a good thing, it also must be acknowledged that budgets did increase about 59% in the 10 year period 2001-2010 and about 82% overall since 2001 to the present.

Keeping budgets in check has allowed annual fee increases to be lower.

To aid future boards, the association president has requested that the budget add a column for "Actual 12/31/2017" after the December 31  books are closed. Currently the budget includes the following columns:

• Approved 2017 Budget (approved in 2016)
• Year to Date (YTD) 9/30/2017
• Projected year-End 12/31/2017
• Proposed 2018 Budget

This column will be added:

• Actual year end 12/31/2017

It has been discussed that it would be preferred to do the budget after the end of the calendar year. One board member has argued this isn't possible. It would require adjusting fees at an effective date other than January 1. For example, from April 1 of 2018 to April 1 of 2019. That would seem to be merely a bookkeeping and billing issue.