In December 2008, the National Bureau of Economic Research announced that the United States was in a recession that had started back in December 2007. The official announcement was old news for most Americans.
Most financially savvy individuals, homeowners, property management firms, and association board members started feeling the effects of the economic downturn in 2006, when property values began falling from the record highs enjoyed in the early 2000s. The fall of housing prices cut deeply into home building and home purchases. The corresponding sharp rise in foreclosures resulted in the loss of hundreds of billions of dollars among the nation's leading banks and a tightening on credit options. Association boards and property managers faced the daunting task of keeping HOA budgets balanced in the face of drastic reserve losses and rising operating expenses.
The bad news is that foreclosures and budgets remain a significant concern for many homeowner associations, unit owners and managers. Despite this reality, many boards still realize a budget surplus. Too much money is never a problem, how best to manage it is, explains David Ferullo, CPA for the Red Bank-based The Curchin Group. “It is not common to have large current year operating surpluses since unit owners would begin to question the board’s budgeting and start to question the need to do annual assessment increases,” says Ferullo.
A number of variables could also contribute to a budget surplus. For example, a capital improvement project budgeted from the previous year may have been completed ahead of schedule and at a savings. Additionally, allotted monies for snow removal might not have been used. This scenario played out last year. The freak 2011 Halloween snowstorm prepared people for a forecasted severe 2012 winter season; however, there were hardly any other major snow events.
“For the last several years many associations increased their snow removal budget and, for good reason,” says Jules Frankel, CPA with the East Brunswick accounting firm of Wilkin & Guttenplan, PC. “The problem is if a board uses that surplus for another reason and there is an unusual amount of snow in November and December of that year, there is no money to pay for the services requiring a possible special assessment.” Frankel adds, “It’s also important to note that it is only considered a budget surplus if the board planned it, otherwise it is a surplus at the end of the year, which are two different things.”