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Section 3
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Frequently Asked Questions

Budgets
 

Q: What is the timeline for a project to submit their first operating budget? (10/17/07)

A: Assuming a project submitted their funding application in October 2006, the following timeline would apply:

Example: January 2007 - Project receives funding approval
               April 2007 – Firm Commitment is issued
               October 2007 – Lease Up begins (Use FIN 117 –Lease Up Cost Breakdown)
               2008 – Cost Certify, Reach 90% occupancy (Use 2013 budget)
               2009 – Submit 1st year Operating budget by November 15, 2008;
               Available for 1st rent increase
 

Q:  How Do I submit my budget, and how do know if I am required to submit a budget? (10/17/07)
 

A:  Budgets are required to be submitted through MHDC’s Asset Management Reporting System (click here) or go to amrs.mhdc.com. The following properties must submit a budget:
 

bullet MHDC or HOME funds with or without Tax Credit containing 13 or more units, and only if a large number of units are not rent controlled by a HAP contract
bullet Tax Credit Only containing 13 units or more
bullet Rural Development and MHDC combined financing with MHDC in 1st Position containing 13 units or more regardless of a HAP contract.
 

Q:  How do I access MHDC’s Asset Management Reporting System? (10/17/07)
 

A:  Access is granted by entering the project’s user name and password.  Projects who submitted a 2007 budget will use the same user name and password.  All new projects will receive a user name from MHDC prior to the submission period.  MHDC no longer issues forgotten passwords.  The project can obtain a password via e-mail by using the Forgot Password? function on the login screen.
 

Q:  How does the system know where to send a password when one is requested? (10/17/07)
 

A:  Passwords are sent to the primary contact noted in MHDC’s Asset Management System.  This can be either the owner or management company contact depending on the preferred mailing address selected by the project during the 2007 budget submission.  MHDC requires the contact information screen to be updated at each budget, financial statement, and monthly occupancy submission.  At minimum, all contact information must include a contact name and e-mail address.
 

Q:  New What will I be required to enter On-Line? (10/17/07)

 

A:  MHDC requires all budgets to include the following information "Statement of Profit/Loss” from the previous year audit; "Current Fiscal Year Expenses to Date;” and "Budget for the Next Fiscal Year.”

 

Note:   Budgets cannot be entered until the previous year’s annual financial statement has been submitted through AMRS.  Properties no longer need to enter the "Statement of Profit/Loss” from the previous year audit because the AMRS system automatically carries this information to the budget.

 

Q:  New How many months should I use when reporting expenses on the "Current Fiscal Year Expenses to Date” schedule? (10/17/07)

 

A:  MHDC would like the property to use 9 months of Year–To-Date expenses.  At minimum, MHDC will accept 7 months.

 

Note:  When entering "Current Fiscal Year Expenses to Date” make sure the end date is the date of the last month being used for reporting (i.e. 1/1/07 to 9/30/07.)  Do not enter 12/31/07 as the end date or annualize expenses prior to entering into the system.  The system will automatically annualize these expense based on the entered end date.
 

Q:  What if some "Current Fiscal Year to Date” expenses will not be recorded on our internal financial statement until year end? (10/17/07)
 

A:  MHDC’s policy is for all properties to use accrual accounting.  MHDC does realize most properties use cash basis throughout the year and convert to accrual accounting at year end.  Items that are not reported on your internal financial statement at the time of reporting your budget, but are required by MHDC must be reasonably estimated.  MHDC recommends using a 3 year average for most estimates. Reporting $0, and explaining that the amount has not been paid is not acceptable.
 

Q:  What does * denotes required fields mean? (10/17/07)
 

A:  MHDC has identified certain expense accounts that should be reported for all properties regardless of development size, financing, and geographic region.  At minimum, $0 must be entered if this account truly does not apply to the property.  A follow-up question may be asked by MHDC for further clarification.
 

Q:  What does Requires Breakout mean? (10/17/07)
 

A:  MHDC has identified certain expense accounts that need to be broken down further.  Enter the total expenses amount on the budget, and then breakout the total by function.  Breakouts are required for Office Expenses, Operating and Maintenance Payroll Expense, Operating and Maintenance Supplies and Contracts, Vacant unit Preparation, and all Miscellaneous Expenses.  At least 90% of miscellaneous expenses should be broken down.

Example

 

 

 

Audit

YTD

Budget

Operating & Maintenance - Contracts - Exterminating

6520

 

$701.79

$938.29

$1,000.00

 

 

 

 

 

 

Operating & Maintenance - Contracts - Grounds

6520

 

$780.00

$1,042.86

$1,100.00

 

 

 

 

 

 

Operating & Maintenance - Contracts - Repairs / Decorating

6520

 

$2,308.07

$3,085.88

$2,900.00

 

 

 

 

 

 

Operating & Maintenance - Contracts - Security Alarm

6520

 

$354.00

$473.30

$500.00


 

Q:   How is Gross Potential Rent determined? (10/17/07)
 

A: This account includes MHDC approved rents charged at 100% occupancy.  The amount can be calculated by taking the total of the approved rent charges per each unit times the number of months in the approved rent increase period.  Approved rents can be found in the property’s Regulatory Agreement, Land Use Restriction Agreement, HUD Rent Schedule Low Rent Housing Form HUD-92458, or MHDC’s Schedule II if a rent increase has been approved since the property’s inception.  Rents should NOT be netted!
 

Gross Potential Rents should be reported as follows:
 

Rent Revenue - Gross Potential

(assume per Schedule II)

 $  302,400

      ($450 x 56 1 BR units x 12 mo)

 

 

Vacancies - Apartments *

 

 $   (15,000)

Rental Concessions #

 

 $     (5,000)

Loss to Lease ^

 

 $     (3,000)

 

 

 

Net Rental Revenue Rent Revenue Less Vacancies

 $  279,400

 

* Defined as the gross potential rents lost through vacancy of an apartment unit.
 

 # Defined as the amount provided for rental concessions (i.e. free rent, discounts) in connection with the execution of the tenant's lease.
 

^ Defined as Gross Potential Rents lost due to the timing of tenant's current lease.  (i.e. - rent increase effective date 1/1/x; tenant lease expiration date 4/1/x = 3 months of rents lost to lease).
 

Q:  Can I request a rent increase at the same time I submit my budget? (10/17/07)
 

A:  Yes - MHDC has moved the rent increase request window from February 1st – April 30th to October 1st – December 31st To submit during the budget process, the system will recognize that the requested amount exceeds your current MHDC approved gross potential rent amount, and will ask you if you want to submit a rent increase – yes or no.  Answering yes will pull up a rent increase packet with all the fields that are needed to submit a rent increase.  If you answer no, the system will warn you that no rent increase is approved and you will need to submit your rent increase on-line by December 31, 2007.  MHDC will not accept mailed rent increase requests unless your property has 12 units or less.  Please visit MHDC’s website www.mhdc.com for more details.

 

Q:  Are we still allowed to request up to a 7% rent increase? (10/17/07)

 

A:  Beginning with all 2008 requests, 7% rent increases will be allowed only for properties that are not elderly designated.  Rent increase requests for all elderly designated properties will be capped at the Social Security COLA adjustment % instead of the allowed 7% maximum.  MHDC will use the 2007 COLA % for all 2008 Rent Increases.  The 2007 COLA % is 3%.  Please visit www.ssa.gov/cola/automatic-cola.htm for previous COLA adjustments.

Q:
  How should management fees be calculated for budget purposes? (10/17/07)
 

A:  For budget purposes only, MHDC allows management fees to be budgeted for assuming 100% occupancy or the maximum management fee % of gross revenue. 
 

Note:  Calculating management fees for budget purposes is different than how the property is to calculate management fees for financial statements purposes.  Please refer to the FAQ section in the Financial Statement section of MHDC’s website for the proper calculation.
 

Q:  What type of expenses should be included in Vacant Unit Preparation? (10/17/07)
 

A:  Vacant Unit Preparation Costs should include all costs that are associated with making a vacant unit ready and cannot be paid from replacement reserves.  Examples include carpeting, vinyl, painting, cleaning, and appliances.
 

Q:  Where should I budget capital expenditure expenses that will be requested for replacement reserve expenses? (10/17/07)
 

A:  Capital expenditures should not be budgeted in the operating section of the budget.  All capital expenditures eligible to be requested from replacement reserves should be budgeted in the Non-Project expense section of the budget.  Please use account number 7180.  Please refer to the eligible replacement reserve items list in the Replacement Reserve section of MHDC’s website.
 

Q:  Will our properties annual Replacement Reserve payment be increased 3% again? (10/17/07)
 

A:  Yes – Beginning in 2007 and every year thereafter, MHDC will increase annual replacement reserve deposits by 3%.  All properties need to increase annual replacement reserve deposits 3% on their submitted budget.  Replacement Reserves for properties that have 12 units or less will be automatically increased 3% during MHDC’s escrow analysis period. 

 

Q:  How do I avoid MHDC’s further follow-up questions regarding my budget? (10/17/07)

 

A:  To avoid further follow up, make sure all required explanations are clear and detailed, and try to avoid using the various miscellaneous accounts as a catch all.  Explain the full change in amount, and make sure the explanations pertain to the correct year.  If an item will fit within one of the more detailed lines, you must use it.  If a miscellaneous account is used, please breakout at least 90% of the balance.

 

Example of a Good Explanation

 

Budget Scenario:  Budget projects $10,000 for Insurance.  Insurance was $3,000 in the previous year.

 

Explanation:

            Insurance quote shows a $4,000 increase for the upcoming year. Additionally, due to the recent floods in the surrounding area management has decided to purchase additional coverage which is estimated to be $3,000 more.


Q:  What does “Non-Compliance Status” mean?

A:
Non-Compliance Status is a term used by MHDC when a project fails to submit any information as prescribed under the Regulatory Agreement or respond to any MHDC inquiry within the allotted time frame. Lack of response to MHDC’s request is a direct violation of the Regulatory Agreement. MHDC will not process any future requests (replacement reserve withdrawal, rent increases, surplus cash, etc.) from a project until the non-compliance issue is resolved. Once the non-compliance issue is resolved, the project is put on a 90 day waiting list before their request can be processed.