The Gravity of an Unbalanced Budget

Running deficits is no way to run a cooperative or a condominium. It usually leads to shuffling money around – paying off one contract late or shifting payments among contractors – and it can backfire.

“If you’re not paying people on time, then you’re not getting prime vendors and prime rates,” says Stuart Halper, co-owner and vice president of Impact Real Estate Management. “Your management company is also going to suffer because when they call the plumber who wasn’t paid in one building, the plumber’s going to say, ‘Why should I go to this other building for you?’”

Under-budgeting can also backfire. “If you have expenses that you know are going to be a certain dollar amount and then you under-budget intentionally just so you don’t have to have a maintenance increase, then you’re not doing the right thing,” says Alvin Wasserman, director of asset management at Fairfield Properties. Boards have to know which expenses they cannot ignore – such as utilities, staff salaries, and mortgage and debt payments.

The best solution for chronic shortfalls, says CPA Carl Cesarano, a partner at Cesarano & Kahn, is to raise your maintenance or common charges. Experts also say it’s advisable to have an equity line of credit with a lender. “It’s a good cash management tool, provided you’re very responsible over how you use it,” says Cesarano. “It’s like having a credit card – if you go nutty, you get in trouble.”

But let’s say you didn’t plan ahead to obtain a line of credit, and your budgetary squeeze is too urgent to wait for an assessment or for an increase in maintenance or common charges. What can you do?

“They can refinance their debt, or they might have other fees and sources of income available, such as storage rooms or parking,” says Peter Lehr, director of management at Kaled Management.

Or they can try a payment plan. “A lot of vendors will work with you because they’re hungry for the business,” says Halper. “Certain vendors are amenable and certain are not. The oil companies, for the most part, keep everybody on a short leash. When you don’t pay your oil bill and you need a delivery in the middle of winter, the vendor says, ‘You’re 60 days late, you have to find somebody else to deliver the oil – or you have to pay the balance.’”

There’s a pecking order among vendors. “You don’t want to get into that mode, but there are peaks and valleys in your expenses,” Cesarano says. “Things level out during a 12-month [budgetary] period, but during the winter, say, you spend more money than during the summer [because of heating expenses.] There are certain vendors you can pay after the peak – the repair and maintenance vendors and accountants and lawyers.”

But boards should maintain a line of credit and raise the monthly charges responsibly so as not to wind up in this situation. “You incur a liability,” Cesarano says, “you pay it.”