Preparing Co-op Budgets in an Age of Austerity
By Herb Cooper-Levy
As co-op managers and boards begin to think about preparing their budgets, they are faced with a series of new concerns. Co-ops that count on HUD funding for significant parts of their operations have to plan on probable reductions in HUD funding.
The recently enacted debt ceiling limit makes clear that more budget cuts in Housing are likely. While the FY 2011 HUD budget maintained rental and operating assistance, it cut the HOME program by 12% and the CDBG program by 16%. When it came time for the Congress to adopt appropriations bills for this fiscal year, it was HUD funding that both houses agreed to cut in order to pass the bill.
The FY 2012 House of Representatives passed budget resolution contains further deep cuts for Housing. Cuts will be at least another 14%. (The resolution targets groupings of agencies. HUD is grouped with Transportation and some independent agencies. The overall group will receive the 14% cuts in the House bill. That means that Housing could be cut even more.) The House of Representatives passed the FY 2012 Agriculture appropriations bill. Rural housing appropriations contained in that bill have deep cuts, cuts that will cause currently housed families to lose their housing.
While the recently passed debt ceiling bill does not go into specifics about its impact on Housing programs, it does contain $2.3 trillion in cuts between 2012 and 2021. With this year’s Congressional appropriations actions in mind, Housing programs are bound to be hurt by those cuts.
What we have is a scenario of having completed 7 lean years as it relates to Housing funding, we can expect 7 even leaner years to come. With this as a backdrop, what can co-op managers and boards do when preparing a budget anticipating these probable cuts?
First, plan on reduced HUD funding. For example, if your co-op has benefitted from CDBG funds in recent years to fund site or unit improvements, don’t plan on continuing to receive those funds. If your funding was for multiple years, expect next year’s and following years’ funding to at least be significantly reduced. While contractual commitments like FHA 236 Interest Reduction Payments won’t be affected, income from tenant assistance payments could well be reduced.
Second, increase your marketing efforts to reduce potential vacancy losses. Consider making improvements to your grounds and property to increase your curb appeal so that your cooperative is the most desirable place in your community to live. Seek opportunities for positive local media coverage for events in your co-op and consider paying for advertising.
Third, look for other ways to produce revenue for your co-op. Review your laundry and vending contracts to see if they might produce additional income for your co-op. Look at the fees you charge members for the use of community rooms, late fees and other charges to determine if those fees can be increased. If your co-op has space that is not being used and that space can legally be used for commercial purposes, consider leasing that space. If there’s unused parking or land that is not being used, and if that property might be developed, consider selling or leasing that property.
Fourth, look for ways to reduce your expenses. Have your property management firm bid your contracts, especially your property insurance, to see if savings are possible. Consider changing your property management agreement so that you can solicit bids and possibly save on this expense. Seek a reduction in your property taxes. Consider refinancing your mortgage if your mortgage can be refinanced and rates might be advantageous.
Finally, cooperatives can inform their members of the impacts from the loss of HUD funding and encourage their members to communicate with their elected representatives.
It’s not currently possible to determine the exact effects on HUD funds from the recent debt ceiling actions and the mood of Congress, but it is prudent for cooperatives to plan for reductions in HUD funding. Cooperatives can draw from their strength to reduce their vacancy losses, increase their revenues and reduce their expenses.
Herb Cooper-Levy is Director of Business Development for Jeffrey Charles and Associates, a property management firm that specializes in cooperatives and other ownership associations