Teachable Moments: Real Ways of Making Your Budgets Bend to Your Will

Stuart Halper
Principal, Impact Real Estate Management

One of our cooperative boards was concerned about Fannie Mae's new requirement that they budget 10 percent of the co-op's revenue for reserves. The board believed that the current maintenance was extremely high. The members were dead set against increasing the maintenance to cover this new regulation because they believed their reserve fund balance was sufficient (about $150,000) for a 60-unit cooperative. The risk of not complying and having large banks reject prospective purchasers' loans to purchase units was at issue. With management's help, the board scrutinized the budget and shifted the revenue lines to create the budgeted line item "monies to reserve," while reducing non-fixed expenses by the respective amounts that would could be absorbed by the reserve fund. These items included unanticipated repairs and maintenance that the cooperative normally would have paid out of regular operating funds. For budget purposes, it was form over substance. The lesson learned? Budgets need to be looked at from many different angles and views.

Anastasios Magoulas
CEO, All Area Realty Services

We recently came across a condominium property in Elmhurst, Queens, that was facing very serious problems that were jeopardizing the many aspects of its operations. We were faced with multiple problems, such as budgetary inequities, building structural defects and nonpayment of common charges by the sponsor. We instituted an operational and financial plan and were able to return to various normal operational activities within a reasonable period of time. With the assistance of an attorney, we presented our case to the Attorney General's office, and the condo received a substantial monetary compensation from the sponsor. Based on this experience, we believe the best way to deal with such serious problems is to have an active and informed board that takes the manager's recommendations seriously.

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