BUDGET 2012! WHAT TO KNOW TO KEEP THE NUMBERS FROM BREAKING YOUR BACK

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In 2001, union health and pension benefits were roughly 18 percent of wages. In 2011, union health and pension benefits grew to approximately 32 percent of wages. It's anticipated that the cost of health benefits will continue to grow. The best we can hope for is slowing down the growth. We can also assume that wages will continue to grow to keep up with inflation.

Heating

Many condos / co-ops use oil to operate your heating plants. Energy costs have exploded over the past several years, with crude oil prices hitting a record high of around $150 a barrel at one point. Many boards have been aggressive in implementing energy savings and improvements in an effort to contain energy costs. Heating plant components have been replaced to improve efficiency, dual-fuel systems have been installed to enable switching from expensive oil to cheaper gas, new windows have been installed and exterior repairs have been made to prevent heat loss, etc

Unfortunately, conservation has not been enough to hold down heating costs. A comparison of 2011 heating costs reveals a huge increase, in some cases by 200 to 300 percent over 2001. I don't think anyone expects a decrease in energy costs in the future. The problem is global: Demand for oil is greater than the supply. In addition, oil prices are affected by events in the Middle East, arguably the most unstable region of the world.

To add to the problem, New York City has mandated the phase-out of No. 6 heating oil and conversion to a cleaner fuel alternative by 2015, which will probably mean higher heating costs.

Insurance

Cooperative housing and condo associations have also seen astronomical increases in insurance premiums in the past decade. Many have experienced 100 to 150 percent increases; a few have had increases up to nearly 400 percent. In the aftermath of 9/11, premiums skyrocketed as insurance companies attempted to deal with the risks associated with terrorism. The past several years have seen insurance premiums level off. Hopefully, such premiums have stabilized, with modest inflationary increases in the future.

Mortgage Costs

Finally, we have a category where costs have decreased in the past decade. Interest rates have plummeted in the past several years to historically low rates. In some cases, co-ops have been able to refinance their underlying mortgages at interest rates that are around four percent, and many refinanced for interest-only mortgages. The low interest rates have enabled some co-ops to borrow additional funds for building improvements without increasing their monthly expenditures for debt service. Instead of accumulating or assessing for major repairs and improvements, they've borrowed and deferred payment into the future.

I fear that in the future, interest rates may not be as low and the cost of borrowing will be significantly higher; eight percent interest rates are not far-fetched. For boards that took advantage of the low interest rates and increased their buildings' debt, the increase in interest rates will be more painful when you need to refinance. You may be paying higher interest on more debt.

So what, in the end, do we learn from all this data? Overall your operating costs increased by an average of approximately 60 percent over the past decade. The increases vary depending on the type of entity (co-op costs increased by about 62 percent, condos by approximately 56 percent), location (some co-ops / condos in the outer boroughs had only 30 percent increases, while some in Manhattan had 90 percent rises), size of property, number of employees, level of amenities, and so on.

Think about all this, and go work up your budget confidently.
 

Abe Kleiman, a certified public accountant, is managing partner at Kleiman & Weinshank.

Illustration by  Jane Sanders

From Habitat May 2012. For more, join our Archive >>