The financial reports distributed each year before the annual shareholders’ meetings do give a good skeletal look at co-op finances. And it’s worth having a basic understanding of our income and expenses to gauge the impact of, for example, a very cold winter, on the one hand, and an increase in carrying charges, on the other.
Where do we get our income?
The #1 source of income, by a wide margin, is monthly carrying charges (maintenance). Apartment resale fees (the flip tax) account for another large chunk. Everything else adds up to only a bit more than 13% of revenue.
What do we spend our money on?
Over half our budget is spent on taxes and utilities. Labor, payroll overhead, and repairs account for another 30%. As delineated in published financials, here’s the full breakdown of expenses over a 5-year period:
|Utilities and fuel||27.25%|
|Real estate taxes||25.73%|
|Repairs and maintenance||11.67%|
|Mortgage and other interest||3.94%|
|Legal and audit||1.39%|
|State and city corporation taxes||0.57%|
|Mortgage refinancing costs||0.04%|
How has income changed in the past 5 years?
Revenue categories have stayed relatively stable, with apartment resale fees fluctuating slightly based on the real estate market. In 2013, flip tax intake jumped 75% over 2012 — $2.3 million — as apartments returned to the recovering market.
How have expenses changed in the past 5 years?
Here we can see a bit more variety from year to year. Taxes have increased 26.7% ($1.27 million) over five years. Fuel costs vary by $1.7 million from low to high, and that does not yet include this past winter’s fuel bill. Other expenses show a consistent trend upward by small margins.
What’s driving expenses?
Primarily, outside forces: taxes, fuel costs, and inflation (though most of the gradual increases above are all greater than inflation in the same period of time). There’s probably a limit to what can be done to keep these expenses down. The co-op management has no control over real estate taxes, fuel costs, or weather. Labor costs should be expected to increase each year, by a reasonable amount. It’s possible that costs of repairs and maintenance could be controlled, or that the jump in legal fees could be mitigated. But, as the chart above shows, any savings in these areas would have a small effect on the overall budget.
What will income look like in the future?
Flip tax income should tend to gradually decline as 1st-time sales decrease and more sales pay lower fees. If the real estate market continues to grow, flip taxes will follow suit, but still at less than the market rate because of the decreasing number of 1st-time sales. Flip tax revenue is likely to decline as a percentage of co-op income over the long run.
Carrying charges and parking fees remain flat unless explicitly raised by the board. Rents are, for the most part, locked in to long-term leases, but a full evaluation of all co-op stores, offices, and communal areas could reveal small opportunities for extra income.
What if taxes increased another $1.25 million in the next five years? What could the co-op do to raise revenues to match? Well, a maintenance increase of about 1.5% each year would cover that increase. Or parking rates could be raised by 38% each year. Laundry rates could triple every year — so that by 2019 a load in the washer plus 30 minutes in the dryer would cost you $26. Any of these methods would raise the same amount of money from shareholders. Which makes the most sense?
There are a lot of details I don’t have access to, and others I’m glossing over. But I hope this helps understand the scale of the co-op’s budget — currently at $23 million — and the kinds of choices available to the board, management, and shareholders.