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Abraca-don't: Four Accounting Tricks NOT to Use to Balance Your Budget

Tom Soter in Board Operations on May 17, 2012

New York City, Bay Terrace, Queens

May 17, 2012

Using accounting tricks to keep things in check — as some co-op and condo boards do — is dangerous. "We've come across buildings that don't have adequate funds, and we shy away from them," Fred Rudd, president of Rudd Realty, notes. "We don't use tricks to balance the budget."

The list of maintenance slight-of-hand gimmicks includes:

  • Borrowing from the reserve fund to make up a budget deficit

"Some people are so stupid that they paint themselves into a corner," says one management executive, "and then they need to raise cash to pay their bills. They end up assessing for that, and that's bad."

  • Passing regular assessments to cover costs

"Maintenance is for operations," says Goodman. "Assessments are for special projects, for capital projects. If you have a problem with the roof and you don't have the money for it, institute an assessment to raise the money to do that project. But don't use assessments to cover maintenance."

That advice is often not followed. At Marleen Levi's Brooklyn co-op, the property inherited a number of sponsor units currently inhabited by rent-stabilized tenants. When those become vacant the board sells them, and uses the income for reserves and long-term capital planning. But this is an iffy proposition. When sales are flat ­— as they were in 2010 — the board has passed special assessments. "Two years ago, we did a 10-month assessment that helped us stem a shortfall," reports Levi.

  • Counting on flip tax income to eliminate deficits

At Bay Terrace Cooperative Section 1, a 200-unit Queens cooperative, the board counts on its unusually high transfer fee to keep costs in line. "We're in a somewhat fortunate situation because we have a 40 percent flip tax," says Warren Schreiber, the president. But, he admits that the flip tax is unreliable: "If we find that a deficit is building up [because there is no flip income], or we going into our reserves too often, then we'll discuss raising the maintenance."

  • Imposing a "temporary" fuel surcharge

Rudd, the management executive, says that a temporary fuel surcharge is "another fake way not to raise maintenance. Once you put that surcharge down, it never goes away."


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