The Chicagoland Cooperator Summer 2020
P. 1

Tapping Reserves   
in a Time of  
Financial Crisis 
An Option to (Carefully!) Consider 
Summer 2020 
must balance maintaining or enhancing the services their communities  
expect with the costs of those services. Boards—usually with support  
from their managing agents and financial advisors—have to use their  
best judgement about what their communities will require for a given  
year and the costs anticipated for those goods and services.  
“Building a budget is really a bit of an art and science,” says Jim  
Stoller, president and CEO of The Building Group (TBG) in Chicago.  
“As I tell clients, a budget is not something that is cast in stone; it’s a  
It’s a question we’re asked all the time:  
“Can  we  use  reserves  to  cover  an  operat- 
ing fund shortfall?” Under normal circum- 
stances, our standard response would be an  
emphatic “No!”—because reserves are for  
major repair and replacement projects. But  
now, in a time of (inter)national crisis, re- 
serves may play a valuable additional role at  
your association.  
In March, our country went into various  
degrees of ‘lockdown’ to prevent the rapid  
spread of COVID-19, the disease caused by  
the coronavirus. The resulting rapid spike  
in  unemployment  means  associations  are,  
or will soon be, experiencing higher than  
normal assessment delinquencies. With  
most communities running on tight bud- 
gets even in good times, rising owner de- 
linquencies  put the short-term financial  
health of associations at risk. Yes, the roof  
might still need to be replaced in five years,  
but management, insurance, and trash bills  
all need to be paid now. In times like these,  
reserve contributions and the reserve fund  
can also be used to help offset a disrup- 
tion to essential operating cash flow—but it  
must be done with caution and care. 
Even in the midst of uncertainty, boards  
still need to act and make wise financial de- 
cisions to lead their association. Faced with  
difficult decisions, the ‘right’ answer may  
not be clear, because standard best practices  
simply may not apply. Fortunately, by fol- 
lowing a three-step process that flows from  
the Business Judgment Rule, boards can  
limit their liability exposure when making  
what may seem like unorthodox decisions,  
if documentation shows that those deci- 
sions are made: 
• In good faith 
• In the best interests of the  
Each year, boards are tasked with figuring out the costs associated with all aspects of their  
community’s operations, including any capital repairs or improvements they plan to undertake  
in the coming fiscal year, and then making sure the revenue is there to cover said costs. Even in  
the best of times it’s a balancing act, involving predictions, assumptions, and fungible pools of  
income alongside hard historical data, face values, and built-in escalations. And at the end of  
the process often comes the unenviable task of informing residents how much more they will  
need to pay the association or corporation each month to cover all of it.  
In times of transition and upheaval (like now) the process takes on added complexity. As- 
sumptions and predictions are thrown out the window. Reliable sources of revenue—like com- 
mercial rents or amenity fees, for example—are up in the air. Line items need to be added for  
expenses that didn’t exist even six months ago: personal protective equipment, digital body  
temperature gauges, and social distancing compliance monitors, for example. And those are  
just the ones that can be reasonably predicted six months into the COVID-19 crisis. If there is  
one word that seems to run parallel with coronavirus and its effects, it’s  
Educated Guesses 
Upheaval aside, however, the basics of budgeting remain the same. Communities must still  
meet all of their financial obligations to operate and insure their facilities; pay vendors, contrac- 
tors, and lenders; and provide a safe and secure home for residents.  
Many aspects of a budget are essentially fixed. Items like water and sewer costs, utility deliv- 
ery, insurance premiums, payroll (especially where determined by collective bargaining agree- 
ments), and taxes not only are non-negotiable, they also tend to make up a large proportion of  
an association’s or corporation’s operating expenses.  
For other recurring costs that are discretionary or can be reduced with some effort, boards  
The Illinois Department of Financial  
and Professional Regulation (IDFPR)’s  
Division of Real Estate recently released  
a set of frequently asked questions and  
guidelines for condominium and com- 
mon interest community associations  
as the state and its municipalities move  
to reopen and resume day-to-day op- 
erations during the ongoing coronavirus  
Broadly speaking, the IDFPR’s mis- 
sion is to “protect the residents of Illi- 
nois, ensure the safety and soundness of  
financial institutions, ensure that compe- 
tent professionals are licensed to provide  
services to the public, and enhance com- 
merce in the state for the benefit of all its  
residents.” More specifically, according to  
its website (, the Depart- 
ment’s Division of Real Estate “licenses  
and regulates professionals involved in  
the buying and selling of property, in- 
cluding real estate brokers, appraisers,  
managers, and home inspectors.” Other  
divisions include Banking, Financial In- 
stitutions, and Professional Regulation. 
The  Department’s  guide  was  com- 
piled to address some of the many ques- 
tions that have arisen among association  
boards, managers, and residents during  
the  COVID-19  crisis.  
The Chicagoland  
 is publishing the FAQs in  
their  entirety  below  (the  full  document  
is available as a printable PDF on www., but please  
keep in mind that while these tips and  
guidelines  are  meant  to  be  informa- 
tive and educational, they are not to be  
construed as legal advice. As always, any  
issues with potential legal or liability  
ramifications should be referred to pro- 
fessional legal counsel. 
From the IDFPR 
“Please be aware that disputes arising  
out of the Condominium Property Act  
(765 ILCS 605/ (“CPA”)) or the Com- 
mon Interest Community Association  
Act (765 ILCS 160/ (“CICAA”)) may only  
be resolved by the Illinois courts; the De- 
Budgeting in a  
Changed Landscape   
Making Predictions for the Unpredictable 
Arrears, PPE, &  
Reopening Amenities 
FAQs—and Answers—from the  
IDFPR’s Division of Real Estate 
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205 Lexington Avenue, NY, NY 10016 • CHANGE SERVICE REQUESTED 
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