Budgeting

Budgeting the unknown amid a pandemic

Planning for unexpected and increasing expenses in condos difficult to anticipate
Wednesday, September 16, 2020
By Andreea Dolnicianu

Condo corporations are facing new budgeting challenges in 2020. Planning for unexpected and increasing expenses—rising costs of contractors, ever-increasing insurance premiums, and reserve fund contributions that are nearing half of an annual budget for older condominiums—is difficult to anticipate.

How will COVID-19 impact budgeting?

It’s hard to predict what we do not know, but most corporations are incurring new and ongoing expenses, especially for interior common elements with sanitizer stations, disinfectant sprays or services, masks, and perhaps even plexiglass shields. If a corporation did not have a contingency plan, this will likely interfere with the current budget and should be considered as normal costs for next year’s budget.

The pandemic has also created novel burdens for contractors who must protect their employees, as well as the buildings they service. Imbedded into their pricing are costs related to personal protective equipment, water and sanitization stations, dealing with shortages of staff who may get sick, having to transport employees in separate vehicles, staggering their breaks, and other unknown factors that will undoubtedly add to their fixed costs—paid by the end user. Such measures are unlikely to let up in the near future and should be considered for next year’s budget.

Projecting expenses to the end of this financial year will be trickier as some work may be postponed (window cleaning, for instance), artificially undervaluing the spending on particular or multiple categories. Special care must be taken for these missed expenditures; otherwise, you may miscalculate and reduce the next year’s budget unwittingly, causing a deficit the following year.

Finding Savings

A few factors could impact savings goals and significantly alter a budget this year. Insurance premiums have skyrocketed and continue to do so; managing an insurance policy has never been more important. Corporations still operate without standard unit bylaws defining the components which the corporation is responsible to insure within a unit.

Being specific in the policy—sometimes even going to a “shell unit” definition of the standard unit or simply removing high-value finishes such as flooring and countertops—could impact both the premium and claims should they arise. Condo lawyers have a wealth of knowledge on this topic; sometimes money is well spent exploring options to find long-term savings. While these bylaws are difficult to pass, the recent adoption of virtual owners’ meetings and proxy collection makes it easier to reach people on this important topic.

Another hefty expense is contributing to the reserve fund study which is usually fixed for three-year periods— the maximum amount of time in which the study needs to be revised. Doing so prior to the three-year term is beneficial.

Some corporations may have saved money on projects compared to the allowance in the study or facilitated maintenance work to prolong the life of an asset listed in need of significant repair. Working with a corporation’s reserve fund study engineer to conduct a pro-forma study can help clarify achievable savings in the contribution for the following year.

Planning for the Future

Budgeting is a time to prioritize what is important for the community. This year, boards of directors and managers should consider the unit owners whose lives are irrevocably altered by COVID-19, both financially and the way in which they work. Since many people now work from home, certain issues affect them more drastically, such as noise, HVAC issues, elevator matters and waste services. Understanding this dynamic is integral to planning for next year and finalizing the budget accordingly.

The goal now is to be flexible. By the way, budgets can also be revised mid-year if they no longer serve the community well. While managers try to avoid this daunting task, it certainly is an option. Consider whether you have any surplus in the bank. This can help mitigate the unknown factors previously mentioned and those yet to unfold.

Lastly, decide as a group whether you prefer to keep expenses low and tight and risk possible deficit in the following year if you must go over budget, or whether you are more conservative and prefer to have a looser budget which accounts for contingencies. Neither is right or wrong; it just goes to prove each community has its own personality, which is what makes this industry so exciting.

Andreea Dolnicianu is chief operating officer at Comfort Property Management based in Vaughan, Ontario.

 

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