2008/2010 budget comparison

For tonight's open board meeting, I've obtained time on the agenda to discuss the state of Park Lane's reserves. In preparation for the meeting, I've prepared a comparison of the 2008 budget, the last budget for which I have a readily available copy, and the current budget. (In the interest of full disclosure, I helped create the 2008 budget.)

The comparison I've prepared has five columns. The first two are the unaltered budgets from 2008 and 2010, respectively. The third and fourth columns are modified versions of the 2008 and 2010 budgets, respectively. For the 2008 budget, the special assessment was removed from the income section, and the associated contribution to the reserves was removed from the expense section. For the 2010 budget, the collection reimbursement was removed from the income section, and the collection costs were removed from the expense section. The final column shows the difference between the modified 2008 and 2010 budgets (the best "apples to apples" comparison I could come up with). Each comparison is broken down annually, monthly, and monthly per unit.

(In performing this analysis, it came to my attention that the 2007 reserve study took into account the association's plans for a special assessment at the start of the 2008 calendar year. Basically, maintaining the level of reserve funding in 2008's budget beyond 2008 would have required another special assessment of $70 per unit in perpetuity or a cutting of approximately $11,000 from the budget.)

Within each breakdown, I've highlighted, in red, the contributions to the reserves. The yellow highlighted items represent either significant or questionable, in my opinion, increases in the budget. These yellow line items, if cut back to their 2008 levels, add up to just over $20,000, which is enough to return reserve funding to 2008 levels minus the special assessment. In my opinion, these are the first places to look for cuts.

Finally, I would like to draw attention to the subtotals. First, note that income has decreased since 2008. This is due largely to the lack of interest that the association earns on any reserve funds (due to lack of reserve funds as well as interest rate declines in recent years). Despite sagging income, however, costs have increased. Utilities have increased approximately $6,000 since 2008, a 20% increase. Maintenance and administrative costs have increased as well, but these are marginal increases especially when one accounts for the bad debt that the association writes off in its budget.

The $20,000 deficit in reserve funding between the 2008 and 2010 budgets is entirely accounted for by the increases in costs, amounting to approximately $13,000, and a decrease in income of approximately $7,000. In short, the board is robbing the association's future (its reserve savings) to cover the costs of maintaining and even increasing services.

I've explained the problems associated with underfunded reserves before, but crushing special assessments are also a very real possibility. Currently, the special assessment required to fully fund the reserves stands at just over $1,000 per unit or about $85 per unit per month for 12 months (imagine your monthly assessment doubling!), and it will only increase with time. Creative cost cutting and outright cutting of services are still viable alternatives to special assessments, but the time is fast approaching when these options will no longer be available.