Condo Media - February 2011 - 24

FINANCE

by Richard Churchill

The Odds of Snow Fall
Controlling the Snow Budget
here is a new financial option available to help control the cost of snow removal. The option is outside the bounds of your regular contractor-based pricing and provides a significant amount of flexibility in setting up for your association. It can be used to supplement your standard “per inch,” “capped seasonal” or “unlimited” seasonal snow contract. While the concept is not particularly complicated, there is a lot of detail to understand. Your board should consider looking at a financial instrument from Chicago Weather Brokerage (CWB) and sold on the Chicago Mercantile Exchange. It is a snow contract where you pick the snow depth to get a quoted price for a $10,000 contract. I will offer a couple of examples below about how it works, but bear with me on the pricing numbers. Any pricing shown below is for illustrative purposes and should not be

taken as any kind of an actual price. The actual price will be determined by CWB on the date of purchase. Let’s say you have a seasonal contract that is capped at 60 inches and the asso-

It’s All in the Details
The snow depths used to trigger these contracts are from Logan airport. If your condominium is located in Burlington, you will need to adjust

Your board should consider looking at a financial instrument from Chicago Weather Brokerage (CWB) and sold on the Chicago Mercantile Exchange. It is a snow contract where you pick the snow depth to get a quoted price for a $10,000 contract.
the contract number to reflect the difference between Burlington and Logan. This shouldn’t be a problem, just a detail. You can purchase a contract for any total accumulation. The cost of the contract will be determined on the date of purchase. If you purchase the contract in October, the price will be better than in November. If you want to purchase a contract in December, the price will definitely be higher than November. There are no refunds. You either get the $10,000 payout or you don’t. You also can purchase multiple contracts. If you have a large complex and want $40,000 worth of protection, the association can purchase four contracts. You can build a scenario between inches and number of contracts to suit your situation. For instance, purchase two contracts at 60 inches and another at 72 inches. That would be $30,000 of coverage if it snowed over 72 inches, or $20,000 of coverage if it snowed over 60 inches but less than 72 inches. Fig.1 shows the three typical snow contract pricing structures offered by contractors.

$50,000 $45,000 $40,000 $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 0 12 24 36
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Unlimited Capped

Inches of Snow
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CONDO MEDIA • FEBRUARY 2011

ciation wants some protection against the additional cost of the storms that occur after the 60-inch mark. CWB would quote the association a price of $3,500 (ballpark number) for the $10,000 contract. If it snows more than 60 inches, CWB sends the association a check for $10,000. Or, the association may have the budget to pay the additional charges after 60 inches, but around Fig. 1 the 84-inch mark, the cost of plowing becomes financially stressful for the association. The association could purchase a snow contract at the 84-inch mark for $1,500 (ballpark number). In this scenario, if it snows more than 84 inches, the association would receive a payment of $10,000 from CWB to offset the contractor’s additional 48 60 72 84 96 108 charges for plowing.

Condo Media - February 2011

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