Budget Fudge It

Nov 3, 2014
A fundamental duty of the Board is to provide the community with a budget for the following year by December 1. This is arguably our hardest and most important job. Our General Manager Rosy puts many, many days into this and the Board typically goes late into the night at October and November meetings.  It would certainly be easier if we could fudge it! But, we don’t.

After many years of budgeting, you might think it gets easier. Not! It’s not even one budget, it is actually 10. There are 3 Product Types plus Common and each has operating and Replacement Reserve budgets plus our Capital fund and Recreation Area budget. That is why we get the Big Bucks but don’t try to find them in our budget.

To do the job right, we use the classic management techniques known as: Deep Do Do, Total Community Value, Goldilocks and Pay Me Now or Pay Me Later.
Just review last year’s budget and expenditures and update them! Of course we Do Do that. It’s great for some major items such as lawn and tree maintenance, snow removal, gate attendants and trash, especially when they are under multiyear contracts. Deep Do Do works but even so it is not simple with for example 7 contractors and 13 villages for turf and snow.  
Every year brings new challenges. This year we are working against a 25% insurance cost increase (nothing to do with the new REC project). It reflects the broad increase for many insurance products in our market. We are considering our options under Total Community Value. One is to increase the HOA threshold coverage from $5,000 to $10,000. That would require homeowners to raise their own coverage. Under TCV we won’t do that if the average increase to homeowners exceeds the pro rata savings. Last year in a similar TCV mode we added leaf removal for Single Family Homes at a small fraction of the cost homeowners were paying individually.

We also spend a lot of time on our 4 Reserve Fund budgets. Every few years we commission a new Replacement Reserves Study. This gives us an updated estimate of RR expenditures and funding needs over the following 30 years. For roofs, we are at the midpoint of our $3,000,000, 10 year roof replacement project and only minor adjustments are needed. There are major down the “road” expenses for driveway and street replacements. Forecasting expenditures decades in advance is obviously not an exact science. We need to start funding for them decades in advance. The margin of error is great. If we try to be too conservative in funding our monthly fees can skyrocket. If we are too optimistic we can get stuck down the road with not enough money. We really need to get it just right and that is when we invite Goldilocks

When it comes to snow it is truly Pay Me Now or Pay Me Later! Traditionally, we used a rolling 5 year average which seems fair and reasonable. But that has problems. Two of the last five years were well above average, above $500,000 while two were close to zero. The variance is more than the average. This method would lead to a substantial monthly fee increase next year and even then another winter like last would still leave us needing a big snow assessment. We are keeping last year’s snow budget with the expectation if the winter is as bad we will need the appropriate snow assessment again. So looks like Pay Me Later for next year.

Submitted by:
Ed Richman, President, Blue Bell Country Club Community Association Board of Directors.
Mr. Richman also serves as a member of CAI's Board of Directors.

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