Budget
“Balanced budget requirements seem more likely to produce accounting ingenuity than genuinely balanced budgets.”
—Thomas Sowell

“The cold harsh reality is that we have to balance the budget.”
—Michael Bloomberg

“It's clearly a budget. It's got a lot of numbers in it.”
—George W. Bush

Budgets are as important to a condo corporation as they are to our three levels of government. Just think of how much media attention is generated by the federal, provincial and municipal budgets. These budgets are carefully analyzed by economists, the financial markets and our business leaders

Your condo's budget deserves the same level of scrutiny by the owners. Yet, the owners usually give it scant attention. This is unfortunate because the auditor's report is a history  lesson on what happened anytime from three to eighteen months ago while the budget describes what the board has planned for the next fiscal year.

How the fees are determined
The property management company, along with the board, prepares the budget prior to the start of the new fiscal year.

There are two type of  expenses that need to be considered: the operating costs and the contributions to the reserves. Both are equally important and neither should be ignored.

Operating costs
The operating budget covers all the normal expenses that the corporation will spend during the up-coming fiscal year, excluding the major repairs and replacements.

It is best to start with the cost of utilities as they usually make up 30-40% of the operating costs. Then comes the next highest costs; security, property management, the superintendent and the cleaning services.

Then will come service contracts for the elevators, landscaping and snow removal, fitness centre and swimming pool, HVAC systems, garbage compactor and waste disposal, fire panel and systems, emergency generator, plumbing, carpet and window cleaning and parking garage sweeping.

The costs for the HVAC servicing, plumbing, electrical services, drywall and painting, generator maintenance and pest control needs to be calculated.

Then there are office supplies, light bulbs, cleaning supplies, telephone bills, legal and auditing fees; the list can seem endless.

The board and the manager will use the budgets from the previous years and calculate, as best as they can, all expected increases. (Many contractors and the utility companies will send out notices for upcoming price increases or the yearly increases are stated in their contracts.)

Reserve Fund provisions
Having adequate reserve funds is a requirement of the Condominium Act.

In the past, the government has seen where condo corporations have failed to put away sufficient funds to pay for major repairs and replacements that the condo will need down the road.

This has caused tremendous hardships for the owners when multi-million dollar repairs were required and the reserves were empty. The owners were hit with huge special assessments and /or loans that, at times, doubled their monthly contributions and caused many owners to lose their homes.

So by law, the condo must have a current Reserve Fund Study prepared by qualified engineers who will create a detailed report that must be updated every three years.

The study is a written report describing the present state of the building and all of its major components. It then states the life expectancy of the structure and machinery. It will also give recommendations on what repairs and replacements are needed, when this should be done and at times, on how some of these repairs should be done.

At the end of the study, there is a table of contributions that covers the next 30 years. By year, it states how much money should be in the Reserves, how much needs to be put into the reserves and an estimate on how much will be spent.

Usually, the table of contributions is all that the owners ever get to see. The actual Reserve Fund Study is kept in the on-site management office and it is up to the owners to ask to examine it. Unfortunately, very few owners ever look at it, as most don’t even know that it exists.

Top-down budgeting
The budget is created top-down which means that all the costs are calculated first and then added up to get the Grand Total. Now the board knows its estimated expenses.

Bottom-up budgeting
Bottom-up budgeting is what Rob Ford and other cost-cutters do. The desired common element fees increase is determined first and then the line-by-line figures are adjusted until they meet the pre-determined increase.

Revenues
Now that the board knows how much money they need to spend, they have to calculate the condo’s revenues. They take a look at last years condo fees and they subtract that figure from the total expenses and they can quickly determine the percentage increase in fees that is needed.

Cost cutting
The board will spend a lot of time seeing if they can cut costs. The trick is to insure that the condo is getting good value for its owners without compromising the quality of services, skipping on needed maintenance or starving the reserve funds.

This cannot always be done; after all most of the time, you get just what you pay for and no more; sometimes less.

Politics
Unfortunately, there is tremendous pressure put on the board to freeze the condo fees. The board must be able to withstand this pressure. That is why the owners do not get to vote on the annual budgets.

Owners’ informed
It is usual for the budget to be mailed to the owners prior to the start of the fiscal year along with an announcement on what will be the new monthly common expenses.

The notice should include an explanation of all the significant changes in the yearly budget. If there is an increase in the monthly expenses, the owners need to be told why the increases are necessary.

Many owners get upset whenever the board announces an increase in the common expenses. They believe that their condo fees are already too high and instead of going up, the fees should be reduced. Everyone can give an example of other condos where the fees are lower.

No vote
There can be no vote by the owners to accept, reject or modify the budget. It is presented to the owners for information only. When you elected the directors, by majority vote, the owners gave the directors a mandate to make decisions and that included drawing up a budget and the power to increase fees or to approve special assessments as required.

Special owners' meeting
If there are questions about the budget or the common expenses that the manager cannot answer to the owners' satisfaction, then the owners may requisition a special meeting to discuss the budget.


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