Trimming the Bottom Line Cost-Cutting for Co-op and Condo Boards

Trimming the Bottom Line

With increasing costs for heating fuel, insurance, real estate taxes and the like taking a bite out of the operating budget of most every co-op and condo in the city, some cost saving measures can help stem the tide of rising costs. Payroll can be trimmed, taxes protested, and expenses monitored and with some effort, significant results can be achieved. Don't assume that there is nothing you can do about your board's expenses. The key to good management is to look at every single expense.

AKAM Associates Inc., a Manhattan-based management company, recently conducted a seminar in which management, insurance and security experts discussed a number of effective ways to trim a budget's bottom line.

Trimming the Fat

One area containing manageable expenses is a building's payroll budget, which can be trimmed by proper planning, according to Leslie Kaminoff, the chief executive officer of AKAM. Most union contracts provide for vacation budgets and replacement staff to fill in for vacationing employees, usually during the period between May 15th to September 15th, he says. A board is then permitted to hire outside help at 60 percent of an employee's wage to supplement vacationing staffers. Thus you can save 40 percent on salary of vacationing employees rather than getting in-house staff to fill in at time-and-a-half overtime cost, Kaminoff explains.

Many management companies when it comes to summertime gather a pool of people that they should be able to supply to your building to fill these gaps, he says.

Beware of Hidden Costs

Most boards believe that insurance premium costs and expenses such as worker's compensation are inflexible, says Kaminoff. Not so, he says. "Boards say this is a fixed expense and there's nothing I could do about it. Again, that's not the case."

All building owners and managers with employees are required under New York State law to carry workers compensation coverage, which covers on-the-job injuries and occupational illnesses. Many boards may not be aware that participating in programs such as work safety groups - independent groups put together by insurance companies in pooled coverage - could result in a 30 percent or higher dividend and lower premiums on their workers compensation coverage, he says. The savings is based on claims experience of the individual properties of safety group members. At the end of the year, the board could receive a check worth 30 percent of what they paid into workers' compensation to deposit into their reserve account, says Kaminoff.

For example, the Federation of New York Housing Cooperatives and Condominiums (FNYHC) provides a program specifically for building owners and managers. By purchasing through the Federation's Safety Group, members were able to save approximately 60 percent on their workers compensation insurance premiums, according to Executive Director Greg Carlson. Their coverage is through the Durnan Workers' Compensation Safety Group, which handles more than 5,000 New York properties.

"Just because in your mind something is a fixed expense doesn't mean there's nothing you can do about it," says Kaminoff.

Another cost-effective step is to closely examine your insurance policies and make sure you are adequately insured and/or have coverage in your policy which you may not need, Kaminoff explains. "The bottom line is everyone has had these tremendous increases. Don't just sit back and say "˜that's it.' Number one, look at your insurance. It's a major expense. Insurance premiums have gotten to a point where maybe putting in every claim isn't advisable. We're talking about large numbers now. If it's a small claim it still goes on your loss run and that affects your premium. Number two, maybe you should raise your deductible. That could be cost-effective. Number three, be aware of the market and have your manager advise you on the market."

For example, AKAM recently began an examination and renegotiation of all of its client's current policies with their existing carriers. "Because the market has changed so within the last six months, we've been achieving savings of 20 percent to 30 percent on our properties," says Kaminoff.

Assuming Risk

Alex Seaman, a senior vice president with Kaye Insurance, also recommended that building owners and shareholders manage their risks wisely. "Cutting costs involves two things - common sense and diligence," says Seaman. "Rely on common sense. If it looks dangerous it probably is. Address it, don't wait for the next board meeting that might be two or three months down the road. As a board member you have a responsibility to do that and you don't want to wait until a claim occurs because these claims one way or another are going to cost you money."

Building owners must evaluate exactly what their building's liabilities are, he says. A new expense that building owners now have to bear is liability for repair and maintenance of the sidewalks in front of their properties. The new sidewalk bill recently passed by the City Council makes property owners responsible for maintenance and repair and any slip and fall claims that occur on their sidewalks and adjacent premises. Most buildings had this type of liability coverage already but the new law places a greater responsibility on the property owner for snow removal and normal repair. "If there's any uneven surface that anybody trips over, you're going to be held responsible for."

Other things to watch out for, says Seaman, are preventative maintenance items - like having clear, well-lit stairwells, fixing a staircase that needs a bannister, or installing security and closed circuit television monitors not only in the lobby but in common areas, basements and laundry rooms, for example. A building must consider anything that might potentially cause it exposure - fire, mold contamination, and other unforeseen events, according to Seaman. Beware of water damage - keep roofs, terraces, pipes and foundations in good repair, he says.

In the area of workers compensation, make sure to provide a safe working atmosphere for your building employees and don't allow them to do a job that they're not trained for, says Seaman. For example, if there's a claim by one of your building employees that had been cleaning the windows on the 26th floor - and it was outside of his job responsibilities - the result could be very expensive, according to Seaman. "Get the right people in there. The employees for the building are there for building maintenance. Let them do their job and hire the right people to do the jobs that [your employees] are not qualified to do."

Another thing to remember, says Seaman, is obtaining insurance for all of the contractors that will be working at your building. "Every contractor that sets foot on your premises must provide a certificate of insurance. You must specifically name the association and the managing agent as additional insureds. If he's doing work for a unit owner, the unit owner must be named as an additional insured. What are the exceptions to contractors providing certificates of insurance? There aren't any. Period. If a contractor doesn't have insurance there's probably a good reason for it."

It's critical for contractors to carry insurance even on smaller projects, because if they don't and something goes awry, it will cost you more in the long run. Take the necessary steps to make sure your building is protected, Seaman says. "We always get this electrical contractor - he's just putting a ceiling fan in. Fifty dollars later, he's broken through electrical wires and caused a fire or the plumber installing a sink has caused water damage to six units below. It happens. It is no small exposure when you have a contractor in there." Additionally, homeowners should also maintain their own insurance, just in case something happens in their own apartment and damages someone else's, he says.

Supply and Demand

Another way to reduce your operating budget is to analyze your variable expenses, adds Kaminoff. Look closely at the supplies your building is purchasing. Make sure that an adequate purchasing and inventory system is in place, he says. The most basic concept in management is having some type of purchase order/inventory system in which goods and services are tracked. "I would venture to guess that 80 percent of the co-ops and condos out there may be operating without an inventory system," says Kaminoff, adding that leaves much to chance in tracking where your supplies are going. "If people aren't accountable for how supplies are being used in a property, they're going to use them very liberally," he says.

Buildings can cut expenses by 20 to 40 percent, Kaminoff believes, if a purchase order and work order system is instituted. "I don't care if you're a five unit building or a 3,000 unit building. It can work and it's something that's an absolute must for every property."

Keeping track of vendors and changing suppliers often is also good advice, he suggests. The excuse is that "˜we have used Vendor A for the last 15 years' and "˜we're very happy' with so-and-so service provider, he says. Kaminoff recommends that bids for goods and services be put out every three to six months to five or six different vendors to get a sampling of the field. What's to say that every property could not use more than one plumber, he says. Every building should also maintain a logbook so they can verify the billable hours of how long the vendor was on the property making repairs or completing their specific task. "It's crucial because if you get a bill from this vendor, and it says "˜five hours' - how do you know if he was there two hours, five hours or 10 hours if there's no reference?"

Bartering for Your Building

Another sound management practice, says Kaminoff, is to look into bulk purchasing opportunities for whatever type of service is needed by your building. Some of AKAM's buildings, for example, have struck deals where they have locked in the purchase price of 85 cents a gallon for No. 6 oil compared to today's price of 88.6 cents.

In addition to saving money, building owners can also get a return on their investment through energy saving initiatives offered by the New York State Energy Research and Development Authority (NYSERDA), according to Tim Lynch, a consultant for the agency.

Some quick measures that can be undertaken by co-op and condo boards, according to Lynch, are installing compact fluorescent lamps that use less energy instead of incandescent lighting. Con Edison, for example, has programs that encourage customers to replace their incandescent lighting with the compact fluorescent variety, he says. Secondly, buildings can conduct an energy audit to find out what improvements can be made to become more energy-efficient. Because many co-op and condo buildings are older, they are likely losing heat or leaking air and an energy audit would be able to find that out, says Lynch. Other measures are installing a computerized energy management system like submetering, and such things as variable speed drives that control energy loads, says Lynch. NYSERDA can even recommend contractors that will conduct the audit or do the necessary capital replacement work. The energy auditor will inspect the building in a walk-through evaluating the gas, electric, oil and HVAC systems to examine the overall efficiency. Then a report will be presented to the building owner, managing agent and the board about the findings, says Lynch. If a decision is made for some improvement, whatever is installed may be reimbursable through NYSERDA or other government agencies, he says. Under NYSERDA's new construction program, a building can be designed to use less energy from the outset, he adds. Other loan programs are also available by contacting NYSERDA at

www.nyserda.org or at 1-866-NYSERDA. Death and Taxes

The city's 18.5 percent real estate tax has been a financial burden to most co-ops and condos, according to Kaminoff. By taking a proactive approach, however, this expense can be reduced. It's important for boards to hire a tax certiorari attorney to challenge their building's assessment and file a tax certiorari proceeding. Some boards may overlook this type of proceeding but it can be a very cost-effective measure, according to Kaminoff. "As a board member, it's your responsibility not to do the filing but to make sure it's done on time and to make sure the information is accurate."

Another key to the process, says Kaminoff, is that in New York City, tax certiorari proceedings are handled by attorneys who work on a contingency basis. Thus, they get paid only if they are able to reduce your tax bill and they typically get between 12 percent and 20 percent of that savings. Tax certiorari fees, though, can be higher and range as much as 25 percent to 30 percent.

The city's Department of Finance publishes tentative assessment lists on January 15th and buildings have until March to file a protest with the Tax Commission. A meeting is scheduled allowing the building's board to explain their protest and either an acceptable settlement is made or the process goes to a judicial proceeding.

"The responsibility of a good management company," says AKAM President Michael Berenson, "is to help buildings keep costs down. We make sure each of our buildings file a tax certiorari proceeding every year, and we have seen tax reductions of hundreds of thousands of dollars, which translates directly to each shareholder/owner as a lower real estate tax bill."

Another factor is to make sure your lender is not escrowing your real estate taxes too high for your building, Kaminoff says. "Maybe five, six, seven years ago when the economy was booming, everything was doing wonderful, people didn't care about these things. But at this point in time, it's important. You're talking about affecting your monthly common charges or maintenance."

So along with the holiday trimmings we all enjoy, it's possible to trim your budget's bottom line, too. With a little common sense and due diligence, co-op and condo boards can achieve a healthy cost savings even in uncertain economic times.

Debra A. Estock is Managing Editor of The Cooperator.

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