In Condominiums and Cooperatives, which of the following budgetary line items would be excluded from the calculation used in determining the percentage of budget increases? a. Management fees b. Utility expenses c. State registration fees d. Reserves for capital improvements
The correct answer and explanation is:
The correct answer is d. Reserves for capital improvements.
Explanation: When calculating the percentage of budget increases for condominiums and cooperatives, certain expenses are typically excluded from the calculation. These include costs related to future capital improvements, such as the “reserves for capital improvements.”
Capital improvement reserves are set aside to fund major projects and repairs that go beyond routine maintenance, such as roof replacements, elevator upgrades, or significant building renovations. These reserves are not considered part of the ongoing operational costs of the property. Instead, they are long-term savings to ensure that the building is maintained properly and that necessary improvements can be made when needed, without relying solely on special assessments or loans.
On the other hand, management fees are part of the operational costs of running the condominium or cooperative. These fees cover the costs of managing the property, including administrative expenses and day-to-day operations. Utility expenses, such as electricity, water, and heating costs, are also regular operating costs and typically fluctuate based on usage and market rates. Similarly, state registration fees are regular operational expenses that reflect the legal costs associated with maintaining the cooperative or condominium’s status under local regulations.
In budgetary planning, it’s important to exclude capital reserves from the calculation of budget increases because they are set aside for specific future needs and are not part of the day-to-day operational expenses. Including them in budgetary calculations could skew the percentage increase, as they represent an anticipated need for future improvements rather than current operational demands.