Budget Expense Line Item Description and History


Last updated in 2011  Most of the budget line items have consistent through the years, but several have been adjusted, reformed, or added.  For example, Maintenance was split into 2 components – Residential and Building, and several smaller activites were combined into Fire Sprinkler Maintenance & Monitoring.   


Insurance:  Our building insurance policy is with Erie Insurance, and the local agent is with Dominion Insurance.  Owners can secure a copy of the insurance certificate from our manager (Hutcheson Realty) and can also review a copy of the policy by request.  In general, the policy covers the building and common elements.  Both residential and commercial unit owners must secure separate coverage for the interiors of their units. Marathon (the Pender Building developer) established the initial building insurance policy during the renovation process based on MarathonÕs plans and the rate seemed quite favorable.  Since then the insurance company has reviewed the policy and the premiums have increased somewhat.  Also, the Board of Directors (BOD) has requested several changes to the policy to be compliant with the association By-Laws and these have increased the premiums as well.  Finally, since our building is Ōmixed-useĶ meaning both residential and commercial, our premiums are higher than if we had a residential-only association. In 2008, an insurance consultant advised our manager that the Erie policy and premiums are very reasonable.  In 2009 the BOD requested an estimate from FarmerÕs Insurance and the resulting premium was nearly $11,000 (considerably more than we had been paying with Erie). In the past, when our insurance premiums increased as a result of a specific issue in a single unit, the BOD resolved to pass these costs on to the owner of that unit in accordance with the By-Laws.  Otherwise, building insurance costs are allocated to all units.


Maintenance:    Our building maintenance has been problematic.  Initially maintenance costs were very low, but over the last year a number of difficult problems have come up.  These include roof leaks, structural failures, cracks in the bricks and lintels around windows, and deterioration of the fire escape.  Several of these items were directly responsible for the Special Assessment ($19,982) that the BOD requested in 2009.  The Special Assessment has been included in the 2009 Plan for perspective, even though it was not included in the initial plan for the year.  We also had HVAC and chimney damage as a result of the recent storm (09 norÕeaster). You can find more details on all these items in the BOD meeting minutes.  Maintenance costs also include items such as common area lights, lobby HVAC service, and repainting.  In 2009, the BOD resolved to separate maintenance into two categories: Residential maintenance that supports costs directly associated with the residential areas, and Building maintenance that is allocated across all owners in the association.  The 2009 Special Assessment was included in the building maintenance category.


Common Electric:  This line covers all electrical costs that are not directly attributable to an individual unit.  Initially the developer assigned 75% of these costs to be allocated to the residential units and the remaining 25% to be allocated to all units.  The BOD reviewed this distribution in 2009 and resolved not to make any change. 


Trash:  For several years the BOD extended the trash service contract with Bay Disposal established by the developer. However, in recent years trash removal rates have increased dramatically as a result of increased charges for landfill use by the regional authority.  Those of you in the area may be familiar with this situation.  In 2009, the manager solicited proposals for trash removal and the BOD signed a contract with the City of Norfolk as the lowest bidder.  Trash removal charges are assessed to the residences.  The commercial units maintain their own trash removal services.  Currently the association does not pay the added charges for recycling.


Telephone:  The association is required to maintain a total of 5 dedicated telephone lines, 2 for the elevator (allocated to residences), 2 for the fire alarm system (allocated to all units), and 1 for the Conservice water monitors (residences only).  Cox provides the service. 


Postage & printing:  Costs accrued by the manager (Hutcheson Realty) and allocated to all units.


Legal & Accounting:  The BOD has a contract with Jennifer Fontaine, CPA to provide independent auditing and tax consulting services for the association that includes preparing an annual audit report and our tax forms.  Susan Palamara provides legal services that have included filing of a lien for delinquent dues, filing for incorporation of the association, preparing an amendment to our By-Laws and consulting on other issues.  These costs are allocated to all units.  Our manager also uses a collection agency to pursue delinquent assessments.  Costs for collecting delinquent assessments are ultimately charged to the specific owner who was delinquent.


Fire System-Related:  This expense line includes a contract with Johns Brothers Security to provide real-time monitoring of the Simplex fire detection system installed in our building and routed through an OmniCom connection.  Simplex personnel help evaluate fault indications and determine the appropriate response.  We also have a contract with BFPE to conduct periodic inspections of our fire detection and suppression system as required by Virginia. Any additional inspections or related charges are added to this expense line.  These costs are allocated to all units.


Elevator Service:  The BOD maintains a long-term contract with Thyssen-Krupp (TK) to provide service and maintenance for the elevator.  The contract covers labor and materials for all repairs and services conducted during normal weekday hours.  We have to pay for additional overtime charges associated with after-hour or weekend services.  There is no fee for response to entrapments.  Marathon initially decided to use the TK traction elevator instead of a more traditional hydraulic elevator because of space limitations.  In their initial budget, Marathon estimated an elevator service expense consistent with a hydraulic elevator, but it turns out that the maintenance costs for traction elevators are much higher.  Ultimately, after pressure from many owners across the country the manufacturer (TK) redesigned the elevator to change the cables from Kevlar to steel, and paid for the total cost of the modifications.  The cost of annual inspections required by Norfolk are also included in this line.  The by-laws identify the elevator as a limited common element and associated costs are allocated only to the residences.


Cleaning Service:  This cost is allocated to the residential units.  Several years ago we changed to a new cleaning contractor who charges more, but cleans much better than the initial service we used.  One constraint in finding a contractor is that our insurance policy requires that all contractors carry workmanÕs compensation insurance.  If we canÕt demonstrate this, the insurance company will charge a penalty that nearly offsets the additional charge for the insurance.


Water/Sewer Usage:  This expense item is offset by a revenue line.  The association is billed directly by HRUP for water usage.  However, Conservice bills the residential units for the water they use (plus a fee) and Conservice then sends the water receipts to the association.  So the water bills are largely offset by the Conservice payments and the association pays the small difference (used for window washing, watering the entrance plants, exterior building repairs, etc.).    


Window  Washing:  We have a contract with Fish Window Washing to wash the residential windows twice a year.  This is allocated to the residences.


Exterminator:  We contract with Hampton Roads Pest Control  to provide pest control services (spraying) in the common areas and residences on a quarterly basis, and these costs are allocated to the residences.


Termite Coverage:  This is an annual fee to protect the building and is allocated to all owners.


Management Agent:  The BOD initially contracted with Hutcheson Realty in 2007 and has maintained that contract at a nominal value of approximately 10% of our annual budget.  Hutcheson maintains our financial accounts, collects and disburses funds, solicits proposals, establishes and maintains our service contracts, solicits and manages repair and refurbishment contracts, provides reports and materials for the BOD, supports required inspections, and a variety of other services.  These costs are allocated to all units. 


Operating Reserves:  This is a contingency fund that the BOD tries to maintain as a hedge against unforeseen expenses.  A standard guideline for operating reserves is roughly 25% of the annual budget, or alternatively, 3 months of forward funding.  The BOD planned to contribute to this reserve until it reached the 25% goal, then no further contributions would be required.  Unfortunately, a significant portion of this reserve was drained away when a previous owner defaulted on outstanding fees.  The BOD filed a lien on the property, but no funds were realized when the property was sold at auction and subsequent legal action was eventually dropped when it was apparent the costs would probably exceed the outstanding funds.


Replacement Reserves:  This is a reserve fund that is required by the state to ensure that resources are set aside for planned replacement of the associationÕs assets.  This is not for repairs, but for items such as replacing the roof, repointing the exterior brick, replacing carpeting, etc.  The state requires owner associations to establish a plan and update it every 5 years and then make annual contributions to the fund consistent with the plan.


Replacement Reserve Study: The BOD operated under the reserve provisions established by the developer in the initial 2005 budget, but Virginia requires that Reserve Plans be updated every 5 years.  Our manager solicited 3 proposals (ranging from $2500 to $3000), but the BOD was concerned that the firms did not have sufficient architectural experience to understand issues associated with a 100-year old historical structure.  The BOD eventually approved a contract with Commercial Assessments in 2010 and the final report was delivered early in 2011.  The study was only for the building structure and systems, and excluded the interiors of the units. The study identified the need for significantly more reserves than the association currently has, but the study did not take into consideration the extensive work done on the roof and the atrium in 2011.  The BOD considered the impact of those repairs as well as work already included in parevious budgets in preparing the 2012 budget.


Fed & State Taxes:  The association is required to file tax returns as an incorporated entity.  So far the association has not incurred a tax liability.