October 2017
Every condo corporation has a budget surplus from time to time.
While condo corporations may strive to create balanced budgets, with revenues equalling expenditures, it is virtually impossible to do so without financial manipulations. Condo corporations are complex financial structures that execute thousands of individual transactions each year. Some years there are unanticipated expenses that must be paid out thus resulting in a deficit. The following year expenses may be less than expected as anticipated expenditures become unnecessary or are delayed.
A budget surplus is a preferred outcome so long as the corporation makes prudent use of these funds that are intended to benefit condo owners.
Among the distinguishing characteristics of well-managed condo corporations is what they do with a budget surplus.
There are four ways to handle that surplus.
Reduce Condo Fees
A surplus can be utilized by reducing condo fees in a subsequent year with the intent of running a deficit. This may be a prudent use of funds when the surplus results from actions that have permanently reduced operating costs. A permanent reduction in paid staff, energy efficiency initiatives that have proven to reduce energy costs or eliminating an expenditure that was previously paid through condo fees, such as cable service or in-suite electricity usage, are justifiable reasons for reducing condo fees.
Using a budget surplus to pay for future operational expenses or to compensate for continued underfunding of the reserve fund is a strategy used by some condo boards intended to hide problems. This approach allows a condo board to avoid developing and implementing a plan to eliminate future financial deficits. This approach likely commits condo owners to dealing with financial problems in coming years.
Spend on Specific Projects
A surplus can be utilized for necessary or desirable projects such as a new amenity or feature not funded in the reserve fund. It is not uncommon for condo corporations to set aside surplus funds over many years to pay for such initiatives.
Use of surplus funds to pay for over-budget projects can be a method of hiding poor budgeting.
Apply to Reserve Fund
It is appropriate to apply a surplus to the reserve fund, particularly when one believes or suspects the reserve fund to be underfunded.
Once a surplus is transferred to the reserve fund, it cannot be used to pay for operational expenses or future financial deficits.
Set aside as a Future Buffer
A surplus can remain in the operations account or invested so that it is available to cover future needs. That need may be anticipated repair work, expectation of increased expenses or some other use that would otherwise result in a budget deficit or increase in condo fees.
