Are we again in a vicious cycle that will require higher fees?

 

Are we in a vicious cycle, yet again?

A priority in 2021 is to upgrade the entrance landscape with a limestone monolith.  Both Dover and Plymouth streets are disintegrating.  While this is occurring the areas formerly occupied by viburnums are mud, and streets such as Dover and Plymouth continue to disintegrate. Boards in 2017-2018 were told about the issues, and this was also published in the newsletters, all conveniently deleted from the HOA website by the board of 2019-2021. 

The board members are the elected fiduciaries.  Everyone else is either a contractor or an owner.  The fiduciaries are ultimately responsible and should be held accountable. it happed in 2008 and I do hope it happens again.  However, our "fiduciaries" are inclined to blame others and in extreme circumstances do their best to drive capable people off of the board. Management is not a project manager or an engineer. Management works generally under a fixed-fee contract.  In other words, you get what you pay for. Boards need to be willing to manage the managers, hire the necessary unbiased experts and make the decisions they were elected to make.  But that requires a lot more than getting elected and showing up at a meeting for a couple of hours a month.  I've seen board members compare different contractors in different domains.  For example, Management and Maintenance. Some board members have demanded equal performance from both. If so, then pay for it.  I've pointed out numerous times to the boards that Maintenance operates on a Time+Material basis. Oh yes, there is a contract but that contract merely specifies the cost of Time spent within the contract plus materials.  Maintenance is paid for each and every hour expended on the property and any excess hours are paid for. 

Mark my words, when repairs are eventually made at Dover and Plymouth the expenditures for a proper repair will be greater than need be because the street was allowed to disintegrate to the extent that the base was damaged. Boards 2019-2021 delayed needed and urgent repairs. Those who were on the board 2005-2015 are fully aware of these issues. Why? Because they were experienced in the premature failure of Lakecliffe, a professional engineering firm was consulted and prepared surveys, drawing and specification.  That street was replaced in 2014-2015 at great cost to the owner. All of this was discussed in great detail with boards over a period of years. 

Excuses have been made for not applying an asphalt preservative to Lakecliffe, and the cracks that are forming should have been filled in 2019-2021.  This was all presented to the board in 2018 and a quote was obtained in that year. In fact, I spoke with the contractor in 2019 after having left the board.  The board apparently expects someone else to figure this out, establish the priorities and so on.  

It would seem the board is repeating some mistakes of the past, deferring needed repairs and again building the Replacement Fund.  Kicking the can down the road failed before and it will fail again.

Delayed repairs will be more costly and that will require higher fees. But this may all be a part of the plan, because some board members believe we simply don't have enough money. Operating on beliefs and cherry picking numbers is a hell of a way to run a HOA, and is a disservice to owners. 

Flushing the fees of Owners

I have an opinion that boards did flush owner fees by avoiding such things as stream maintenance, which resulted in larger water usage. Yes, that water did eventually find its way under buildings and to the water table, as it flowed to the lakes.  That water did damage foundation and garages.  I say it contributed to some expensive maintenance problems. I told the boards 2011-2018 that this was an issue. Some board  members were oblivious, despite my numerous entireties, reports and photos. I think that at least one board member enjoyed watching me grovel and beg.  I did my best to address these issues as the roofing project wound down, as reserve funds were released and available to address other important problems. It was a balancing act to control fees collected, reserve balances and repair requirements. Yes, it is a fact that the decisions of the boards of 2000-2008 and those earlier did hamstring future boards. When I rant about "kicking the can down the road" that is what I'm talking about.  The opposite is also true. Recent purchasers can bask, for a while, in the glow of the extraordinary efforts by the boards of  2009-2018.  Some did this willingly and some were dragged along. But we did have good leadership. As a cynic who departed the board in September 2018, I did conjecture "How long will it take the board to screw this up?"  

After removal of the slab, a flooded garage foundation required sump pumps
to remove excess water in June 2018, before a new slab could be constructed.
Leaking ponds contributed to this. There are direct costs via higher water bills
to the association, and indirect costs, via damage to foundations and garage floors.

It is important to create distinctions

Prior to October 2010 boards failed  to distinguish  between the requirements of the O&M budgets, and the Replacement Fund, and provide owners with that information as percentages of the budget. I also thin the earlier boards failed to comprehend the requirements of a Replacement Fund to maintain the association. 

So, they winged it.  They refused to direct an independently prepared reserve study. They lived in a bubble they constructed but was seriously flawed. Controlling information may allow a board to bask in the glow provided by inadequate information.  The emphasis of the board was a focus on promoting a  budget increase percentages to fees.  But they failed to deliver.  The board blindsided themselves.  The owners paid. 

This is why, in 2006 owners began to clamor for more transparency. That board could not provide a reasonable explanation of the 3% annual fee increases presented to owners, and the actual , and platitudes do not pay the fees required of owners.

When that board was replaced in September 2008 a previous lack of formal reserve studies blindsided a new board in 2009.  That board was limited by the shortsightedness of earlier boards. That's one reasons I really expanded financial analysis with particular emphasis on fees collected during the "great recession".  In fact, that recession ended before I achieved a seat on the board, but then, I knew it takes years for the consequences to unwind, and it did. 

I expanded the newsletter. But the board of 2019-2020 flushed most of these. Yes, but these are supposed to be the fiduciaries who operate in the best interest of owners. One would think that requires preparing future boards. It doesn't if one is most interested in maintaining one's dominance on a board.

I made it a point, commencing with a board position in September 2010 to provide transparency. 

Is there a benefit to tracking O&M budget surpluses?

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Are there reasons a board would promote one fee level and enact another? 

1. Prior to 2010 there was no independently prepared reserve study during the period I'm using here. Were board members relying upon incomplete information? 

2. Board members may not be capable of long term planning.  This is particularly true if the board is focused on the Operations & Maintenance (O&M) budgets.  I've observed boards and that's what some do. Another example is a focus on discussing work orders.  In other words, there may be desire to work on the small things that are understood, and avoid those that are more difficult or less understood. I did attempt to unconceal this, but some board members are very resistant. (Note 6).

3. Board members are volunteers. They may not be able or willing to put in the hours necessary to educate themselves, monitor the property and do the work that is necessary. Some are inclined to rely upon management or their opinions. Some rely upon other board members to make decisions. It really takes time to thoroughly understand a business. Yet, board members when first elected usually arrive with limited knowledge of the business of running the association. 

4. There is a dynamic on the board that favors the votes of long term members.  Some board members are inclined to follow a seasoned board member when voting. That is only useful to a point. Diversity and opposing viewpoints may be stifled. (Note    ).

5. Boards are slow to react.  Management may bring something to the attention of the board.  Boards then determine what to do about it. At times, requests are made for more information, or an expert opinion, or a formal proposal, or a revision to a proposal.  The matter is tabled until the next meeting.  At the next meeting the additional information is discussed. There may be further questions and so the matter is continued to the next month. Eventually, one of two things will occur. Management will be given a specific directive by the board to resolve this, via contractor or work order or whatever.  Alternately, the item is simply dropped by the board and left unresolved. 

6.When a new board was elected in fall of 2008, they did authorize that first reserve study.  Until that study was completed, that board only had prior, incomplete and possibly inaccurate information to use.  That initial reserve study recommended a special assessment and large fee increase.  That new  board made an interim decision while the study was analyzed. The result was a fee larger than 5.0%. In other words, they were blindsided by the earlier boards.

7. Boards are largely comprised of individuals with little or no business experience and financial/accounting experience.  When pressed, most board members will acknowledge that they are amateurs.  However, the Illinois Condominium Act does address this and if one studies the ILCA one does get a very good idea of what is expected from a board member.

8. A few years, or many, on a board does not constitute business experience. If it were, it would be akin to saying that airline passengers with high frequent flyer miles are capable of flying the airplane.

9. A board member or members may have a personal agenda.

10. Boards may be unwilling to provide owners with bad news. In other words, there may be a desire to provide good news or sugar coat that pill and kick that can down the road. Boards can delay necessary repairs and spend on fluff to maintain a façade, for a few years.  

11. Some board members do operate differently when owners are present than when owners are not.  For example, I've listened to some board members make statements in private that would never get them elected if they made similar statements on their Candidates Form.

12. Boards are elected.  There may be a desire to be popular and to be re-elected.  

What Happened?  Why did the boards promote smaller annual fee increases to owners, yet enact much larger ones? 

Here's my opinion after observing boards in action as an owner and also as a board member. I was able to observe the same board members when I was an owner and also when I was a board member. Some board members operate very differently when owners are present. In other words, board members may say one thing to the owners, and then do another when owners are not present.

I suggest that we keep in mind that board members are elected, although appointment of board members is possible. In other words, to be elected may be a part of a personal agenda of a board member. To be re-elected a board member or members may be inclined to say that which is necessary to be re-elected.

Another possibility is that  talk is cheap.  In other words, some board members may promote wishful thinking during meetings and on their candidates forms.  They will promote the ideal, but enact something else while on the board.  Many board members may have little or no business or accounting experience. Some may be committed only to their personal well-being.

A few years, or many, on a board does not constitute business experience. If it were, it would be akin to saying that airline passengers with high frequent flyer miles are capable of flying the airplane.

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