Board members need to prepare and be attentive

In order for Homeowner's Associations to succeed, owners must be responsibly involved and boards must be competent and willing to fulfill their duties as fiduciaries.

One of the aspects of being a board member is to be prepared for meetings. At BLMH that required careful reading of a monthly packet provided by management. That packet may be 100 or more pages in length.  It also requires that all board members be attentive at meetings and it may also require that they take notes and use critical thinking skills.

However, I can say as a former HOA board member and president that one cannot make board members do what they refuse to do. I learned this the hard way over a period of years and the lessons learned and the intransigence of some board members was instrumental in my decision to depart from the board in September 2018.  The issues were far reaching and had I stayed in 2019 there would have been open warfare.  That would not have been good for the Association.

An example of a failure to be prepared

During the January 2019 HOA meeting the board reviewed the letter from the city pertaining to transitioning control and responsibility for our water mains to the city.

This letter was included in a packet provided by management to the board about six months ago. That was specifically at my request, as president. During the meeting I gave a brief explanation and also gave the board an opportunity to study the letter, deferring deeper discussion to a later meeting. The letter was subsequently discussed by the board at a later meeting, but was tabled due to lack of interest and enthusiasm by some board members.

I provided a brief explanation of the letter in the August-September 2018 Newsletter to residents, owners and of course, to the board.  I pointed out that certain decisions would have to be made by the board of 2019. I also acknowledged that I was departing the board and would not be one of those  making the decisions.

During the Annual meeting in September I provided a summary of the state of the association to owners and to the board. That address included the water main issue and numerous visuals I prepared on my PC and projected on a screen (I provided the technology).  Several owners asked questions about the water mains and this project, which I answered.

Yet, when the board decided in January, 2019 to discuss this,  it was reported by an owner that one board member complained that he/she did not  understand where this letter came from, etc.  That board member had been in attendance for all of the presentations listed above.

So what happened?

One issue is most board members did not keep notes of the meetings; when the meeting is over, it is up to individual memory to keep track of "to-do's", issues, etc. Furthermore, for some time, there have been two concurrent meetings going on. This was not intentional by the board. However, a faction led by a previous president decided to ignore the current president and would conduct side bar conversations. This occurred intermittently during meetings from 2013 to September 2018. That group refused to alter their behavior.  This occurred again during the annual meeting. While I was giving my presentation several board members were facing away from me and the screen. Two were engaged in a conversation distinct from the presentation. This was captured on video.  As a consequence they did not get the benefit of my explanation about the issues facing the board in making a decision about the water mains.

I would suggest that a lack of preparation and inattentiveness is why some board members don't understand critical issues and even some of the forms provided in the management packet. There have been numerous explanations to the board during the my eight years of service. But some board members were more interested in running their personal agendas.

Those agendas showed up in many ways, from lack of attention to belligerence and even issues pertaining to rules enforcement.

I had very good reasons for departing the board, some far more consequential and serious than the water main project.

Roofs - Significant Reserve Expenditure Program 2005-2016 Part II

This is Part Two of a two-part post.

The Roofing Project - A slow death for the Association?
This post includes several charts I prepared for the board and for owners about nine years ago. I prepared these to calm owners. It was one of my first communication steps to inform owners of the plan and the situation.

After ten years of large fee increases and readily apparent infrastructure problems the owners were desperate and frustrated.

Even with a new board in place, two years later the situation at the Association had worsened and by 2010 the full implication of the "Great Recession" in the U.S. was impacting the owners. Bankruptcies and delinquency were a serious problem and becoming difficult for the board to shield owners from. In fact, by December 2011 the delinquencies were more than 6.5% of the annual budget. But that's for another post.

Despite some board assurances, the owners knew the Association was in serious trouble. All one had to do was drive through the potholes on our major thoroughfare, Lakecliffe Drive which sat waiting for someone, anyone, to deal with and correct. And that was the highly visible tip of the iceberg. There had been a steady stream of owner complaints about the condition of the common elements and infrastructure for several years.

In 2007 to 2011, as things spiraled downwards the roofing project slowly moved slowly forward. There was no publicized completion date and no one had any idea of where fees would top out, or when. There was no overall Association plan. It was chaos, as board members looked for scapegoats, including management.  While board members walked, or were fired,  the owners were trapped by the economy and in their units.

It is a fact that if an Association ever falls behind with finances, savings and infrastructure it is nearly impossible to catch up.  Board failures prior to 2008, and the failure of the new board to act decisively until 2010 aggravated the situation. The "decisive action" was sporadic and inconsistent. That was the mess I took upon myself in September 2010 and I knew it would take at least five years to dig out of the hole (pun intended) which previous boards had created.  I openly spoke of this as a "demonstration" of what was possible. I had no illusion about the magnitude of difficulty. In fact, because of a variety of board issues including underminers, the task was made even more difficult.

The following charts provide some background and my intentions for this roofing project. These were produced for board education and owner consumption. What you, the reader, can't be aware of is all of the financial planning and evaluation it took to produce these charts, which were a consequence of my thorough analysis of this entire association. In 2010 I began with the finances, and then plugged in all of the projects. That required numerous physical surveys and condition reports. I had the balance sheets from previous years; these are sent to all owners, and I had been an owner since 2002. But I lacked certain details. My groundwork for this and all other projects began in earnest in 2010, but it took me almost five years to really get a handle on all of this.   All the while I pushed forward with the Roofing Project, and addressed many other infrastructure issues which combined exceeded the cost of the roofs:

My proposed roofing schedule, prepared in fall of 2010 and after completing my "first pass" thorough review of the finances of this association, with about 80 hours spent on reserves and reserve planning.

My Proposed Roofing Cash-Flow, presented as part of a visual presentation to Owners after a HOA Meeting. This was one of a series of charts covering all aspects of the property

The stuff I'm rediscovering as I do the purge includes a copy of a letter. While purging files I came across a copy of a 2006 letter provided by management to an earlier board; it provides some insight.

When I took up the reigns of Architecture, Projects and Maintenance Director in 2011 I made a request of management for historical information about our roofs. I knew the cost per roof, and the number completed to date. What I didn't know was the age of the remaining roofs. These had a finite life expectancy and the clock was running. "To solve a problem it is necessary to identify the problem".  I had concerns about the remaining useful life of the roofs.

Management responded and provided me with a copy of a 2006 letter to the board. It was enlightening with insights into the age of the roofs, the schedule of the previous shingling project and the "new" roof scheduling history from 2006 to 2010.   I used this information to assess the urgency, and as an aid to develop an accelerated schedule for completing roofs from 2011 and thereafter. The management information confirmed my concerns about the age of the existing roofs. That 2006 schedule history including replacements 2006-2010 indicated the following:

1. The earlier reshinging project ran from 1991 to 2000.  That project put a layer of shingles atop an existing roof, creating two layers of shingles.  The information provided by management gave me the actual dates of the addresses shingled each year. 
2. The shingling project was followed by a project to completely re-roof. According to the documents that re-roofing project began in 2005,  with a single roof.  A total of 44 roofs would be completely stripped and replaced with high end, improved architectural shingles, extensive ice and water shield, new gutters, etc.  The replacement roof was designed for a life of 20-30 years, with kynar aluminum flashing, etc. The entire roofing protection system was replaced, including the faux furnace chimney. The specifications expanded the ice and water shielding. Roof peak vents were added for improved airflow, and attic insulation was installed. It was an expensive project. According to the specifications I was given and which were in use, everything was to be replaced except the owner's fireplace chimneys and flashing. The owner's fireplace chimneys were left "as is" including the flashing. This because these were not in the specifications and I was told were owner property. Replacing the fireplace chimney flashing would require dismantling and re-constructing the owner's fireplace chimney.  The A&M directors who preceded me had left these untouched and "as is" when they did seven roofs. Yet one of these former board members showed up at the September 2018 Association Meeting to ask me why I hadn't replaced the fireplace chimney flashings as part of the roofing project. Let's be real here. He oversaw the replacement of several roofs, but wanted to know why I had not changed the specifications he actually used. LOL!  
3. Over a period of six years, from 2005 to 2010 seven roofs had been done. It would be left to me to figure out how to do the remaining 37 and quickly.
4. Over the entire project three or four different roofers were the successful bidders. During the period I was on the board, September 2010 to the completion of the project, all bids were via sealed packages. Up to five qualified bidders were solicited by management and asked to compete each year. Specifications previously prepared were used. (I assumed a board position in September, 2010).  One year I stripped the bidders name from the bid comparison documents, for board discussion purposes. After all, each of the bidders had been selected according to a rigorous criteria. I wanted the discussion to be about the merits of the bids, not the NAME of the bidder. I had a concern that one or more former and current board members had an agenda and might influence the selection process. There was a clique of long term current and former board members. So the bidders were referred to as "A", "B", "C", etc. in my spreadsheets. A former board member objected to this approach. 
5. According to the history documents the first roof selected for replacement had been reshingled in 2000, yet it was replaced in 2005. That was at 1775-1777 Gloucester, which was the address of the president of the Association.
6. Four years later, in 2009  two roofs were replaced. These were 1605-1607 Thames and 1730-1732 Harrow.  The board had been discussing replacing one roof. But in June I took a photo of a failing roof at 1730-1732 and sent it to management and the board. (I was a mere owner with no formal duties or board responsibilities).   I expressed my concern about the condition of that roof with the board. The A&M director agreed and the board decided to replace that roof, thereby increasing the scope for 2009 to two roofs. I also expressed concerns about the pace of the project which could result in roofs with shingles 25-30 years of age (I was guessing, based upon the limited information available to me as a "mere" owner). If that were to happen it would be a problem, with leaks, etc. The board publicly stated that they would deal with this by repairing roofs if necessary, rather than replace. Of course, winter repairs are not easy to accomplish and roof leaks can inconvenience residents and create expensive interior repairs.   I gave the opinion that repair of any roof soon to be replaced is a waste of fees (paid by owners).  
7. In 2010 a new board and a new A&M director decided to do four roofs. These were 1739-1741 Harrow Ct., 1700-1702 Lakecliffe Dr., 1758-1760 Plymouth Ct. and 1780-1782 Gloucester Ct.
8. In 2011 I took over the project with the departure of that A&M director. Seven out of 44 roofs, or about 15% had been completed. 85% of the roofs remained, some 20 years old and beyond end of expected lifespan. That was a serious problem because we had 13 at the end of useful life. We had many more aging roofs.  I reviewed the specifications and made some minor adjustments. For example, roof vents were added for all interior bathroom fans. I was aware that one roofer had voluntarily done this earlier, of his own accord, even though not in the specifications. The fans were currently venting into the attic space; not a good procedure as it pumped a lot of moisture into the attic cavity. 

June 2009 Failing roof 1730-1732 Harrow. My photo was sent to management and the board, who were completely unaware of this problem because it could not be observed from street level.  There are supposed to be two layers of shingles on this roof. I only see one.  Had the previous roofer cheated the association? With no project management, this is what we got!

Buried Dormer Window - A real problem for leaks in through the windows

Ice Dams and Icicles

Icicles, and some snow removed manually

In 2011 when I assumed my duties there were 37 roofs waiting to be done. The history documents indicated these had been been shingled with a second layer in 1991 to 2000.  At a rate of four per year, the roofing project would be completed ten (10) years later, in 2021. This posed several issues for me, and a serious problem for the Association:

1. If the project were completed at the current pace and allowed to stretch out until 2021, some roofs could be 30 years of age, while others might be 21 years of age.  My financial planning indicated that with the current fees it was possible to complete all by 2016 or 2017 while other capital project issues including Lakecliffe were also addressed. The age of the remaining, existing roofs in 2016 would be between 21 and 25 years. 
2. The predicted lifespan of the existing roofs was 18 to 20 years. It would be a stretch to delay completion until 2016. It would also be a financial stretch to complete by 2016!  This I would consider to be an example of being caught between the proverbial "rock and a hard place." 
3. While it would be preferred to replace the oldest roofs first, we also had to keep an eye on the current condition of all of the roofs. 
4. How to select the roofs each year? I discussed the issues with the board. I wasn't willing to wait until leaks appeared. I walked the property and made visual inspections of each of the roofs every year. Also after any severe weather. I visually inspected fronts and rears using a telephoto lens or binoculars. I directed management and our maintenance contractor to advise the board of any and all leak issues. I asked that these be logged with work orders; all work orders go to the board each month and creating them would provide an improved history of issues. I tracked these problems from 2011 to 2016 and reported frequently to the board. 
5. With the above information the replacement would be based primarily on condition.
6. How to avoid expensive failure of those old roofs? How to avoid wasting association money on temporary repairs of old roofs? We were racing the clock. 
7. How to do this project fairly with no bias?  One thing I did was to put the roof at the address of my unit to the end of the list. Probably a new approach at BLMH, where owners were trained by boards to come to meeting and press for improvements and got them. "The squeaky wheel gets the grease" is the way it was done. 
8. How to get it done with the reserves on hand and with the current fees?  Earlier boards had crippled the Association via inadequate reserves and a very large maintenance (capital improvement) backlog.  Over a period of 11 years, from 1998 to 2009 the boards ramped up fees at an average annual rate of 6.85%. Owner fees nearly doubled over that period, reaching about $295 per month in 2009.  Simultaneously, the boards prior to 2009 had stopped a lot of other capital work on the property, in an attempt to accumulate the necessary funds. They were certainly aware of the financial issues, ergo the slow pace of the roofing project and those relentless fee increases. 
9. Over the next 9 years, 2010 to 2018, the fee increases stabilized, totalling 14%, an average of 1.56% per year. The eight years I was on the board the average fee increases were 1.75% each year (Oct. 2011 to Oct. 2018).    See the Notes at the end of this post and the link at the end of this post for the BLMH.org website data.
10. How to do it based upon "cash flow" which in this case is the amount of reserves in 2011, the other items in the maintenance capital project backlog, and the amount of cash contributed to reserves each year from 2010 and beyond?
11. How to do it given the logistical issues. What are the practical limits to the number of roofs each year?  How to coordinate with other projects, including the annual painting/exterior repair cycle, the street projects, driveway replacements, stream repairs, garage repairs, water mains and so on. A lot, and I do mean a lot of coordination was required.  While I was doing this, some on the board coasted, preferring to attend meetings and vote to complete roofs.  
12. How to simultaneously address other problems such as the failing streets?  These had been replaced in 2002-2003 but by 2007 Lakecliffe Blvd, our major thoroughfare, was failing with annual repairs necessary.  Some irate owners called it a "Mine Field".  Of course, I pointed out that this was created by earlier boards, but that fell on deaf ears. Some owners were really nasty to me.

With the assumption of these duties, I formulated a realistic plan:

1. I tracked all association maintenance and infrastructure problems and rated them as to severity. This coupled with annual inspections would provide some guidance as to condition of the roofs and their decline year over year. 
2. Using the information, I created a more thorough, specific schedule. 
3. The schedule was updated annually as determined by current conditions. 
4. Roofs were prioritized based upon condition and problems experienced. 
5. The schedule was accelerated. Four roofs in a year, then six with a peak of eight completed in a single year.
6. We began doing interior roof inspections when an issue was reported to determine if there was any evidence of other leaks, etc. By 2014-2015 we had made interior inspections of all roofs.
7. The schedule was compared to the 2010, 2011 and 2015 reserve studies.
8. The allocation of reserve resources were targeted to the roofs and the streets, while prioritizing other projects.  Some board members argued each and every year for higher fees ("at least 3% per year"). However, the numbers simply didn't support their arguments. The ten- twenty- and 30-year plans indicated we were on track. 
9. In 2010 I published a plan to complete all of the roofs by 2016.  By 2016 some existing roofs could be 25 years of age. Those roofs were designed for 18 to 20 years. Which is precisely why so much observation and monitoring was necessary.  
10. I also told the board that in my opinion, any repairs to old roofs (shingles older than 20 years) was a waste of Association funds. Those roofs had reached or exceeded life expectancy and really should be replaced. Repairs would be a stop-gap, last resort approach.
11. To avoid problems winter snow was removed from some portions of roofs in an attempt to prevent ice dams from forming. For high areas a lift was rented so workers could get to those areas.  In practice owner fees were spent on additional roof maintenance attributable to the age of the roofs. This was one of a number of hidden costs because of the delays to the roofing project. 
12. All of these steps were generally successful, but by 2015 we were experiencing increasing problems with the old roofs. 
13. The roof on the building which houses my unit was re-shingled in 1993. It was replaced in the last year of the project, at the age of 24 years. We were cutting it very close!  I deliberately avoided doing that roof until the end and based upon condition. It was "fair" condition by 2015, but there were no leaks.  I wanted to avoid the purported favoritism that occurred in the Association from time to time, and I did. 
14. Dealing with the roofing project issues did increase my workload substantially. It took a lot of planning on my part to figure out a way to juggle all of these project problems and stabilize fees with the current finances.Which is one of the reasons my "volunteer" hours quickly ramped up to 1,100 per year.  I think some of the old board loved watching my struggle with the problems that they had created. Of course, owners were struggling with the nearly doubled fees. No one wants to really talk about the foreclosures and bankruptcies among owners.  
15. I pressed the board to pay for proper project management oversight to this expensive and critical projects. I pressed for fully qualified, known, licensed, bonded and insured professionals. I pressed for engineered drawings and specifications, prepared by professional engineering firms. Our professional management company is not our engineer, our accountant nor our project manager. Yet, previous boards and even some current, longtime board members pressed management to provide such services. One board member pushed to throw management "under the bus" clearly stating that she/he would see to it that they were fired if they didn't go along with the agenda. And owners wonder why Lakecliffe failed after five years? Duh!

Here's an image of the spreadsheet data I created in Spring of 2011, based up Work Order reports of roofs which experienced issues.  Each month I added the addresses from the current list of work orders so a decision could be made in the spring about which roofs to inspect further, and to replace in that specific year.  A variety of professionals made more detailed inspections, both inside and outside the roofs.

There were similar sheets created by me for five years. These sheets were intended to aid me in guiding the board to make the best possible decision. The colors are matched to a plan of the association, which shows the precise location of the buildings on the spreadsheet. That map was used to coordinate painters, driveway replacement and other contractors and to avoid logistical conflicts. Such conflicts may increase the costs to the association.

Spring 2011 Spreadsheet Summary of Work Orders pertaining to roof leaks

Location plan, color coordinated with the spreadsheet.

Another issue appeared as I was assuming the A&M duties. The first roof, the one replaced in 2005 at 1775-1777 Gloucester had gutters added along the sides of the building. This was in the specification used for all other roofs. However, that roof also had a special treatment to deal with the gutter discharge, which had been relocated from a point on the driveway to adjacent to the front entrance.

To deal with this, at 1775-1777 an underground storm drain line was added to carry the gutter discharge away from the building. Unfortunately, that was not done at any of the subsequent roofs. As a consequence, by the fall of 2011 we were getting complaints of ice at entries, and heaving walks. In fact, a brand new driveway heaved and lifted about 1 inch and that walk cracked because of freezing water running beneath it from a newly relocated gutter  (that was done prior to 2010 and my tenure, but I did observe the problem and I knew we had a major issue to deal with).

With 84 building entrances, any common problem due to construction approach, techniques used and decision quickly escalates to serious costs. By 2011 we had a backlog of 20 entrances to deal with. And more were being added to the list each year.  A variety of approaches were selected to deal with this. Of course, this was all a consequence of the roofing project, and the total cost of that project did increase. Some of this was handled as a maintenance issue, but a lot was dealt with via reserves, as it should be.

We did also experience "wing wall" foundation issues at several addresses. These too had to be addressed, as a column supporting the roof was resting on these foundation walls. Were these problems attributable to water deposited at entrances by relocated gutter downspouts?

By 2012 I had come up with a plan with maintenance of how to address the water at the entrances. We had a backlog of new roof related problems to deal with. It took until 2018 to catch up and address all of these issues. Sadly, the earlier boards had known about this problem but failed to address it and also failed to communicate it to the boards that followed. That's an example of what I call "undermining" of future boards. This could be accidental. Communications is not the best with some boards and board members. However, I do know that there was animosity for new boards after the "palace coup" of 2008.

Here is an example of the consequence of changes, oversight and communications or the lack thereof.  I only learned of this problem when the "A" unit at 1730 Harrow Ct. was flooded after a new gutter was installed.  It discharges at the corner of the building which was a low point. Water deposited by the gutter built a pool in the corner. The pooling water rose above the foundation line and seeped into that unit. There had never been a gutter or a discharge in that location.

Communications is important, but not all board members think so.  There are real consequences to poor communications, but I've been unable to convince everyone on our boards of that; c'est la vie.

Drainage required by new gutter and downspout installed in 2009 with a new roof at 1730H. Drainage added after the unit was flooded. Photo taken in 2011.

Drainage required by new gutter installed in 2009 at 1730H, added after the unit was flooded. Photo taken in 2011.

NOTES: 

1. The 2017 fee increase was 1.5%.  That year the Association had a budget surplus of $51,035 as of 12/31/2017. Is that significant? Had the fees been 4.08% lower we would have had a balanced budget. In other words, the fee increase of 2017 was unnecessary. That was my position when we were making that budget in October-November of 2016. As a "compromise" the board agreed upon a 1.5% increase. As of September, 2018 a budget surplus was projected for 12/31/2018; the actual surplus or deficit remains to be seen, and only after all 2018 bills are in. We had a 0% fee increase for 2018, and that board decision was accomplished because of the surplus of 2017.  It became impossible for the "We need higher fees" promoter on the board to win that argument in the fall of 2017 because of the budget surplus of the prior year. Better budgeting yields better results, and that means better decisions are possible.
2. I was involved on the board from September 24, 2010 through September 27, 2018. During my tenure average annual fee increases were 1.75%, and a substantial amount of planning was accomplished. That was a result of many board actions during that period. My peak 1,100 hours each year were spent well. More on this in a later post. 
3. The question owners don't ask, and even some board members don't ask, is this: "Where does the "budget surplus" money go?"  Board members really should know the answer, and I can guarantee that all don't know the answer to this question.   
4. I became aware of a clique of current and former board members, run by our Association's most senior board member. After numerous attempts to sabotage or undermine other board members I reluctantly concluded there were both current and former board members who should not be trusted.  Beware being "thrown under the bus".   
5. The following links to the "official" 2018 budget, which shows the 2017 budget, approved 2018 budget and the "projected" 2018 year end as of September 2018.  In 2018 the treasurer and I asked management to provide several budget updates during the year, as part of our drive for tighter and ultimately better and more accurate budgets. "Better" budgets I define as 1) more useful and 2) less likely to result in poor decisions:

Click for BLMH 2018 Approved Budget with 2017 figures

Roofs - Significant Reserve Expenditure Program 2005-2016 Part I

I'm in the process of purging files, etc. and of course I'm going through folders to figure out what to toss. Actually seven large "Banker's Boxes" of stuff, plus the hard drives.  While doing this I'm re-discovering some interesting things.

This is Part One of a two-Part post about Reserve Expenditures and it focuses on some of the details of the roofing project.  I expect to post additional insights about finances in the near future. I chose this review of the roofing project because it represents a microcosm of the Association. It is a good example of what I encountered here at BLMH, the culture of this Association and of boards, and also what had to be done to overcome numerous obstacles in order to complete this project in a timely manner.

The project was begun by an earlier board. Three sequential boards were involved, as were at least four Architecture & Maintenance directors. The project duration was 12 years, plus an additional two years for completion of drainage issues.  I completed 85% of the roofs in six years.

My research indicates that this association had a history of very low reserves and low annual reserve contributions. This changed with the roofing project. Here are some statistics. Monthly dollar amounts are average amounts per owner:

• From 1991 to 1998 fees increased an average of 3.0% per year.
• From 1999 to 2009 the fees increased an average of 7.2% per year.
• In 2001 the amount per owner contributed to reserves was less than $27.00 each month.
• In 2014 the amount per owner contributed to reserves was more than $111.00 each month.
• In 2001 the Association budgeted reserve contribution increased to about $108,000.
• In 2012 the Association budgeted reserve contribution was about $440,000.
• As fees increased, so did the reserves. In 2005, the year that the roofing project began the budgeted contribution to reserves reached $185,000; the highest to date over the previous 27 years of the association. But that amount paled compared to what was to come. The 2005 contribution to reserves was less than 50% of the peak amounts for reserve contributions, reached in 2011-2012.
• As fee increases continued, more and more was allocated each year to reserves. 
• The reserve balances continued to increase, peaking at about $1,300,000 in 2014, but about 40% of the roofs remained to be done, and our major thoroughfare, Lakecliffe Drive, had failed prematurely and was replaced in 2014-2015.
• As of September 2018 the reserve balance was about $700,000 and is expected to increase thereafter.  This is on target, per the work done by the financial committee in 2015. See the chart later in this post.
• The roofing project began in 2005 and fee increases greater than 5% per year continued for five more years.

The history of reserve contributions is not readily apparent to owners because boards did not provide separate statistics on the reserves. After observing Association operations from 2002 to 2008 it became apparent to me that the emphasis was meeting the Operations & Maintenance budgets. Meeting those annual, out of pocket expenses were the main thrust of the earlier boards.  The reserves were called a "Replacement Fund" with rough categories. The Welcome Packets included a table of annual fee percentage increases from 1978 to the present. There was no history of reserve amounts and annual reserve contribution amounts. A prospective owner was give the Association financials which included the Budget and Balance Sheet. Owners were given a simple snapshot which included the current amount in reserves and the amount allocated for the current fiscal year. I'm sure that what was provided did meet legal requirements.

Here's a chart constructed in 2015 as we neared the end of the roofing project. The "flat" reserve balances predicted for 2015-2018 were a consequence of all of the projects expected to be completed in those years. It included a projection of completing other significant capital projects which were in the "backlog" of delayed projects:

Projected Reserve Balances 2015 and beyond - 2015 data

According to documents the roofing project began in 2005, was paused and resumed in 2009. Apparently, the pause was to allow reserve balances to grow, although no board member openly stated that, to my knowledge. However, the delay also meant that roofs would wait and continue to age.  The decision to delay and do roofs at a slow pace was probably a financial decision, but it didn't accommodate the age of the roofs, as the reader will see.

When the roofing project resumed, one roof was 18 years old (end of life). Fifteen were between 14 and 18 years old, and so on.

The roofing project would ultimately cost our owners about $2 million in fees. It became apparent there was a financial problem when looking at the reserve balances leading up to this project and the amounts allocated to the "roofs" each year in the "Replacement Fund". From 2002-2009 I wasn't made aware of the details as an owner. I never saw a board discussion during a meeting in which the total cost of the project was discussed in the presence of owners. Nor am I aware of a public discussion of how the board would achieve the reserves required for the project. I don't recall anything in the Newsletter regarding the full scope, financial magnitude and timeline of the project. The boards prior to 2009 were clever and discrete. It seems the board decided that there was no need for the owners to be made aware of the true situation. No one wanted to give bad news and boards intended to be re-elected.  That worked until 2008.

In 2008 a small group of organized owners decided to take over the board. Interesting to me, the existing board, now under attack, suddenly discovered how to communicate the current financial situation about the roof and driveway projects. A privately funded letter went to all of the owners via US Mail. It was insufficient to convince owners and most of the board was replaced by a new board.

The roofing project was an expensive one which defined this Association for 16 years, absorbing nearly half of all of the reserve money collected during that period.  Fees collected for all reserves rose from less than $100,000 per year in 1998 to a peak of $440,000 in 2012; the project was completed in 2016.  I once stated to earlier management and board that the large, annual fee increases to accommodate this project were in my opinion a "stealth" special assessment. For years the roofing project displaced other, necessary capital projects because it absorbed, or was expected to absorb, every last reserve dollar collected. From 2002 onward the board delayed other projects, only doing what was unavoidable. In doing so the board created a sizeable backlog of work, which future boards would have to complete and collect the funds to complete.  Those future boards found themselves in a financial trap. It was a terrible spiral, where fees went up, but work wasn't done. That required additional fee increases. The board of 2009 thought they had enough money and voted on a 0% fee increase for 2010. They discovered the full magnitude of the problem in 2010 with an independent reserve study. The budget for the 2011 year included yet another large fee increase. That year it was 7%.   That new board began planning significant repairs in the fall of 2008 but within two years discovered the financial realities of the Association.

By 2010 my burning question became "How to complete the roofs in a timely manner and eliminate the large backlog of other projects and maintenance?" This was one of the legacies of the earlier boards and it was left to others including myself to solve. The earlier boards had hamstrung, undermined and burdened those that followed. Owners paid the consequences, in many ways.

One consequence is the difficulty of attracting talent to the board. That is in part because of the earlier board culture, which persists today. Some board members don't want others on the board and take steps to make life difficult for new board members.  They can't deal with some aspects of reality, preferring to be surrounded by "yes men" and "yes women". New board members are frequently unequipped to deal with adversarial board members and cliques or with the realities of the work required in a large and aging Association. There remains the echo of owners wounded by the 2008 financial crisis and the arrogance of earlier boards, such as the one that began the roofing project.  On the surface, all looks well, but that surface appearance is very deceptive.  Owners simply don't want to be targets on the board, or the headaches. It is difficult simply to do the work.  Politics and personal agendas don't belong. So those who do volunteer may find themselves to be scapegoats, targets, and even mal-treated by other board members. There is also the possibility of personal agendas. Not everyone joins a board to work.  As for the entrenched board members, well, they'll do everything and anything they can to retain power.

I've stated that while there were tangible benefits and new roofs were necessary, I did wonder if the scope and approach of the roofing project was appropriate at the time, considering the overall condition of the Association and the state of reserves and fees commencing in 2000.  Certainly boards were aware of this impending project. One of the board members has been on the board for decades as President, Treasurer and so on. Adding a second layer of shingles to roofs had begun in 1991. That approach did have its limitations, as any capable roofer can attest.  However, there had never been a formal reserve study until the new board of 2008 commissioned one in 2010, and that study created such confusion it was necessary for another in 2011. The roofing project had been underway for six years.

I was the clean-up guy when I joined the board in 2010. I really didn't have much of a choice, but to continue the project. Considering the personalities of the various boards and the status of this "pet" project, there was no possibility of change. There was absolutely no question or discussion about completing this project. It would be done.

I simply had to figure out how to complete it, and a lot of other things, too, while not breaking the bank accounts of the owners. I saw a need to stabilize fees. An earlier board planned and began this project while avoiding a reserve study. For about a decade other projects and capital improvements were given short shrift while fees were collected and saved. Some things were done on the cheap, other things were ignored.

The streets were replaced in 2002-2003, but in an inferior manner and with no engineering and limited supervision; one began failing within four years. Unit concrete patio repairs were suspended. Timber retaining walls were rotting. Water main repairs were accomplished with "band aids", two streams had serious problems, all three pump pits were failing, common area decks needed major repair or replacement, driveways were aging, deck piers sunken in streams were rotting and the decks sinking,  the condition of 84 garage floors was unknown, etc.  Operations and Maintenance money was spent on painting, panel and trim, and Landscaping. The board attitude was "If it isn't broken don't fix it" and "Only do what was absolutely necessary". Arguing against hallway work, a board member who presided over the beginnings of the roofing project made the statement "We only replace [hallway] carpeting when it becomes a trip hazard". That was the prevailing attitude as money was accumulated for the roofing project.

Special landscaping continued but reserve fund expenditures were limited to mulch, entry beautification and tree removal as the EAB took its toll on the ash trees and old willows began falling. Some shore work was done on the North lake. Appearances were kept up. But there were serious problems, and some board members were aware of the issues, but denied responsibility. One prior board president privately acknowledged this with the comment "You can paint a pig, but it is still a pig".

It seemed some of the board members understood the issue, but were unwilling or unable to do anything about it, beyond continuously raising fees. I argued that no matter what the fees, the boards would spend every dollar collected. The sky was apparently the limit. There was always an emphasis on "No Special Assessments" but large, continuous fee increases were okay (almost 7% each year for a decade). I encountered boards in which some board members were entrenched and absolutely committed to continuous fee increases, no matter what the consequences for owners. One even stated during budget discussions that she/he "didn't care about the consequences of fee increases on owners."  With the "Great Recession" of 2008 there were significant delinquencies and foreclosures to deal with. These things put added pressure on Association finances and owners.

It was a constant struggle, with what appeared to be almost insurmountable problems. When I pushed for other, vital and necessary capital repairs, one board member complained "Norm is spending all of the money". I am convinced that some board members failed to comprehend the magnitude of the problems, while others chose not to.  There was palpable fear. Owners were struggling. From 2008 to the present several cliques were formed and votes were cast along "agenda" lines. Not the way an association should be run, but as we are all unpaid volunteers, I guess it could be said that owners get what they pay for. One board leader stated that "We [the board] should not cater to the lowest common denominator" during a discussion of setting the annual budget and the impact of continuous increases on owners. All of the spreadsheets, studies and projections could not dissuade this position. By 2015 voting became a personal endeavor, where negative votes were construed in the clique as a personal attack. This is the primary reason I decided to leave the board in the fall of 2018. Enough is enough.

The next part of this post will look more closely into the roofing project.


NOTES: 

1. The 2017 fee increase was 1.5%.  That year the Association had a budget surplus of $51,035 as of 12/31/2017. Is that significant? Had the fees been 4.08% lower we would have had a balanced budget. In other words, the fee increase of 2017 was unnecessary. That was my position when we were making that budget in October-November of 2016. As a "compromise" the board agreed upon a 1.5% increase. As of September, 2018 a budget surplus was projected for 12/31/2018; the actual surplus or deficit remains to be seen, and only after all 2018 bills are in. We had a 0% fee increase in 2018, and that board decision was accomplished because of the surplus of 2017.  It became impossible for the "We need higher fees" promoter on the board to win that argument in the fall of 2017 because of the budget surplus of the prior year. Better budgeting yields better results, and that means better decisions are possible.
2. I was involved on the board from September 2010 through September 27, 2018. During my tenure average annual fee increases were 2.0%. That was a result of board actions during that period. My 1,100 hours each year were spent well. More on this in a later post. 
3. The question owners don't ask, and even some board members don't ask, is this: "Where does the "budget surplus" money go?"  Board members really should know the answer, and I can guarantee that all don't know the answer to this question.   
4. I became aware of a clique of current and former board members, run by our Association's most senior board member. After numerous attempts to sabotage or undermine other board members I reluctantly concluded there were both current and former board members who should not be trusted.  Beware being "thrown under the bus".   
5. The following links to the "official" 2018 budget, which shows the 2017 budget, approved 2018 budget and the "projected" 2018 year end as of September 2018.  In 2018 the treasurer and I asked management to provide several budget updates during the year, as part of our drive for tighter and ultimately better and more accurate budgets. "Better" budgets I define as 1) more useful and 2) less likely to result in poor decisions:

Click for BLMH 2018 Approved Budget with 2017 figures

Is Complacency a New Normal in Your HOA?

On reading this you might think this post is also about the current state of affairs in the country. It isn't, although there are similarities.  "Complacency" is "a feeling of smug or uncritical satisfaction with oneself or one's achievements." Complacency may be accompanied by a tendency to sit back and assume that a certain outcome is assured.

While discussing current events (at a seminar on global affairs) one of the attendees couldn't resist moving into a discussion of the recent US election. I thought about the great uproar that has occurred when things did not turn out as expected. I commented that one candidate was apparently so smug and confident as to return home each night while on the campaign trail. (This was reported in the mainstream press). Now, after the rebellion the press seems to be attempting to explain how they missed all of this, and half the politicians are making excuses. As usual it is easier to come up with radical explanations. We didn't do anything wrong! We were robbed! It was foreign  influence, etc. This is similar to the oft used refrain "It was an accident."

During that discussion I reminded everyone present that that this is not the first "populist" rebellion or upset in recent years. It seems many of us have forgotten that only eight years ago we got "change."

Eight years ago "change" was such a wonderful idea that a small political group in our HOA used that platform too. Why not? If it works for getting the presidency of the US, why not also for a condominium board? It did work and they were elected. The old board had become complacent and somewhat arrogant. "Who else could run this HOA?" Who else, indeed. The issue isn't running a condominium association; any group can do that. The issue is running it well.

However, circumstances intervened for that new board. The euphoria quickly dissipated when the magnitude of the 2008 financial disaster gripping the country began to impact our association. Unknown to the owners the fee delinquencies skyrocketed and the foreclosures began. The new board discovered more grim news when they commissioned our HOA's first independently prepared outside reserve study.

This set the stage and by 2011 four of that board had departed. The next group of replacements were faced with the economic realities, the deepening financial problems, failing streets, aged roofs and a nascent roofing project. Earlier maintenance delays as a consequence of budget restrictions had created a large backlog.

I suggest that how this came to be was because of complacency on the part of multiple boards. Are we going down that rabbit hole yet again?

Optimism versus Complacency
Boards being the volunteers they are may tend to think in terms of doing as little as possible. Spend as little and of course, put in as little time as possible. If it isn't broken, then don't fix it. When a crisis occurs, and it will, then they may swing into action, albeit reluctantly. Or the board may look for someone to take on the challenges. Here is the bottom line: management does not make the big decisions. It is there to provide guidance and deal with the day to day stuff as directed by the board. So boards find themselves accountable and constantly grappling with unpopular and expensive issues. Rules violations, owner personal agendas and so on do take a toll.

Currently our HOA has completed some major projects. It took decades. For example, in 1998 or so with a new management team and maintenance contractor the board came up with some grand ideas. These included new streets and new roofs. The street project was completed very quickly and the roofing project was begun. But the coffers ("replacement fund") were drained and someone apparently realized that there would be financial issues because of these very large, very expensive projects. To deal with this owner fees were steadily ramped up with most of the increases going into reserves to save for and eventually pay for these large projects. But it couldn't be fast enough so other maintenance was curtailed and the projects stretched on. Boards didn't inform owners of the grand designs and the costs, either.

Early optimism faded and within 5 years owners were unhappy with the fee increases. Some were "mad as hornets" and bitter. To add to the pain, the new streets showed signs of failure and the potholes appeared. Our major thoroughfare came to be described as a "landmine" by upset owners. "Why don't you do something?" The change oriented, very optimistic board of 2008 had quickly departed.  One of the things they discovered is simply how very difficult it truly is. And with that comes a lack of popularity. There were difficult choices and the board chose popularity.

Were there reasons in 2010 to be optimistic, and are there reasons today? If one expects perfection, well  dear reader, it won't happen. In my first year on the board of a HOA I spent about 1,000 hours working through scenarios, solutions and alternatives. There is nothing to compare to a 20 hour weekly part time job as a volunteer, with sometimes really nasty owners expecting immediate results, and a board stuck generally in the past, or attempting to be popular. Nevertheless I was optimistic. In part because I'd done a lot of homework prior to 2008 and I had been simply waiting for the sword of Damocles to fall, and fall it did.  I'd been hunkering down about the economy since December 2006 and I had also studied the association as closely as I could as an owner since 2002. I really was not surprised by any of it. Except the extreme nastiness of some of the owners. And the willingness of so many board members to avoid responsibility and take action.

Part of the difficulty in a HOA is what I  would call structural, In other words, things that are inherent in the design of condominium associations and that includes the owners and the boards. Owners prefer to sit back and do nothing other than keep the rules and pay their fees. Boards are committees who prefer to take on simple tasks which will result in obvious success. Boards prefer to avoid very expensive, difficult, or unpopular tasks if at all possible. It is useful to remember that boards are elected from the peer group of owners. The difficult tasks require spending money in appropriate ways while truly maintaining a property and avoiding kicking the can down the road. Such an approach requires collecting fees, and fees are unpopular. Upholding rules which some owners find restrictive is also unpopular. Add to this the desire of most board members to spend as little time as possible on these fundamentally unpopular tasks. Ability can also play a part, as boards are comprised of skillful amateurs. It can and does get strange at times.

"If you can't dazzle them with brilliance, then dazzle them with BS" is an old refrain. For some boards or board members that means foregoing the difficult tasks and then taking on the simple ones. Then a board member can never be accused of failure.

Yet, even simple tasks can take months. For example, in 2013 the board was convinced it was really necessary to tackle the major street problem. Actually only half of it. It wasn't simple but after 4 years of "hemming and hawing" and board member departures. it was no longer avoidable. What followed in 2013  was months of "why and how" discussions and ultimately an agreement to perform some physical testing to determine just how bad the situation really was, The core samples and analysis painted a very dark picture.  Nothing really got done in 2013 while the board struggled to avoid the pill. It was going to be expensive unless the board kicked the can down the road and simply repeated past mistakes.

In HOAs with rapid turn over this is the preferred method; simply pass the difficult problems to future boards. However, further delay would set in place further disruption as this major street is the only way in and out of the complex. By 2014 and after 9 months of effort in that year with drawings, meetings, bids, reviews and many discussions that section of street was finally completed. The second section was completed in 2015. Ultimately, a serious problem reported and diagnosed in 2009 took another 5 years for a board to come up with a viable, long term solution.

This is emblematic of what I call "complacency" by boards and owners. Even in the face of problems there will always be someone to argue against dealing with the issues, and owners will prefer to step in line because passing it forward means someone else, some future board and owners will have to deal with it and pay for it. Meanwhile, we can all feel smug with doing a good job.

Today the association has moved beyond these recent difficult projects. Both portions of the major street is fixed, the water mains beneath it replaced and the roofing project is complete, with only some drainage work to do. Even a major landscaping restoration project has been "completed" or is it? (Probably needs one more pass). With 80% of the driveways replaced and even the fireplace removal/replacement project nearly over, it would seem we have some breathing room.

But do we?  Perhaps all we really have is an opportunity for some optimism.

What does complacency look like?
In our HOA it shows up in different ways. Some owners think the very low annual fee increases are the new normal. Some board members may be of the opinion that we can again relax a bit and deal with the kinds of problems we prefer to deal with. What does this look like? Looking for minor financial problems and some owners can now worry about the wildlife on the property, or request improvements to the landscaping near their units, or request park benches, etc.

We might be getting a bit too comfortable. While I don't like to be the party pooper, I do have to remain pragmatic.  That comes with the territory; board members are fiduciaries. This association really is about 40 years old. Our infrastructure is insured for about $90 million, which is about $268,000 per owner. And that doesn't include unit owner property (HVAC, appliances and so on). Some aspects of the infrastructure is in poor shape, and it is all aging. Boards have some difficult decisions ahead. Which is why I continue to emphasize the status and the issues in the newsletter.

In fact, we do have reason to be optimistic. However, if we allow complacency to take hold, we will quickly be back where we were only 9 years ago.

Those new roofs are aging and the association must accumulate the $millions to replace them. We have major stream issues. We need to deal with additional street repairs and even the most recent repairs are patches which have an anticipated life of 3-5 years. It is probable that future boards will have sufficient funds to deal with these issues and grow reserves by an additional $1 million in the next decade. However, there are infrastructure issues that will require hard choices. How to go about masonry building repairs? Make it a "mega dollar project" like the roofs, or a "maintenance project?" There are options and they will have serious financial consequences for owners, just as the 2002-2003 street and roof projects did.

Some owners and boards may feel that they have lots of time to decide how to proceed. Some owners think they will have moved on before the bill comes due and the are inclined to vote against long term maintenance. Boards can choose to take a few years to deal with the simple stuff and deal with the problems as they occur, while avoiding the big stuff. That approach didn't work well in the past and it won't work today. Remember, this association is aging. Things that we could and did ignore in the past didn't go away. This is true today and the association infrastructure can only decay, age ans get worse.

We don't live in La-La Land
Furthermore, we live in a state (Illinois) which has some serious problems. Illinois has been cutting funding to cities and communities for years because of the finances.  This has trickled down into those communities and is causing financial stress. Nearby Glen Ellyn is considering raising water fees to deal with fire fighting costs. Chicago raises water costs to the suburbs to deal with it's financial disasters. Wheaton wants to deal with the issues created by the 5 retention ponds (small lakes) which form the chain ending at our lakes 3 and 4. Yet, Wheaton has to go it alone with no assistance from Glen Ellyn which comprises about 1/3 of the watershed. Furthermore, the College of Dupage's new storm sewers discharge into its ponds which overflow into Wheaton's Lake 4. The funds available are shrinking while the problems grow.

I've discussed with recent boards some really far reaching opportunities with the City of Wheaton. However, these things won't happen if the boards prefer complacency and prioritize minor financial issues while the State is continuously tightening the financial screws on our city. And, it will take some commitment by boards over a period of years to move these initiatives forward. It is certainly easier for boards to deal with the hum drum day to day stuff and rubber stamp a board packet each month.  It is certainly easier to look for small billing errors. It is safer, too. "Nothing ventured, nothing gained" is another old expression, and it is no secret that boards have included members from time to time who have utter disdain for owners. I encountered this while attending my first HOA meeting in 2002.

In HOAs, it is difficult to argue with boards that aren't willing to take reasonable risks and won't publish insights into their decisions. I don't do that, which is why our newsletters are today what they are. However, it is also true that it takes an entire board to make an association work, and an entire board votes on each and every issue. Just like the engine in a car, associations operate best when all cylinders or board members are firing. Results are determined entirely by committee.

However, getting board members to contribute to the newsletter can be one more arm twisting act, which is why so many newsletters have so few authors. It is safer to avoid making a commitment and no one can  ever be held accountable if one doesn't make a printed statement.

While it is true that nearly 1/3 of our owners are new since 2009, we also have some who have been in our association for nearly 40 years. We aren't a retirement community, but some owners pretend their association is. However, boards must be aware of the financial well being of all of the owners. Boards should and do monitor delinquencies and foreclosures and that information provides some insights. We also know about changes in the economy and costs to owners. We all know that water rates have increased in recent years. We all know that fees have almost doubled since 1999. We also know that wages are stagnant, the economy is not humming along for all and that retirees aren't getting social security increases after considering Medicare cost increases, and we all face rising health care costs; Obamacare was a financial disaster for many in the dwindling middle class. Despite all of the rhetoric, "Obamacare" health insurance can and does cost some middle class families more than $900 monthly per person and requires sizeable deductibles (more than $3,000).  Furthermore, because of the financial crisis of 2008 it is probable that some owners remain financially trapped in their homes or condos. Some owners expected to sell at a nice price, take the proceeds and move elsewhere. But the collapse of the real estate market and sharp drop in home prices has made that impossible for many. Even today, prices in some communities in our area are off 19% or more from recent highs, as reported in the local press.

These things and the decisions of HOA boards all impact quality of life. They may make our units less affordable, which is why so many have abandoned the home market. Some can't get a loan for a variety of reasons, including bank unwillingness to deal with "small" home loans. Some can't afford to own a home and others have decided they don't want to bother. Condominiums based upon manor style homes offer an affordable alternative to single family dwellings and high rise condos. However, it would be imprudent to assume our units are "cheap." The ability of homeowners to afford a home is determined by sum of the mortgage (principal + interest), real estate taxes and HOA fees.

In an environment of rising interest rates, decreasing State assistance to communities and somewhat stagnant wages, it is probable that homes will become even less affordable in the near term.  I also suspect other costs will increase as communities have no choice but to make up lost income via a variety of taxes.

My point is, beng complacent is dangerous. 
My point is that assuming fees can be raised 3% each year is a financially dangerous choice by boards. As I pointed out during the most recent HOA annual meeting, should boards take the approach favored by some board members and return to annual fee increases of 3% or more each year, it won't be long and our monthly fees will reach $500 per month. IMHO that would crush the association and inflict real financial pain on some owners.

So what choices do we have? Remain vigilant and diligent. Don't allow things to get out of control; in other words, don't kick the can down the road and do maintain the property. But do so responsibly and continuously. Avoid the "mega project" choices and choose the prudent, realistic  ones. Do the necessary work before making the decisions. Make the difficult decisions and get creative. Don't sweat the small stuff and avoid worrying about the minutiae. Don't assume the worst, but also don't assume there is a bright new day around the corner, because there isn't. And finally, determine how to maintain a focus and establish priorities.

If we can't do these things, then we shouldn't be homeowners or board members. Better to get an apartment and let someone else make all of the decisions. However, for anyone trapped in their HOA there are few happy choices.

If boards fail in their tasks then it will get ugly again.


Notes:

1. Even simple home remodelling without a committee can take months. My first "home remodelling" project was impacted by contractor delays and something that was expected to take 3 months took about 9; I had two small boys living in a gutted house; for some weeks we slept in sleeping bags in the basement. After moving to BLMH, even a relatively simple kitchen remodelling project in my condo took about 3 months.  In both cases the projects were "fast tracked" because no committee was required; there were no votes, or six different opinions to consider. No serious modifications either.