A “Psychological Incentive” to Cut Water Use

Five years ago, a property manager presented an annual budget to the board of the 174-unit co-op at 230 East 15th Street in Manhattan. Though the budget showed a deficit of almost $400,000 and a much-needed 12 percent maintenance increase, the management company expected the board meeting to be business as usual.
 
“Management brings in the budget,” says board president James Ramadei, “and usually the board just accepts and nods it off.” An accountant by training and owner of a small consulting firm, Ramadei recalls that he “felt we needed to take control and develop a new approach.”
 
The key was education. “Shareholders have no knowledge of how much they are paying for taxes and water use; [in the past,] they [would] get a monthly invoice that offers one number.” To balance the budget, Ramadei says the board had to “illustrate to shareholders what they are paying for,” so taxes could be paid in full every month and water costs could be controlled.
 
To do that, the board changed the monthly maintenance invoices, adding three line items: operating expenses; real estate taxes; and water and sewer charges. This helped in two areas. It would be easier to change and pay the amount of the real estate taxes in “real time” –“When the city changes the taxes in the spring we just change that line, charge the shareholders, and pay the increase every month,” Ramadei notes – and the shareholders could also see what they had spent on water use and cut back, if they so desired.
 
The strategy worked. After the new invoices were introduced, the co-op found the shareholders had saved almost $3,000 on water and sewer per quarter for the first few quarters. Ramadei maintains that the itemized bills give shareholders a “psychological incentive” to conserve on water.
 
Having the line item for taxes was just as important, because the co-op could raise maintenance in July to cover the regular mid-year tax increase and not have to wait until year’s end when it would typically be forced to impose a large, budget-balancing special assessment on the shareholders. The line item also insulates the board from criticism because it “illustrates to the shareholders that this [maintenance increase] is not a [discretionary] board decision, it’s simply that your taxes went up,” says Ramadei.  “It’s a clear item on the bill and it moves as our taxes move.
 
“Now,” he adds, “we have a healthy budget surplus instead of a deficit, and [annual] maintenance increases are never higher than 4 percent.”
 
According to Ramadei, the idea of itemizing maintenance bills is not a revolutionary idea. “It’s usually done for commercial leases, but it works for us,” he says. “Several co-ops have already contacted us and are trying to find out if our model will work for   them.”
 
Alfred Nicasio, the current manager, says that, when the Halstead Management Company took over the building two years ago, he was initially against the unusual billing model. “We as management didn’t like it,” he says. “This is not common in the industry, and there is no other co-op in the city that does it.” But he now admits: “It’s unusual and unique, but it really seems to work for them.”

PRINCIPAL PLAYER – MANAGER: Alfred Nicasio of Halstead Management Company.