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ON THE MONEY

Published: Autumn 2007

MANY CONFERENCE WORKSHOPS ADDRESS FINANCIAL ISSUES
At CNYC’s 27th annual Housing Conference on Sunday, November 11th, there will be many workshops that focus on financial issues to help co-op and condo board members understand their responsibilities in this area. From Internal Controls for Small Buildings to Refinancing the Mortgage, building treasurers, finance committee members and interested shareholders will find many opportunities to enhance their knowledge of financial issues important to their buildings. The Conference Brochure is inserted opposite page 6 of this Newsletter.

COMPARATIVE STUDY OF 2006 OPERATING COSTS
In mid-November, the Council of New York Cooperatives will send to each member cooperative and condominium and each professional subscriber, a copy of the Comparative Study of 2006 Operating Costs, in the hope that the information it contains will be helpful in meeting the considerable challenges of preparing realistic budgets for the year 2008.

CNYC conducted its first operating cost study in 1975 to analyze costs in the thirty buildings on the West Side of Manhattan that then made up the organization’s membership. By 1981, membership had grown to include buildings throughout Manhattan and beyond. Beginning in that year, with costs for 1980, CNYC has been compiling and publishing its Comparative Study of Operating Costs annually.

Over the years, the Study has grown, thanks in large part to accounting firms, who prepare the Annual Financial Statements for many cooperatives and condominiums, and who share this financial information with CNYC. The 2006 Study contains operating cost data on more than 900 housing cooperatives and condominiums, presented in seven databases. All the information is presented anonymously, with a code number assigned to each participant. Member cooperatives and condominiums are advised of their code number in the memo that accompanies the Comparative Study.

The Study is divided into six categories: Condominiums, East Side (of Manhattan) Cooperatives, West Side (of Manhattan) Cooperatives; Lofts, Larger Cooperatives Outside Manhattan, and Small Cooperatives (with 100 rooms or fewer). In recent years, Small Cooperatives has been subdivided into Small Cooperatives in Manhattan and Small Cooperatives Outside Manhattan (this year they are all in Brooklyn).

The Study analyzes on a per room basis the annual costs involved in operating a building. Whenever possible, the Study includes the assessment and mortgage balance for participating cooperatives.

The data for each participating building begins with the carrying charges (maintenance) per room for that year. In then breaks out the operating costs for labor, fuel, utilities, repairs and maintenance, insurance, management, administrative costs, water& sewer fees, property taxes and debt service. When it is possible to do so, the costs for elevator maintenance, and legal and accounting fees are presented separately (often elevator costs were simply included in repairs and maintenance and all professional services are presented collectively – in which instance, they are included in Administrative costs).

A second chart in each category presents summary statistics, capturing the range of costs for each item and calculating the average and median for each and the portion of operating costs typically devoted to that item. A 10-year recap of this data permits identification of trends.

The Comparative Study of 2006 Operating Costs will soon be sent to all CNYC members and subscribers. Additional copes will then be available in the CNYC office for purchase at a cost of $15.

NEW YORK STATE STAR REBATE PROGRAM
Home owners throughout New York State who are registered for the STAR program in their primary residences have received a notice from the State about its 2007 Middle Class STAR Rebate Program. This is a new State program which exists in addition to the STAR rebate that we have been receiving from the City as a credit on our property taxes. It is for home owners with a family income of less than $250,000.

To qualify, each home owner must complete Form DTF-179 or register online by November 30, 2007 (legislation has been proposed in Albany which may extend this deadline to December 31, 2007). Registration includes providing access to your 2005 Income Taxes. Many people have disregarded this notice, which provided them with the code necessary for quick online registration (the rebate check comes surprisingly quickly thereafter!) Please remind the shareholders or unit owners in your building to apply. For information, call 1-877-678-2769 or read about the Middle Class STAR Rebate on the State Tax website at www.nystax.gov.

WATER RATE INCREASE
On the heels of a 11.4% increase in water rates in July 2007, the Water Board has recently announced the need to institute another increase in January, 2008 that could be as high as 18%. The Water Board is responsible for all of the City’s complex water system, including upstate reservoirs, water tunnels, distribution systems and maintenance of water quality. All of these services are funded from the water rates. Delinquencies are on the rise, in spite of considerable billing and collection improvements recently instituted by the Department of Environmental Protection. Since the Water Board must ensure sufficient funds to meet its obligations and service its considerable debt, it has announced this possible rate hike.  An increase in water rates brings an increase in sewer fees, which are 159% of water rates.

In response, the City Council held an oversight hearing on October 22nd. Many suggestions were offered to mitigate water costs to rate payers, including more assiduous pursuit of those who fail to pay for this vital service.

The Water Board has pledged to continue to explore every means possible to avoid or to minimize the rate increase. CNYC will follow this issue closely and will keep members advised. 

BUDGET CONSIDERATIONS
November is the time when conscientious board members in cooperatives and condominiums everywhere examine their financial situation and their goals for the coming year and try to establish a budget that will meet the basic needs of their buildings and enable them to undertake new projects.
No one wants to be part of a board that brings huge increases to carrying charges for themselves and their neighbors, but no board can, in good conscience, ignore the need to enact budgets designed to meet the ongoing needs of their building. A board should not fall into the habit of using capital reserves to fund operating costs or counting on as-yet uncollected transfer fees to bridge shortfalls. Instead, boards have a fiduciary responsibility to act always in the best interest of the cooperative or condominiums. Annual modest increase in carrying charges should enable the building to meet its obligations without the need for huge ‘catch-up’ increases that inevitably become necessary in the other buildings.

In recent years, cooperatives and condominiums have had to cope with many budgetary challenges as energy, insurance and labor costs have soared. And 2008 is a year of many uncertainties. Below are some reminders and some suggestions for boards as they prepare their budgets.

Labor Cost Contain Questions. Residential buildings whose employees are members of Local 32BJ are committed by contract to increases in January and in July. Naturally these will be accounted for as you prepare your budget. But there is likely to be more. The contract for the Commercial members of Local 32BJ expires on December 31, 2007. It is the practice for all benefits for all members of 32BJ to be negotiated in this agreement and to take effect with the new contract on January 1st. While it is prudent to budget for some increase in benefit costs, the increase should not be very large. The Union health plan is now well funded thanks to special contributions that employers agreed to make to save it from the brink of disaster three years ago.

Fuel Is Problematic. Predictions of 22% increase in fuel costs for this winter have many buildings concentrating on ways to save energy by fine-tuning their boilers, sealing drafts and leaks, encouraging residents to seal unused windows. There are predictions of a mild winter, but no prudent board will rely on this. Every budget is likely to include increase allocation for fuel.
Repairs and Maintenance. Dollars invested in energy conservation measures large and small will have swift payback thanks to its positive impact on your fuel and electric bills.

Insurance Rates Improve. Insurance rates tend to follow cycles, but rates jumped after the events of September 11th, 2001 and are only now beginning to plateau or to turn mildly downward. 2008 could be the year when your building’s premiums remain at or near the level of last year.

Property Taxes. Property tax assessments are published each year in January and finalized in the spring (every building has the right to protest their assessment by filing prior to March 1st). The tax rate for fiscal 2007/2008 was established last spring, so that every building knows exactly what its property tax liability is for the first half of 2008. But the second half is subject to much conjecture.

The property tax abatement program for home owners in New York City cooperatives and condominiums will sunset on June 20, 2008. This program has been in place since 1997, and will doubtless be extended prior to the deadline, but there is no certainty at this point concerning modifications that may be made. Nor will the successor legislation necessarily become law in time to be applied to tax bills in July or October (see pages 2 and 7). A prudent board will provide for the worst while hoping for the best.

Because the tax rate was set at budget time this year, the Department of Finance was very early in sending to send cooperatives the breakdown information on abatements and exemptions which must be credited to qualifying shareholders before June 30, 2008 when the fiscal year ends. Most cooperatives made the distribution for fiscal 2006/07 during the spring of 2007. Prudent budget planning should include waiting until 2008 to make the distribution for fiscal 2007/08 (particularly since the possibility does exist that the abatement program may not continue or may not continue in its present form).

Water Rates. As explained above, an increase in water rates in January is virtually a certainty, and there will doubtless be yet another increase in the spring. This argues for water conservation measures in your building: The boiler uses water; older washing machines use more water than newer, more energy efficient machines, Most buildings allow staff to clean the sidewalk by hosing it down from April through October when this is permitted by law. But, in addition to wasting water, this sends the debris down drains and ultimately into the river; sweeping would be equally effective in removing leaves and debris, would save water and would help the environment. Do not fail to budget amply for water and sewer cost increases in 2008.

At CNYC’s 27th annual Housing Conference on Sunday, November 11th at Baruch College, Steven Beer ill present an afternoon workshop on The Budget.

EXTENDING J-51 PROGRAM
The City’s J-51 program was established more than 50 years ago to encourage owners of rental property to upgrade their buildings. It provides incentives in the form of tax abatements for capital improvements made to the building.

As rental buildings are converted to cooperative or condominium status, current law permits them all to qualify for J-51 for capital improvements made during the three year period following conversion. Many cooperatives and condominiums continue to qualify thereafter, provided that their tax assessments do not exceed an average of $40,000 per unit. This ceiling was established in 1992 and is in serious need of upward adjustment.

Landmarked buildings receive special consideration under J-51.
The J-51 program has continued to exist through the decades thanks to constant renewal of its authorization, first through enabling legislation by the State and then by the City Council. The current program will sunset on December 31, 2007; the State legislature has authorized its renewal, and extension thru December 21, 2011 is currently on the agenda of the City Council. CNYC has written in support of this valuable program and has requested that the $40,000 assessment cap be raised so that it will again fulfill its intended purpose of enable all moderate and middle income buildings to qualify for help when improving their buildings.

There are experts who can help you determine if your building qualifies for J-51 tax abatement on capital improvements that you may be contemplating. Contact the CNYC office at 212 496-7400 for referrals.

 
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