CAI-NJ July 2022

IT’S GONNA BLOW... from page 16.

these costs are identified, the budget preparer must then research what the average usage is per home, unit, acre, etc., and calculate an estimate of the current year’s expenses. As you can see, this approach requires a bit more research and as such, tends to be less common. In recent years, utility rates have not seen significant price increases, which has allowed the historical trend approach to be very effective. However, it is yet to be known whether current market condi tions will lead to any significant pric ing increases. As such, this approach may become more common in the years to come. So far, we have discussed some “best practices” on budgeting for specific line items within your bud get. However, whenever preparing a budget, you must always have a

rent year’s budget can then be calcu lated based on an average of prior year actuals. If any trends are noted in prior years, such as a consistent 2-3% increase in costs per year, they can then be factored into the current year’s budget as well. The second approach is much more granular and less common than the historical trend budgeting approach. This approach requires some research. The first step is to identify the specific utility cost rates for your township. Your specific utility provider for water, electric, and gas will usually have price rates posted on their websites. If you are unable to locate this informa tion, you could also obtain it from your most recent billing statement. Once

two-pronged approach. We have dis cussed the first prong above, address ing the specific costs that you expect to incur in the upcoming year. The second prong is equally important and requires an analysis of the overall financial health of the association. The best starting point for this practice is your most recently audited finan cial statements. The audited financial statements will indicate whether your association is in a cumulative surplus or deficit position. Based on your find ings, it may be necessary to include a “deficit recovery” or “surplus carryfor ward” within your budget. Deficit Recovery: For those associations that find them selves in a cumulative deficit position, it is imperative to use the budget process to eliminate that deficit. The best way to think of a budgeted deficit reduction is to view it as a “paper” expense. You will simply include a deficit recovery as a line item in the CONT I NU E S ON PAGE 56 “The best way to think of a budgeted deficit reduction is to view it as a ‘paper’ expense.”

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