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What’s In A Number?

iStock_000008595689XSmallEvery year around this time someone announces the magic number – the average increase in monthly charges those living in High Rise Society will be hit up for.  It doesn’t mean a whole lot.  It’s like saying the average temperature in June is seventy-five degrees, but if you go out on a day that’s only fifty you’ll freeze your ass off.

What really matters is how much YOUR building’s maintenance is going up or down (yeah, right) and WHY.  But before you even get to the bottom line, the question is WHEN were you told and HOW.

Did the board give you a budget?  It’s not required as a matter of law, but you’re the ones paying the bills so I think you have a right to know how your money is being spent before it goes out the door.  And unless they’re flying blind, those in charge have to prepare a budget, so why shouldn’t they give it to you – unless there’s something they don’t want you to see. The first thing is to make sure it’s at break even.  Maybe the Federal Government can spend more than it earns, but no one in High Rise Society is authorized to print money.

Now just because there’s a budget, doesn’t necessarily mean it’s worth the paper it’s written on, something you’ll never know because no one’s going tell you it went through nearly twelve – yes, 12, as in a DOZEN eggs – drafts before time ran out, as I know happened in one building.  In most buildings the outside auditor has nothing to do with the process.  It is spearheaded by management and theoretically overseen by the Treasurer, who could be a podiatrist knowledgeable about feet, though not necessarily numbers.

The Big Three items in most co-op budgets are real estate taxes, mortgage debt service and labor.  (In condos there is no underlying mortgage and real estate taxes are paid individually.)  If these three are under control, odds are so will any maintenance hike, if not, watch out below – I mean above.

Real Estate Tax: It’s not enough to say the tax rate went up (as it did from 13.053% in the last quarter of fiscal 08/09 to 13.241% for 09/10) because the tax paid is a function of two things: rate and assessed valuation of the property. The bigger shocker is that valuations in most buildings also rose.  How is that possible when values of most apartments have gone down, in some cases by quite a lot.  The quick answer is that valuations of buildings are based on rents, not sales prices, and even though market-rate rents have gone down, stabilized rents have gone up.  Whoever said this made sense.

Mortgage Debt: This is a big number, but usually a fairly constant one because most underlying mortgages are relatively long term, and the larger the amount the greater will be your tax deduction so there’s a silver lining. If there’s a significant change in this number it likely means that the mortgage has been refinanced, which the board should have told you beforehand. Then the real issue becomes what are the terms of the loan. In this cheap money climate it’s probably possible (though not necessarily desirable) to increase the amount of outstanding debt without increasing the building’s mortgage payments, or to switch from an interest only to a self amortizing loan that pays down principal and sets the building on the path to debt-free status.

Labor: How much this number goes up is a function of the union contract (negotiated every three years) not the board.  Usually it’s the benefits, not the wage increase (generally around 3%) that hits home.  If the number is higher than what’s mandated under contract, it means a lot is being spent on overtime and some better controls may be necessary.

Assuming a budget is slipped under your door or stuffed in your mailbox, you should read it, not toss it atop the pile of junk mail that will probably sit there till the next millennia.  Otherwise you’ll never know what surprises – good or bad – may be tucked away inside.

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