Adapted from a 2006 presentation by Yehudit Lieberman, Pleasant Hill Cohousing, and Laura Benedict, Eno Commons Cohousing
Two individuals who serve on their respective communities’ financial teams offer a look at the annual operating budget process.
As the completion date of a new cohousing community nears, everyone is usually so preoccupied with construction schedules, escrow, packing, moving and so much more that it can come as a shock that it’s also time to plan how the community is going to do its bookkeeping and budgeting.
Maybe you’ve heard horror stories circulate about communities where a couple of years after someone volunteered to do the books, the accounts are such a mess that the community has to pay an outside professional lots of money to straighten them out. What happens in those cases is that when one person says, “I’ll do the books,” everyone else in the community says “Great,” and leaves the volunteer bookkeeper completely alone.
A team approach
Unless your community is lucky enough to have a professional bookkeeper as a member, you can
do your own bookkeeping if a team approach is used and an accountant or CPA checks the books periodically. Since your CPA will usually be handling your taxes (see below), then the review should occur annually – preferably well before the corporate income tax deadline of March 15. During your first year of operation, you might want to have your CPA check your books quarterly, just to be sure you're doing things correctly. In addition, you should not be shy about contacting your CPA by phone or email when a new situation arises and you are not sure of the best way to account for it.
Pleasant Hill Cohousing (Pleasant Hill, California) has a financial advisory team consisting of the elected treasurer plus the bookkeeper, who is a community member, and two other community members. At Eno Commons, (Durham, North Carolina) the financial team is very similar: the team consists of the elected treasurer who doubles as the bookkeeper, a second person who knows a lot about financial management plus another individual who was chosen because he is a good communicator.
The financial team’s responsibilities include:
- overseeing the process of formulating the annual operating budget
- making certain financial decisions, subject to community review (these decisions are minor and limited)
- bringing major financial issues to the community for decision (e.g., decisions about reserve funding)
- periodically reviewing financial reports and distributing them to the community
- overseeing dues collection and helping community members in distress to create and keep up with a payment plan
- complying with legal requirements (paying taxes, annual financial disclosure, scheduling reserve studies, etc)
Both communities use a CPA for tax filings and fielding rare questions. It’s important to find a CPA who:
- has experience with your legal structure (e.g., Homeowners’ Association)
- has the flexibility to understand what cohousing is really about, and
- is a person you can communicate with comfortably.
One of the jobs of your CPA is to make your less conventional cohousing community look like a conventional condominium to the relevant bureaucracies — think IRS — while still allowing you to do things in a way that works for your community.
Your CPA should help you formulate the list of income and expense categories that you keep track of. And if the CPA is not familiar with cohousing, it’s a really good idea to show him or her the income and expense categories used by several other cohousing communities (Two examples are shown below.)
What’s in your operating budget?
At Pleasant Hill, the budget process that has evolved has a draft budget made up of:
- Mandatory items (utilities, insurance, essential maintenance and landscaping needs, etc.): Members of the financial team, with the help of other community members, gather estimates for these items.
- Reserve contribution: Using input from the community, the financial team develops recommendations for reserve funding which are the funds that slowly accrue over time to pay for future repairs. This includes major projects like roof replacement, repainting or even solar power upgrades. The reserve recommendations are submitted to the community for consensus early in the budget process. (A future article will look at reserves in more depth.)
- Enrichment items (committee budgets, satellite TV, etc.): This last item covers allocations to committees plus discretionary items.
Trying to reach consensus on these items would be extremely difficult. One workable alternative that many cohousing communities use is to hold a budget fair (see sidebar) to more easily decide whether and how to fund these items.
Pleasant Hill uses a variation on that idea. Rather than setting up an actual budget fair event, a committee administers a virtual budget faire in which each household allocates on paper its share of the discretionary budget among the choices which include the various committees’ budgets, contingencies, or a “lower dues” category (meaning that this money won't be spent and dues can be reduced accordingly).
The income side of the ledger includes:
- Fee income (laundry and copier fees, rental of common spaces): These items are estimated by the finance team based on the prior year’s data.
- Member dues The amount of revenue needed from homeowners association dues to fund the budget is calculated. At Pleasant Hill, the formula is based partly on unit size and partly on an even division per household. Eno Commons’ total dues are evenly divided among the households.
- Interest income (from the community’s bank accounts).
All these items are combined into a draft budget that is then submitted to the community for consensus.
An abbreviated version of the operating budgets of both Eno Commons and Pleasant Hill are shown below and include the percentage each line item represents of its total budget. (A pdf of the two budgets with the subcategories’ line items shown can be downloaded here.)
It isn’t easy to compare the two budgets in part because the two communities are fairly dissimilar. They differ markedly in the number of units, their region and weather, even how the homes are owned. Eno Commons’ property is held as single family homes. Pleasant Hill is held as condos. All of those factors influence the budget. For example, the condo structure means that much more of the upkeep of all the homes is part of the community’s budget.
Special circumstances are also apparent: Pleasant Hill’s high utility bills are in part the result of soaring prices. Eco Commons reserve savings seem high, but that item is the recommended 3% of the community’s capital improvements such as the common house and roads. (More on reserves in a future issue.)
As with any budget, the two examples offer a snapshot of what is of importance to the two communities and demonstrate two different approaches for staying on top of what matters.
Laura Benedict has lived at Eno Commons Cohousing since 1998 where she serves on the Finance committee. Professionally, she has 17 years experience in community development banking at the Self-Help Credit Union, where she leads its 35-member commercial lending team.
Yehudit Lieberman has been a resident of Pleasant Hill Cohousing and has been its bookkeeper and a member of its financial advisory team since the community was completed in 2001. She is a professional violinist.