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EASY MONEY

One of the most effective ways to cut costs is to target high-ticket items. Begin by identifying large recurring costs and finding ways to pare them down.

• Utilities. Associations with high water and utility costs should commission a utility audit. Utility auditing companies help associations ensure the accuracy of their utility bills. The company notes any discrepancies and helps the association make refund claims. Usually, utility auditing companies charge the association only if money can be saved as a direct result of the audit.
• Insurance. Associations can save on insurance expenses by raising property damage deductibles. The Woodbridge Park Association, Inc. in Ventura, California saved 10 percent--$3,400 a year--by raising its deductible from $500 to $2.000.
• Grounds. Save on water and maintenance costs by replacing turf with drought-tolerant ground covers.
• Pools and spas. Check heater temperature and pump cycle times and adjust for savings. Swimmers may not notice a two degree drop in temperature, but lower temperatures may significantly decrease an association's electric bill.
  If the association uses solar heating panels to warm the pool, make sure they are regularly serviced and painted. Black paint on the heat collectors that has faded or become chalky reduces efficiency and creates greater reliance on gas or electricity.
• Lighting. Use high-efficiency outdoor lighting. Though it may be expensive to install, it will save money in the long run by reducing overall power costs and providing better security.
• Contracting. Negotiate with contractors for quick-payment discounts. If contractors do not receive payment for their work within 30 days, they are forced to use credit to meet payroll and material expenses.
• Preventive maintenance. A preventive maintenance program can be an effective money saver since it catches problems when they are small enough to resolve cheaply. For instance, annual construction audits for older buildings can catch latent construction defects. Often a simple repair, such as ventilation holes under an enclosed staircase, will head off moisture entrapment that leads to rust and dry rot.
• Education. If members resist the initial funding of cost-cutting measures, the board should inform them of the benefits in a regular newsletter. If members understand how preventive maintenance can save them money, they are more likely to support related costs.

For example, the Woodbridge Park Association, Inc. needed member support for a reroofing program. To gain support, the board of directors wrote several articles for the community newsletter explaining its reroofing plan.

The board planned to use a bank loan for the project and to repay it with funds normally earmarked for the association's roofing reserves. In this way, the roof would be repaired--at no increased monthly cost to the members. The board's efforts paid off. Members authorized the loan by a wide margin.
 

OVERCOME THE "INERTIA FACTOR"

Associations can also save money by looking for hidden costs. According to James Friend Okoniewski, president of Idylwood Towers Condominium in Falls Church, Virginia, lazy owners can create significant expenses for an association.

Since Idylwood owners' electricity and water costs are included in association dues, it is cheaper for management to fix certain plumbing and electrical items than it is to wait for owners to arrange outside repairs. Inhouse maintenance pays for the initial replacement cost in a few months with lower water and electric bills due to fewer leaky faucets and broken appliances.

"We look for expenses we include in the condo fee, and figure out how we can conserve those expenses," Okoniewski said. "And residents appreciate the convenience of on-hand inspections and repair."

Since cost-cutting involves few overhead expenses and often results in significant savings, many associations regard it as one of the smoothest paths to financial well-being.

Taking Care of Business

Even though board members are rarely paid, they must act like professionals when handling association finances. Often they are responsible for multi-million dollar budgets--as well as members' trust.

In business, the owners or shareholders watch the"bottom line"--the company's margin of profit or loss. Association boards must monitor the "bottom line," as well, and adjust for fixed and variable costs.

Fixed costs are determined annually and include insurance, taxes, annual management contracts, and landscape and pool services. Variable costs are determined throughout the year and change depending on usage and fluctuating circumstances. Conduct a quarterly review of financial statements to keep track of these costs.

The board should also implement a cost-benefit analysis to determine the best solution to any problems uncovered in the review. A cost-benefit analysis will show whether the lowest cost is the best bet, or whether the association should invest in a more costly solution that will pay for itself over time. Look for solutions where benefits exceed the cost.