Mission: Possible

When Judy Levine was recruited as treasurer at 177-179 Duane Street in Tribeca in 1994, the board thought her day job – as executive director of Cause Effective, a nonprofit organization that helps other NPOs raise money – would give her a leg up. But when she started tackling her first budget for the self-managed 10-unit co-op, Levine discovered that her skills were going to be put to the test. Capital expenses and operating expenses had been lumped together, making big line items impossible to decipher. There was a tangled web of loans, which were just scraps of paper stuffed into manila folders. Worst of all, with residents in arrears, so little money was coming in that the building was running in the red. “The whole thing,” says Levine, “was overwhelming.”

Tracking income, scrutinizing expenses, paring down payables, guesstimating future costs – the work that goes into creating a realistic budget is never easy. For co-ops and condos that don’t have a managing agent, it can seem like mission impossible.“Preparing budgets is definitely harder for the layman,” says Rebecca Poole, executive director of Big Apple CAI, an association of board members, property agents, and business partners. “But there is a protocol to follow, and the process only gets easier and more efficient the longer you do it.”

The Tricky Part

The equation seems simple enough: balance income against expenses to arrive at a bottom line – ideally, a healthy one that doesn’t require hikes in the maintenance or common charges. The tricky part is that many expenses must be estimated. While you can use the current year’s budget as a starting point to chart your accounts, “you need to look closely at the prior 12 months’ data and analyze it,” says Poole. “If you were over budget on an item, ask why. Examine every expense, and note whether it was a one-time thing, or if it’s an accurate representation for the average year.”

Plugging in the same numbers from one year to the next is a common mistake, adds Tina Larsson, CEO of the Folson Group, a consulting firm that helps co-ops and condos pare down costs. “Certain fixed expenses, like real estate taxes and fuel, can be predicted fairly accurately, if you know where to look,” she says. Because the city’s fiscal year runs from July to June, you only have to forecast the second half of the year, which you can do by checking your expenses over the previous three years to get a running average of increases. For proposed water and sewer rates, go to nyc.gov, and pull out data on your building’s past electricity and gas usage from your utility company. “You can even go to the NYSERDA website, which has monthly weather data that will help you estimate costs,” says Poole. “There’s a lot of information available for boards to tap into.”

While non-fixed costs constitute only 20 percent of a building’s operating budget, boards should be relentless about looking for ways to cut them. “Try to negotiate cheaper contracts with your vendors,” Poole advises. “While there may not be much savings with incidentals like copying, paper, and postage, every little bit adds up. And the savings compound, just like an investment.”

Avoiding Disaster

Boards also need to anticipate the unexpected when calculating their capital budget and set aside ample money for local laws, upgrade regulations, and wish-list items, especially at older buildings. White Oak West, a 51-unit condo in Elmhurst, Queens, has managed to do constant repairs without raising common charges for four years. But board president Alex Schtakleff was still surprised when the building was hit with a $50,000 bill for fixing sidewalks from, of all places, the Department of Transportation. “We’ve got a pretty good handle on doing our budget, but that’s why you have a reserve fund – for unforeseen events,” he says.

At the Duane Street co-op, which was built in 1879, Levine says the board has learned to write a certain amount of money for repairs into the budget. “There are only so many times you can patch the sidewalk before you have to bite the bullet and do a major capital repair,” she says.As for biting the bullet, boards have to face the inevitable when the bottom line comes up short. “You absolutely can’t be afraid of raising maintenance or common charges,” says Poole. “Budgeting for a negative income is a disaster – you’ll build up payables, you won’t be able to pay your vendors, and you could end up getting hit with lawsuits.”

Resorting to dreaded assessments doesn’t always solve the problem, she adds, especially in smaller properties. “If there are people who can’t pay the fees, that will have a much greater impact on a building with 10 units as opposed to one with 50,” she adds. “Boards should avoid assessments if possible. If it isn’t possible, they should try to spread them out over two years instead of just one to ease the burden on shareholders or unit-owners.”

Resources Galore

The good news for newbies? There’s a range of resources that make it easier to learn on the job. The Community Associations Institute website (CAIonline.org) has an open forum where members can ask questions and swap information with property managers and accountants. Poole herself teaches a three-session program, Self Management 101, at the Council of New York Cooperatives & Condominiums website (CNYC.org), which includes step-by-step instruction on preparing operating and capital budgets.

The CNYC also offers seminars on specific topics, which Glory Ann Hussey Kerstein, a former treasurer at a 15-unit Housing Development Fund Corporation (HDFC) co-op in Manhattan Valley on the Upper West Side, found invaluable. “We learned the hard way that if a shareholder dies without a will, it takes months before things get straightened out, and during that time you can’t collect maintenance,” says Kerstein, who came up to speed by taking a CNYC class on wills and estates for HDFCs. “Everyone makes mistakes at first, but you don’t have to be left out there swinging on your own.”

As for deciding whether to keep everything strictly DIY or hire outside help, it depends on how much time board members can devote to the job. White Oak West originally had a bookkeeper who kept records manually until she retired. Schtakleff then converted the building’s books to Excel spreadsheets. “But it was too much work collecting common charges and making deposits on top of that,” he says, “so we brought in an outside bookkeeper to handle those duties, and we still have a CPA who does our audit.”

Duane Street is also relying on outsourcing. “Originally I met with a bookkeeper in my apartment, but then we found another bookkeeper, Cecile Washington, who does all the data entry online, which is much more convenient,” says Levine. “At this point we’re so in sync that we speak in shorthand to each other. It’s made all the difference in the world.”With more than 20 years of budgeting under her belt, Levine can offer some sage words of advice. “I’ve learned that you should always over-explain things,” she says. “At annual meetings, I go through the budget and balance sheets item by item, and I share my notes on how the board made their decisions. People can be concerned that you’re using their money wrongly, so you have to be as transparent as possible.”

As for the hours Levine has to log, she finds it isn’t all that taxing – at least, compared to the alternative. “I much prefer my current job to being board president, when you have to be on duty all the time,” she says. “As treasurer, I don’t get calls in the middle of the night. Our spreadsheets are in order, our books are balanced, and we’ve got budgeting down to a system,” she notes. “My message to self-managed buildings? Don’t be afraid. You don’t need to have a banking or finance background to get the job done.”

SIDEBAR

Budgeting Drilldown

There are five steps to creating your building’s budget, and for a self-managed building, the first step is probably the most important.

1.    Collect and analyze information
2.    Review plans and goals
3.    Make predictions about future costs
4.    Analyze income
5.    Finalize budget

If you’re the treasurer of a self-managed building, you can’t even begin to think about creating a budget until you have analyzed your income and expenses. To do this efficiently you should be using either accounting software (although there is a learning curve to mastering that) or a simple spreadsheet.To keep track of your expenses, each bill needs to be categorized. For instance, you might have an account called Heating. All your fuel bills will be filed here. At the end of the year, you can see how much you spent in the various accounts. Accounting software or digital spreadsheets (like Excel) can easily total up your annual expenses in each account. Accountant Michael Esposito, a partner at Kleiman & Weinshank, suggests a list of income and expense account categories that can be used for a co-op (below). Your building may not have all these items, but it’s a place to begin.