CUTTING COSTS TODAY

Diana Pons has been president of her postwar, 50-unit Murray Hill co-op for 20 years. When economic storm clouds began gathering last year, the board decided a major roof repair — and accompanying assessment — would have to wait.

"We don't know what will happen to our shareholders," explains Pons. "Some might get laid off their jobs, so this is not the time to assess. If three to five shareholders lose their jobs, that could create a serious problem for us financially."

So the board chose to get the roof inspected regularly and put off the major repair. "We'll refinance our mortgage in 2012," says Pons, "and we'll build funding in so we can do projects that need to be done, like the roof, or that we want to do, like hallway carpeting and stairwell lighting."

Before you economize, you

must prioritize and scrutinize.

The board has resisted the seductive temptation to keep maintenance artificially low in these tight times, a method of economizing that frequently backfires. "Generally, we prefer to raise the maintenance a couple of percentage points a year, whether there's a recession or not," Pons says. "This year, in January, we raised it five percent, a little bigger than normal. Our thinking was that fuel costs are not going to stay as low as they are right now, insurance is going up, and you never know what the city is going to do with taxes."

No Reserve Fund

Unfortunately, raising maintenance preemptively is not always an option. In one of the city's oldest co-ops, located in Brooklyn's Sunset Park, the belt simply can't get any tighter.

"Nobody wants to pay one more penny," says Carol Carson, board president at a 16-unit walk-up co-op erected during the First World War and converted in 1922,. "We have a higher maintenance and assessment than anybody else in the neighborhood, so it would be hard to sell an apartment right now. Yet we're borrowing from Peter to pay Paul all the time. The shareholders can't afford to pay any more than they're paying."

When Carson, a retired nurse, moved into this working-class building in 2001, she quickly learned it was a seat-of-your-pants operation. The underlying mortgage had been paid off in the 1940s. Capital improvements were either not getting done or were routinely assigned to the lowest bidder, and were always paid through an assessment. There was never a reserve fund. Maintenance was rock bottom. Physically, the building was in distress.

After Carson was elected to the board five years ago, she tried to turn things around. The board got a structural engineer to assess the building's needs, then replaced the oil-burning furnace. The board also secured a $200,000, 10-year mortgage in 2007 and used the money to replace the roof, repair bricks and mortar, replace all window lintels, and redo the concrete sidewalks, alley and courtyard. In 2008, shortly before the economy began its nosedive, the board voted to retrofit the furnace so it could burn gas as well as oil. Cosmetic work — painting fire escapes, cleaning marble, repairing stained glass and tile floors — has been put on hold.

The mortgage necessitated assessments, and maintenance was increased several times to cover rising operating expenses. Although her own maintenance has doubled since she moved into the building eight years ago, Carson feels it's still artificially low, a sentiment not shared by all of her fellow shareholders.

"If a pipe bursts, we'll have to have another assessment because we don't have any money in reserve to pay for it," Carson says. "I would like to have a modest reserve fund of $30,000 because every time something happens, I have to juggle who to pay first. I think the maintenance should have been higher still, but you can't ram that down people's throats. It should be raised about three percent every year. At least that way, a reserve fund can tide you over. You have to plan ahead and know when your bills are coming due and lay some money aside."

Attorney Ronald A. Sher, a founding partner in Himmelfarb & Sher, urges boards to get hardnosed if the economy worsens. "Boards have to make sure they're vigilant that shareholders and unit-owners are current in their monthly payments," he says. "Plenty of boards wait three, four, five months before they refer [arrears] to counsel," he says. "But boards are going to suffer hardships if they do that."

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