Understanding State Parkway’s 2018 Proposed Budget

Last night my wife and I received our copy of the 2018 Proposed Budget. Because Lieberman’s budget format is completely useless, I had reviewed the budget details weeks earlier pursuant to an inspection request. I reported the gross errors (which happens every year since the 2007 budget) to Sara Kacheris, but she did not correct the errors let alone acknowledge receipt of my email.

The good news is the proposed assessment increase is “only” 5.156%. The bad news the total assessment increase, including both actual and deferred assessment increases, is 26.348%. And the worse news is Cumulative Deferred Assessment Increases, which will need to be phased in over the next 1-4 years, are now 40.433%. This is because State Parkway’s two biggest expense line items — Net Garage Operations Losses and Reserve Contribution — are each still spiraling out of control.

Let’s go back to the deferred assessment increases. One of the board’s favorite budget tricks is to limit the assessment increase by slashing the annual reserve contribution. In fact, at last year’s budget approval meeting, then-Vice President Howard Robinson lambasted the board for passing zero percent assessment increases (by actually funding the assessment increases by slashing the annual reserve contribution and/or understating Net Garage Operations Losses). Well, now Howard is president, the board and management did the exact same thing this year — they reduced the 2018 assessment increase of 26.348% by deferring 21.192% of the 2018 assessment increase via slashing the annual reserve contribution by $371K and reducing Net Garage Operations Losses by $26K.

For those of you that follow my blog, you know that since 1995 Net Garage Operations Losses have grown at over a 30% compound annual growth rate; and since 2005 there have been massive assessment increase shocks related to the annual reserve contribution per each Reserve Study Update. This is precisely why I watch these two budget line items: Net Garage Operations Losses and Reserve contribution.

The Cumulative Deferred Assessment Increases of 40.433%, which is, by far, State Parkway’s all-time high, will cause assessment increase shocks and/or special assessment(s) for the forseeable future. Like I said in July 2016, year 2017 will be the second year of an unannounced 13-year special assessment.

In addition, the association’s reserve fund, at less than 10% funded, will also remain very weak for the foreseeable future. In fact, industry professionals know a percent funded of less than 30%, weak, is at risk for a special assessment.

Contrary to the budget cover letter, cable fees are actually budgeted to increase by 9.2%. If the board limits this increase to just 3.5%, allow me to thank the 80 largest units at State Parkway for letting my wife and I pay a lesser amount than them for cable tv services. The good news, however, is that State Parkway is entering the final year of an ill-advised 5-year cable-tv contract.

For a complete breakdown of the total 2018 proposed budget increase (actual and deferred) of 26.348%, please see this spreadsheet.

As you will see, the spreadsheet provides key budget details you won’t see in the “Budget Summary” prepared by Lieberman. That is because the board and management don’t want you to see the key details.

For example, Net Garage Operations Losses are buried in “Repairs and Maintenance” category. Cable tv fees are also buried in this category. Removing these two items and other minor adjustments reveal a barebones “Repairs and Maintenance” Budget. State Parkway’s building is 58-years old. But the Association spends more than three times this amount on “Management and General” and “Legal Fees.”

The $319,108 “Provision for Contingency” is, contrary to what the board represented at the last board meeting ($300,000 reserve for judgments, legal fees and other related legal expenses over and above the $500K special assessment for legal fees), to fund past and current operating fund losses. In fact, the 2018 budget details has a note for this line item saying, Provision for Other/AP: “Operating ‘reserve’ account for financial flexibility not previously available.” That’s code for our operating fund is broke from not replenishing our previous losses.

Included in the $319,108, “Provision for Contingency” is $19,108 for the projected 2017 Operating Fund Deficit. This is laughable as the projected deficit for 2017 will easily exceed $150K! In fact, there are over $100K of legal invoices sitting in the drawer that have yet to be recorded on State Parkway’s financial statements prepared by Lieberman Management Services.

So the projected 2018 Operating Fund Deficit is $397,281, which means the board and management did not increase assessments to 26.348% to cover increases in expenses. Increasing 2018 assessments by just 5.156% means the difference, or 21.190%, in the assessment increase will have to be deferred. As as you can see, the cumulative deferred assessment increases over the next 1-4 years, is 40.433%! You won’t find any of these numbers in the budget summary the association recently distributed.

It will be interesting to see if the board will disclose the cumulative deferred assessment increase to unit owners and prospective buyers.

Make no mistake, 2018 will be the third year of an unannounced 13-year special assessment!

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