December 7, 2010
Dear Fellow Shareholders:
The Board, supported by its accountant and management staff, has recently completed its financial projections for year-end 2010 and has adopted an operating budget for 2011.
We are pleased to report that 205 West End will finish this year with a small operating surplus. Thanks to conservative financial management and some luck, we have finished another year in good shape.
The 2010 year provided a breathing space from major capital projects in the building. We did implement three minor capital projects: the new proximity fob access control system that we deployed in the fall that now enhances security for residents, the refurbishment of the community room, and the redesign of the landscaping under the front canopy. None of these projects required any extraordinary funding.
The board is now considering its next five-year capital plan and investigating funding options.
Variances between budgets and projected year-end actual expenditures
As you know, the board does not control most of the cooperative’s expenses. Labor costs are set by union contracts, insurance rates are dictated by carriers, energy prices by the market, and taxes by the city. That said, we make every effort to control other costs. While 2010 final numbers still have to be confirmed, and will be audited by our accountant and reviewed by you at the time of our annual shareholders’ meeting in the spring, here is how 2011 looks:
Real Estate Taxes, budgeted for 2010 at $3,765,200, are projected to end the year 2.9% under budget at $3,654,500. In 2011 we expect to pay real estate taxes of $3,885,900, an increase of 3.2% over the 2010 budget.
Energy (electric, steam, and cogen gas), were budgeted at a combined cost of $1,420,000 for 2010. While final bills are still to be presented, the projected energy expenditures in these categories are forecast to be approximately $1,398,900. Our projections for next year are for an aggregate cost of $1,470,000 an increase of 3.5%, assuming approximately level consumption as well as flat prices due to the depressed economy.
Note: Although we have submetered the co-operative, the budget for the condominium reflects the total electrical expenditure so that our bills get budgeted, paid, and booked properly. Due to submetering, only about 35% of the building’s electrical consumption, that which serves the common areas, is applied to our maintenance calculations. The remaining 65% of our electrical usage is paid directly by tenants and shareholders according to measured consumption, and does not affect maintenance charges.
Insurance costs for 2010 were budgeted at $216,800, and will end this year at $202,800. For 2011, we are forecasting a decrease of about 4.6% and are budgeting $206,900.
LTCA Dues will increase from the 2010 budget of $569,700 to $597,000, an increase of 4.8%.
Staff Payroll - wages, benefits, workers compensation, and disability insurance – will be going from a budgeted $1,142,200 in 2010 to $1,258,300 in 2011, an increase of 10.2% mandated by our union contractual obligations.
Maintenance and Repairs remain within reasonable expectations. Our expenditures in 2010 are coming in at about $510,000, somewhat over our 2010 budget of $489,000. Our experts, the Resident Manager and AKAM recommend that we budget a 3.5% increase, to $506,000 for 2011.
Water and Sewer will be increasing 5% from a 2010 budget of $335,500 to a 2011 budgeted number of $352,300 representing our expectations that the city will hike rates again. The city has been ramping up these charges for the last several years and we expect that trend to continue in 2011.
Mortgage Interest and Amortization on our primary and secondary mortgages will remain constant from 2010 to 2011 at a combined $1,308,700. Our current mortgages will have to be refinanced by July of 2012. Because rates are extraordinarily low right now we are evaluating our refinancing options, which might result in a favorable change in 2011.
As in previous years, we will be recouping some of the increased operating costs by holding back the NYC real estate tax rebate due most shareholders in the first quarter of 2011. You will see a credit/debit journal entry on your March statement. From an accounting standpoint this is treated as an operating assessment, and will allow us to reduce the maintenance increase.
Along with all other New York City cooperatives, given the increases in NYC real estate tax, labor, utilities, and other costs, we are facing a maintenance increase for the year beginning January 1, 2011.
Accordingly: For 2011, shareholders can expect a 2.78% maintenance increase, to a total of $3.32 per share per month.
From the start, we have tried to be both prudent in our expenditures and, whenever possible, to make full use of opportunities that would contribute to our building’s overall financial health. This includes lowering costs whenever possible. 205 West End Avenue remains one of the most financially competitive buildings in the Lincoln Towers complex, measured by maintenance increases, maintenance per share, general balance sheet, and capital improvement measures.
We appreciate your confidence and ongoing feedback and the entire Board joins me in wishing you and your families a very good holiday season and a happy, healthy New Year.