Budget Planning

Thanks in advance for any help you can give - I am trying to think through what boards need to consider this year when putting together budgets in addition to the normal operational comparison and cash flow. Below is my preliminary list, do you have any other suggestions that in this economy and regulatory changes:

Foreclosures
· Line item for bad debt
· Does anyone have something that can be an industry standard?

Impact of the Cost of Oil
· Review of Reserve Study – asphalt (pricing was done when cost was $60 a barrel)
· Costs of Contracts - Landscapers

Insurance Review - Workers Comp Heiman v. Workers Compensation Appeals Board (2007- 149 Cal.App.4th 724).
· Situation: Even if an Association has no employees, it can still have workers compensation liability exposure. In a recent decision, the Court of Appeals held that an Association and its managing agent were both liable to pay workers compensation benefits to an injured worker employed by an uninsured and unlicensed contractor.
· Decision. Since Hruby was an unlicensed and uninsured contractor performing work for the Association, in Heiman v. Workers Compensation Appeals Board the court concluded that both the Association and its management company were the employers of the injured worker, and both were liable to pay him workers compensation benefits.
worker’s compensation insurance, fidelity bond, HOA liability policy, and D&O liability policy. If an HOA balances the "cost-risk" factor of a worker's comp policy, it seems likely that the $600 or so annual cost, even when there are no employees, is a small price to pay for considerable protection. And managers, if you like the protection, and the HOA is hesitant, perhaps offering to deduct all or a portion of the cost from the annual contract fee is a small price to pay. I am not trying to promote insurance sales here, but do believe the parties should be aware of risks and available "antidotes" to risk factors.

Regional Flood Control
· The Regional Flood Control workgroup, in order to meet the requirements of NDEP and EPA are drafting ordinances regarding BMP’s to control water run-off during the construction period and the post construction period. The BMP’s will likely include a requirement that associations with private streets provide twice monthly sweeping.

We make any contractor/subcontractor provide a copy of their insurance certificate, workman's comp certificate and vendor's license before they're allowed to work on property.

There is no way we could put "bad debt" as a line item in our budget.

(I think this is a computation that results from a side conversation within the Finance Committee, and that all expenditures ought to be reduced in anticipation of the "debt" - which you may or may not have.)

Re-visiting the budget quarterly would be a better solution, IMHO.

Here in Nevada we have some well publicized issues with foreclosure and bad debt. We are required to review the financials at least every 90 days... believe me when I say we do. In order for us to follow the financial policy the board has adopted the officers check the deliquency records monthly.

However, the law only allows us one shot at putting together a budget for the whole year. (NRS 116.31151 - tied to the beginning of the fiscal year.) So we need to project very carefully what may be bad debt... So looking at the cash flow and then taking into consideration an estimate of the number of homes which were sold between 2005 and 2007 we are looking at the federal reserve site:

http://www.newyorkfed.org/mortgagemaps/

- to make a best guess equation at what we are going to have in bad debt. Our issues are coming from not so much the unit owner/resident. But the foreclosure/mortgageholder/bank who isn't taking title and not paying assessments. If the resident isn't paying assessments, and going into 6 months of not paying assessments, it's a pretty close guess that they may be going through mortgage meltdown, especially if the home was purchased in 2005 and has no equity now. But then the banks are taking the homes, not paying the assessments, and not recording title, and then sitting on the property for up to a year, evidently hoping that the market will change. In the mean time, the HOA moves on in operational expense.

Take it to the next logical step - foreclose on the bank - and so we need to put in for the attorney and the vacant property insurance and a property manager....

Line item for bad debt - That's a must...

But what else should we be thinking about in a recession?