Assessment History

This is our Association Assessment History. The percentage information is from the "Welcome Packet" which is given to each unit owner. An updated sheet is available on request, or it is possible to use the budget information given to each unit owner each year to update that contained in the original welcome packet. Either way, the information is readily available.

To construct the chart, I used the percentage increase each year, and with a spread sheet, I plugged a starting amount into the spread sheet which, with all of the annual increases, yielded the current amount of my assessment. There may be rounding errors, but they should be trivial. I also calculated the "average" of all of the increases.

I have included some observations later in this post.

This is the table of values which was used to construct the chart above:

1978 = 35.00%
1979 = 22.00%
1980 = 26.00%
1981 = 25.00%
1982 = -12.00%
1983 = 0.00%
1984 = 10.00%
1985 = 0.00%
1986 = 0.00%
1987 = 5.00%
1988 = 0.00%
1989 = 12.00%
1990 = 5.00%
1991 = 0.00%
1992 = 0.00%
1993 = 6.00%
1994 = 3.00%
1995 = 4.00%
1996 = 5.00%
1997 = 3.00%
1998 = 3.00%
1999 = 11.00%
2000 = 11.00%
2001 = 9.00%
2002 = 6.00%
2003 = 7.90%
2004 = 6.50%
2005 = 5.80%
2006 = 5.40%
2007 = 6.00%
2008 = 5.50%

Here are a few of my observations from the above data.

The monthly assessment "starting amount" in my chart was $50.00 per month in 1978. By 1984 it had risen to $93.00.

While constructing the chart, I noticed the large assessment increases in the period 1978 to 1981. This was followed by a negative assessment, and then an assessment of 0% in 1983. If these "start up" years are removed from the table and from the calculation of "average", the assessment increases from the period 1984 to 2008 were 5.2% per year.

You will note in the table and chart that after four years of large increases, 1978 to 1982, the assessment was actually a negative 12% in 1982 and then 0% in 1983. In fact, there were 7 years in which the assessment was either 0% or a negative number, which was an assessment decrease to the unit owners.

As I noted on the chart, the average of all assessment increases is 7.29%. However, a consistent increase of about 6.10% each year would have yielded the same monthly assessment in 2008.

I have a few opinions about all of this.

As the writer of this blog, I have the opportunity to include my opinions.

One could ask, why would a lower annual percentage of 6.1% yield the same results as the actual, higher "average" assessments that unit owners have been paying? Higher increases are required to make up for years with 0% or negative assessment increases. Of course, actual costs do not always rise by consistent amounts each year. Economists say we passed through a decade of lower than usual inflation. Inflation has jumped the past few years and the average may be above normal for a few years. But we and they have no crystal ball.

In the table you will see large assessments in the early years. It is my understanding that this is not a unique situation. The builders sometimes provide an initial reserve amount. I have been told that in the case of BLMH there was NO initial reserve, so the "start up" was, as they say, a bit rough, and assessments were increased in jumps to cover the actual operating expenses, breakdowns, and post construction problems. After a few years the finances reached an equilibrium where assessments were at least equal to the costs of running and maintaining the association. At that point, if reserves are adequate, it might be possible for the increases of assessments to be reduced. That is what apparently occured at BLMH. However, I personally think it is a mistake to lower assessment increases to 0%. Why would I say that? Because costs are always increasing. It's due to that phenomenon called "inflation", or the erosion of purchasing power. Economists say long term inflation is normally about 4%. So it would be reasonable to expect operating expenses to increase by that amount at an absolute minimum. That's why I think assessments need to increase at an amount sufficient to offset inflation, or about 4% per year.

That is only part of the story. The cost of replacement must also be included in our assessment fees. Things do wear out, so in addition to utilities and maintenance items (painting, lawn care, snow plowing, etc.) we also need an amount in each assessment to cover replacement of things that wear out. These “things” are the common elements like roofs, street paving, curbs, electrical and plumbing infrastructure, patios, etc. Finally, other unforeseen events my also come into play. Large insurance increases, law suits, fire, broken water mains, etc. can all result in larger than anticipated expenses. Paying these will come from the reserves, which must then be replenished, and may require a larger than normal increase in the annual assessments. Or a special assessment.

I would therefore expect a unit owner’s monthly assessment fee to include dollar amounts to cover operating expenses, maintenance, reserves for replacement plus an additional amount to cover inflation.

If an association does not have adequate reserves, and it is my opinion that at one time this association did not, the monthly assessments must include not only money for expenses and replenishment of reserves plus inflation, it must also include an amount to build up the reserve that did not exist in the first place.

That is what the board has been doing. As I noted in an earlier post, when I purchased a condo here in 2001/2002, the association had reserves equal to about $300 per unit. That was in my opinion far, far too small an amount and it was also the opinion of an independent accountant who reviewed the financials at my request.

If an association does not maintain adequate reserves, then once we dig a financial hole, which financial planners sometimes refer to as "mortgaging our future" it can be difficult to dig our way out, because we not only must pay for ongoing operating expenses and repairs from funds currently assessed, but we must also pay a “hidden” special assessment each month to build up the reserves.

As I see it, that is what I have been doing for the past 6 years. If you look at the chart you will notice that it began sloping upwards in 1999. That coincides roughly with increases for the purpose of building up reserves. As I noted in an earlier post about where my monthly assessment went, about 19% last year was directed toward building up “reserves”. This is no different than a special assessment each month for a building fund for replacement of that roof overhead that is wearing out each and every day.

Perhaps it would be more correct to call it that on the bill for each month’s assessment instead of burying it the overall fee. In which case I am paying a $46.42 special assessment for roof, paving, lake restoration and concrete. Of course, that doesn’t change matters as my total bill is still the same!

Finally, there is the psychological damage when associations issue special assessments. I have read other blogs where unit owners rant about special assessments. In one case, a $2000 paving fee at another condo resulted in some harsh language about the management company. Owners are always concerned about their property values. When I inspected BLMH prior to purchase, I reviewed the assessment history. Frequent or large “special assessments” would have been construed as a negative.

If I were to attempt to sell my unit, I assume other perspective buyers would also do their “due diligence” and special assessments would not be helpful.

Here at BLMH our unit values have increased pretty consistently. I attribute that in part to the community we live in but also to the fact that the board has a program in place to preserve or enhance the value of our condominiums. To put it another way, the value of our units is in large measure due to the excellent condition of the BLMH complex and it's financial health. At present, our financial reserves are growing, the complex is well maintained and the board has plans in place to handle some of the major maintenance issues, such as the repair of the roofs.

Finally, is it possible for assessments to decrease? I don’t know. If we have sufficient reserves to do all of the repairs identified and if costs do not continue to spiral upward, then I would think the board would review the fees for reserves and see if they are excessive. As a former home owner, I know that roof repairs are required about each 15 years. However, this complex is 30 years old and other things, such as those that are buried underground, may also require reserves. The city we live in is spending $1 million more each year on street repairs than it did just a few years ago. At one time those repairs were covered by taxes collected from motor vehicles. Now, that $1 million difference is being paid from general revenue. According to the Mayor, this is a difficult thing to do.

It is our board that will be charged with making the difficult choices we face ahead. We too will feel the pressure of these cost increases. It will be our choice as unit owners to invest in BLMH or not. Either way, there will be consequences. I would hope that this association and it’s complex will continue to be well maintained so that my property values are protected and I will continue to have the wonderful views from our windows and balconies like that photo at the top of this blog. However, these are privileges and are not guaranteed. They are purchased with the funds I put in my assessment envelope each month.