Budget Box: What is the Contingency?
The Contingency is a line-item account included in the operating budget each year to cover unexpected or emergency expenses. The Contingency can be compared to your household’s emergency fund recommended by personal financial planners for unexpected expenses. For 2021, $100,000 has been allocated for the Executive Management budget and $30,000 for the Marinas budget. At year end, any remaining balance in the Contingency account is transferred into the Reserve Fund, protecting the funds from taxation and helping reduce the annual allocation amount required from the Assessment. In fact, all remaining operating budget balances are transferred to the Reserves in December, after estimating the January opening balance of at least two month’s operating expenses, totaling $1.5M. In 2020, the Contingency account budget was $125,000, and the total spent was $82,508. Of those expenses, $63,205 was used to cover COVID-19 related expenses, such as janitorial services, thermometers, and Personal Protective Equipment. The remaining expenditures were mainly used to cover unexpected Landings Harbor Sea Wall repairs.
The Contingency account is an important risk management tool for funding unknown future expenses, particularly storm-related cleanup. We don’t separately budget for such cleanup because the likelihood of a storm and the costs associated can’t be anticipated. During Hermine and then Matthew cleanup, the entire account was rapidly depleted. The account was tapped for Irma and Michael expenses as well.
The Contingency serves as a good financial and risk management practice in both the best and worst of times. When not required in a given year, the amount is placed into Reserves at the end of the year. When required, it is available to support immediate, otherwise unfunded emergency needs.