Tis the Season - For Budgets

Before we know it, Christmas will be here, with the attendant hustle and bustle that's supposed to make it a wonderful experience, and often leaves us frazzled and in need of another holiday.

This is also the time of year when many condominium boards are struggling with their annual operating budgets. Having just finished drafting ten budgets in about the same number of days, this is a topic near and dear to my heart. Fortunately it isn't rocket science, but it does require a certain amount of experience and skill to juggle the demands of aging properties against market pressure and the very real economics of household budgets.

When Alberta legislated the requirement for reserve funds and regular (every five years) reserve fund studies, the days of allowing a condominium to fall into disrepair and decline were presumably over. To a large extent that is true, but that doesn't make the task of finding the financial resources to complete major projects or properly maintain the common property of a condominium any easier. Those with the misfortune of a December 31st financial year-end also face the challenges of sending out a Christmas newsletter and the announcement of an increase in condominium fees in the same month.

The underlying premise I use when drafting an operating budget is that the cost of operating the property is one bullet that can't be dodged. A corridor renovation might be postponed for a year until the finances are in better shape, but the gas and electrical bills have to be paid, and landscapers and janitorial services don't work for free, even at Christmas time. If finances are tight, the basic services have to be covered first and foremost.

There are also times when a special assessment is unavoidable. Those words strike fear in the hearts of most condominium owners, but the prudent board and manager will look at the purpose of the special assessment and create payment terms by owners around that purpose. Quite often a special assessment will be utilized in order to adjust the reserve fund balance and bring it in line with the projections of a new reserve fund study.

That may mean that the owners can make quarterly or semi-annual payments over time, rather than having to come up with the entire special assessment at the time that the budget is released to the owners. As a general rule of thumb, I look at the affect that a special assessment will have on the resale value of units in a condominium. Potential purchasers will look at the operating budget, and if the budget is clear, see that the selling owner will be helping to bring the reserve fund on track before the sale and purchase takes place.

For this reason it's often best to contain the special assessment within one budget year. This avoids having selling owners faced with pre-paying a special assessment that might be straddled over two or more budget years. It's also important to communicate very clearly the purpose of a special assessment, so that owners are reassured that special assessments won't become an annual source of revenue to their condominium corporation.

And while we're on the subject of Christmas newsletters, don't forget to tell your residents when the Christmas lights have to come down in January!