Yalnes, Inc. Blog

A Resource for Condo Owners

Trimming Association Budgets By Auditing Utilities

On average, 25% of the budget of a “typical” Condominium Association goes to utilities.  “Typical”, for the purposes of this article, is an Association a) without a Master Association, which pays for some or all of utilities; b) that does not sub-meter water consumption and charge individual owners for their water use; and c) that does not contract for TV or Internet subscriptions for the benefit of the individual owners.   Twenty five percent is a substantial portion of the budget and is worth looking into on a much more detailed level.   We will review the most typical “common area” utility expenses Associations generally incur and ways to cut each one of them.

Water / Sewer – Associations often pay for water consumption for the entire Community, which includes use by individual Units and the common areas (irrigation systems, closed-loop hydronic HVAC systems, swimming pools, fire sprinkler systems, and more).

Tracking consumption and comparing it with prior years is one of the best things an Association can do.  Doing so will quickly reveal even a relatively minor plumbing leak (it is surprising how much water a “minor” leak will put down the drain).

Pro-active and ongoing communication to the residents, advising of the importance of checking their homes for leaks, will go a long way; however, there are a few things each Association can do to simply trim its expenses even without reducing the water consumption.

Water utilities have sewer charges, which are often based on water consumption.  Things like irrigation systems (roof top gardens, lawns, etc.) do not utilize the sewer systems, which is what sewer charges are designed to pay for.  Many buildings have separate meters for the irrigation and the fire systems; however, they are not always designated as such by the utility companies and thus get sewer charges.  If the Association has only one main water meter, sub-meters could be installed on the irrigation systems, closed-loop hydronic heating and cooling systems, and fire sprinklers.  Once installed and communicated to the water utility, those sub-meters will be removed from the utility’s sewer billing system.  Someone would need to take the readings and report them to the utility company.  Check with the utility provider in your area for the exact procedures as most utility companies have a process in place which allows exclusion of certain water consumption.

Telephone – How many phone lines does your Association have?  Are there two for each of the fire panels and two more for the elevators?  One more for the intercom?  At the rate of $30-$40 per phone line, the Association’s monthly phone bill will quickly surpass any “reasonable” amount an Association should pay for telephone service.  Most counties (and/or cities) require a primary and a backup line for the fire panels and the elevators.  The primary lines usually have to be dedicated to the equipment they are intended to serve, but secondary / backup phone lines can often times be “shared”.  Piggy backing the intercom and the secondary fire alarm phone lines will cut the Association’s expense substantially.

Radio transmission, at half the cost of a phone line, is also available from most fire alarm monitoring service providers.  Converting to radio transmission does require some up front capital, but it is quickly paid off by savings from the reduced number of phone lines.

Associations should also consider removing long distance functionalities from the intercoms.  While, many people now keep their same cell phone numbers when they move across the country, there are creative solutions where, with a few clicks of a mouse, a resident can have an internet based local phone number, which forwards to their out of state cell phone at a little or no cost to them.  Check your Association’s phone bill – the long distance charges may add up to ~ $20 / mo, which does not seem significant until it is multiplied by the number of phone lines the Association has.

Electricity – electricity is one of the hardest utilities to analyze and audit.  Assistance of engineers, energy savings consultants, and the expertise of electricians is almost always required.  There are, however, a few simple solutions such as replacing incandescent light bulbs with more energy efficient ones, installing motion sensors in the common area restrooms, keeping only half of the lights turned on in the corridors during off-peak hours, etc.  If the Association pays for electricity consumption within individual units, owners should be encouraged to use energy efficient appliances, install automatic programmable thermostats, and use energy efficient light bulbs.  A qualified consultant can perform an audit of your building’s energy efficiency and advise how long it would take to realize enough savings to cover the cost of replacing outdated windows, worn out door seals throughout the community, adding insulation where it is lacking, or taking other steps to reduce energy consumption.

Natural Gas – natural gas goes hand in hand with electricity.  Natural gas generally powers fireplaces and heaters and is also tough to audit for an inexperienced person.  Similar to dripping water faucets and leaking toilets, fireplace pilot lights, which are on 24 x 7, use a substantial amount of natural gas.  Reminding residents to keep the pilot lights off during summer months will go a long way towards reducing Association’s natural gas bill.

There are also multiple “green living” and environmentally-friendly solutions.  More and more Associations install solar panels, add sensors in the garages to run exhaust fans only when a certain level of carbon monoxide is reached, collect and re-use rain water for gardens and roof decks, encourage more recycling and composting rather than sending waste to the landfill (which is more expensive than recycling), etc.  Grants and rebates to alter the existing systems are often available from utility companies and local and federal governments.

A thorough review of Association’s utility bills can greatly reduce that 25% of expenses allocated to utilities.  Every Association should look into these opportunities and pass on the savings to each of the owners.

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December 6, 2011 Posted by | Aging Associations, Budget, Planning | Leave a comment

Aging Associations: Helpful Strategies for Older Homeowner and Condominium Associations

Are Aging Associations different from New Associations? Maybe.

Self-Managed vs. Professionally Managed

  • Role of the Board of Directors and the management company: The Board of Directors is the main governing body of any Association.  Individuals elected to the Board are volunteers from the Community and do not always know all aspects of managing an Association.  It is important that the Board of Directors surrounds itself with experts and relies on them when making decisions.
  • Which professionals work with the Association: A professional management company is just one of those experts and provides bookkeeping services and leadership to an Association.  The management company does not have answers to all questions either; however, knows when to involve an independent professional.

Most Associations establish relationships with various professionals – attorneys, CPAs, insurance brokers, reserve consultants, and many others.  Those professionals are important to every Association and should be viewed as trusted advisors with expert knowledge in their field.   

What is an Association and what does the Board need to know?
So, you are elected to the Board.  Do you know your duties and responsibilities?  Do you know the needs of the multi-million dollar corporation you’ve been put in charge of?  Where do you start?

  • How was the Association managed in prior years?
  • Does the Association have a maintenance plan?
  • Does the budget cover all of Association’s needs?
  • Does the Association have a Risk Management Plan?
  • Do the governing documents comply with current laws? 

Maintenance Issues
The Association is generally responsible for proper maintenance of all Common Areas and in some instances must ensure individual owners maintain their Units. 

  • Routine maintenance includes regular day-to-day maintenance of common areas.  Some routine maintenance is taken care of through recurring contracts with independent vendors (elevators, HVAC equipment, fire alarms, landscaping, janitorial, etc.)  There are also non-contract maintenance needs – carpets, windows, gutters and downspouts, lighting, etc. 
  • In addition to routine maintenance, each property has its long term needs – replacement of roofs, painting of the exterior, paving of streets and sidewalks, etc.  Proper routine maintenance will pro-long the life of these major components. 

The best way to identify major components is to have a reserve study (a new law was passed in Washington on June 12, 2008 requiring Associations to have reserve studies done an independent professional).  A reserve consultant will visit the property, list major components, “inspect” them to determine remaining life, will provide a replacement estimate, and recommend a funding schedule for the Association to meet its long-term financial needs.

Financial Planning
Community Associations are non-profit corporations and must cover their expenses.  A budget should include short-term (12 months) and long-term (up to 20 years and more) financial needs of a Community. 

  • Operating or short-term expenses generally include utilities, routine maintenance, professional services, and insurance. 
  • Replacement budget includes expenses of non-recurring nature (less frequent than annual).  A reserve consultant will help with replacement budget by preparing the reserve study; however, the reserve study should be updated regularly (new law requires the reserve studies to be updated annually and at least once every 3 years by a reserve study professional) to take into account increased costs of construction and deferred maintenance of major components which may have shortened their remaining life. 

Once the upcoming expenses of the Association are known, the revenue can be calculated.  The majority of the revenue comes from member assessments.  Some Associations will have additional income – for example, interest on Association’s cash assets, move-in/out fees, use of common amenities, etc.  In addition, the Association must take into account delinquencies, if any.  Non-payment of assessments may result in Association finding itself short of operating cash.  While borrowing from reserves is possible, it should be the last resort because doing so will impact the long-term financial planning.  New “reserve study” law has some provisions and guidelines an Association must follow prior to using reserve funds for operating and/or unexpected expenses.

Insurance and Risk Management
There are various insurance policies each Association should have.  Some of them are required by State laws and governing documents.  They include property policy, general liability, D&O, Fidelity Bond/Crime, worker’s compensation, if there are employees, and an umbrella. 

Risk Management Plan of an Association should analyze Association’s exposures (physical and liability), take into account existing insurance coverage, and define ways to minimize risks. 

Disaster Planning is another component of Risk Management.  Every Association should develop a Disaster Plan and provide a copy of it to all residents.  A disaster plan would include information on where shut-off valves are located, who will shut off utilities in case of an emergency, how the evacuation will work, etc.

Legal and Governance
Governance of a Community is more than just compliance with CC&Rs.  There are multiple State and Federal Laws which govern how Associations operate and some of them may trump existing provisions in the CC&Rs.  Because laws often change, an Association must keep itself apprised of the legislature and amend the governing documents as needed. 

Staying current with industry trends is also important.  As society evolves, Associations need to revise their governing documents and the way they operate to protect their interests and their members. 

This also applies to decision making.  The Board has to identify which decisions they have the authority to make and which decisions require vote of the membership.  How decisions are made is equally important.  Before the internet and email, all decisions were made during meetings.  Now, Boards want to take advantage of modern technology and make decisions over email; however, it may not be legal.

Enforcement of Rules and Regulations – the Boards used to be able to send a violation letter to the owner and start levying fines or take other actions.  This is no longer true.  The industry trends have changed and so did the laws.  Majority of Associations now must give notice to an alleged violator and give them the opportunity to be heard before any enforcement action can be taken.  Boards also need to know which rules can and cannot be enforced.  Restrictions which were ok in the past may not be legal anymore.

So, are Aging Associations different from New Associations?
Proactive Associations do not find themselves in Stone Age

Forward looking Associations will stay on top of their maintenance needs and ever changing society, will keep their governing documents updated with industry and legislature changes, and will have enough funds to ensure smooth operations.  Community Associations Institute is an excellent resource for information and networking opportunities.

December 15, 2008 Posted by | Aging Associations | , , , , , , | Comments Off on Aging Associations: Helpful Strategies for Older Homeowner and Condominium Associations