[A paper copy of this letter will be distributed to shareholders in the immediate future.]
Dear Fellow Shareholders:
The Board, supported by its accountant and management staff, has recently completed its financial projections for year-end 2015 and has adopted an operating budget for 2016.
We are pleased to report that 205 West End will finish this year with a small deficit. Thanks to conservative financial management and diligence, we have completed another year in good shape.
Energy budgeting for 2016 was complicated because our old cogeneration facility was out of service this year and the new one, which will enter service early in 2016, will have different operating parameters. We have estimated that the new cogeneration plant will save the Cooperative about $275,000 in 2016.
Variances between budgets and projected year-end actual expenditures
As always, many of the Cooperative’s expenses are not under the board’s direct control. Labor costs are set by union contracts, insurance rates are dictated by carriers, energy prices by the market, and taxes, water, and sewer charges by the city. That said, we make every effort to control other costs. While 2015 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 2015 looks:
● Real Estate Taxes, budgeted for 2015 at $ 4,976,400, are projected to end the year at $ 4,835,200, 2.8 % under budget. In 2016 we expect to pay real estate taxes of about $ 5,154,100, an increase of 3.6 % over last year’s budget, and the major driver of this year’s maintenance increase.
● Energy (electricity and steam) was budgeted at a combined cost of $-1,394,400 for 2015. While final bills are still to be presented, the projected energy expenditures in these categories are forecast to be approximately $ 1,640,300, about 17.6 % above budget. Our new cogeneration system will be online early in 2016, so we are projecting congeneration gas in next year’s budget. Aggregate energy spending for next year is budgeted at $ 1,361,600, assuming limited price inflation due to the depressed economy and falling energy prices. The projected decrease of 2.3 % over last year’s budget is speculative, since we do not know how much gas the new cogeneration units will consume nor how much of our steam and electricity requirements it will fulfill.
● Note: Each year we remind shareholders that while we have submetered the Cooperative, the budget for the Condominium must reflect the entire electrical payments to our suppliers so that our bills get budgeted, paid, and booked properly. Due to submetering, only about 35% of the building’s electrical consumption (that which services 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 - We are budgeting a 0.3 % increase for 2016 at $ 266,200. Note that the 2015 forecast of $ 258,100 is about 2.7 % below the 2015 budget of $ 265,300.
● LTCA Dues will increase relative to 2015 budget of $ 649,100 to $ 663,200, an increase of about 2.2 %.
● Staff Payroll - wages, benefits, workers compensation, and disability insurance – will be going from $ 1,398,500 in 2015 to $ 1,470,300 in 2016, an increase of 5.1 %. The bulk of this increase is driven by changes to benefits, driven by contractual obligations.
● Maintenance and Repairs remain within reasonable expectations. Our anticipated expenditures in 2015, budgeted at $ 421,000 will be coming in at $-388,900, about 7.6 % below our budget. Based on recommendations from our Resident Manager and AKAM, we are budgeting $ 400,000 for 2016, a decrease of 5 %.
● Water and Sewer were budgeted at $ 324,000 for 2015 and are budgeted at $-312,000 for 2016, a decrease of 3.7 %. Our forecast for 2015 is $ 308,900, about 4.7 % below budget..
● Mortgage Interest and Amortization This is determined by our mortgage, which we refinanced in 2014, and is budgeted and forecast at $ 1,406,400.
In summary: For 2016, shareholders can expect a 2 % maintenance increase (for a total of $ 3.76 per share per month).
Along with all other New York City Cooperatives, given the increases in real estate tax, labor, and utilities, we are facing a maintenance increase for the year beginning January 1, 2016. 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 2016. You will see a credit/debit journal entry on your March statement. From an accounting standpoint this is treated as an operating assessment, and thus has no impact on maintenance.
From the start, we have tried to be both prudent in our expenditures and to make full use of opportunities to contribute to our building’s overall financial health. This includes reducing costs whenever and wherever possible. 205 West End Avenue remains one of the most conservatively managed 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 support.
The entire Board joins me in wishing you and your families a very good holiday season and a happy, healthy 2016.
Marc Donner, President
Board of Directors