A Board Hell Bent on a Fee Increase, no matter what the numbers indicate

I've been contacted by owners who were confused by the budget presented by the board.

The board acknowledged in the letter sent to owners that "increases to reserves" aren't necessary. Yet, that is what they are doing. The board has options of how to use annual surpluses. The automatic one is to send annual surpluses to reserves. Other options include using surpluses to pay for costs in subsequent years or it can return the money to owners. This board did not acknowledge a potential surplus exists. The board budget indicates a surplus in income and Operations & Maintenance (O&M) budget.  That would indicate they intend to keep the money, particularly in view of the proposed fee increase.  Some board members may be unaware of what will happen to the surpluses or that the board does have options at its disposal.  I conclude there is a personal agenda on this board.

My best assessment is that we have one or more very greedy board members who are voting for an increase because they can personally afford one, and intend to funnel any surplus surreptitiously into reserves. When discussing the negative impact of fee increases on owners during a budget meeting a couple of years ago, our current president retorted "We should not cater to the lowest common denominator". When asked by a current board member "Is this fee increase necessary" during the November budget meeting our current president responded: "It is absolutely necessary."  Whereupon the entire board voted for a fee increase. So much for independent thinking, simply follow orders. Jawohl!

The source of owner confusion
The major source of the confusion for owners who did look at the budget involves the 2018 surpluses and yet the board is promoting an "approximate 1.88%" fee increase. Furthermore, the numbers indicate it is really a 1.66% increase.

I guess the new board can't handle arithmetic. I'll bet not one board member even brought a calculator to the budget meeting. Our former president ( a CPA) would bring his laptop. When I became president I did the same, and crunched the numbers under discussion. LOL. This is not surprising as the president insists she doesn't use a PC. That's pretty lame considering we have a very large community college adjacent to our HOA; she can see it from her patio. LOL.

One thing I don't understand is "Why didn't the board ask management to use "YTD 10/31/18" numbers? That would have provided a better idea of the projected surpluses. Apparently they didn't ask management to do this. I suspect they didn't want to know.  Having better information is unnecessary if one has already made their decision. The three "locksteppers" on the board had already made a decision. Their leader always insists upon a fee increase.

Another thing I don't understand is why did the board send these numbers to owners? These numbers indicate a fee increase is unnecessary.  My best guess? We have some arrogant board members, the board is hell bent on making a fee increase, doesn't give a damn about surpluses and has no interest in what the owners think about this.

Case in point: Income though 9/30/2018 is $17,691 greater than the budget; that money is already in the bank. Yet the board ignored it when making their decision for a fee increase. We really don't know what the 12/31/2018 numbers will be, but it is likely income will increase further over the remaining three months.

That $17,691 additional income already in the bank will pay for all but $4,724 of  the identified 2019 cost increases in the O&M budget.

But it gets more interesting. The board "cherry picked" the data and ignored all potential sources of O&M surpluses.   Using only that data which supports one's position is intellectually dishonest. I've spoken to "the locksteppers" about this during previous budget sessions. Which is why I assert they are doing this simply because they can and they are greedy.

How greedy? About $128,012 greedy!

I would be the first to say that good budgeting means one must be cautious when using "projections." They certainly aren't guaranteed. However, large surpluses should not be ignored when making a decision.

What should one do? First, I would only use income above the budget as of 9/30/2018. What that give us is a surplus of only $112,198 at year end.

We've had surpluses most years from 2012 to 2017; some small, some large. I was involved in those budgets and I and the "finance committee" were the chief architect of the most recent budgets, including 2018. None of the current board were on the finance committee. That provides some idea of their capabilities. The president is not quite computer illiterate; these days even three year olds can browse. But using spreadsheets is way beyond the skillset.

What would I do under the circumstances? I'd make a decision based on the data. While it is unlikely there will be a surplus of $112,198 at the end of the fiscal year, it is very likely there will be a surplus of $20,000 to $40,000. To that I'd add the extra income of $17,691. I'd be honest with the owners and use the numbers before I decided to push through an unnecessary fee increase under these circumstances. In fact that's what we did in recent years, which is why fees stabilized after 2011.

The current president was the motive force for those annual 7% fee increases which nearly doubled fees over a decade. She lost an election in 2008 but four years later returned to the board. Ever since she has been stridently insisting upon annual fee increases. The black line prior to 2009 and the blue line represents the trajectory of her boards.  New boards stabilized fees and eliminated the large maintenance backlog her boards had created from 2000-2008. Half of our owners purchased after 2009 and are unaware of this. Many of our owners struggled with the rapidly rising fees for which they had never budgeted. There were quite a few foreclosures, bankruptcies and evictions. Those earlier owners are the ones who paid the fees to run the reserves from $295,000 to more than $1 million in 2009. They were forced out and the new owners have benefitted as the staggering maintenance backlog was eliminated and the fees stabilized.

Is it possible there will be no surplus as of December 31, 2018? Not likely. For one thing, the  $17691 surplus accumulated through September 30 is already in the bank. It is worth looking at what could produce a $0.00 O&M surplus. Several things:

1. Gross errors in the preparation of the 2019 budget.
2. If management or contractors were holding invoices back as of 9/30/2018 that would be a problem. A board should instruct management to get all accounts current prior to determining a budget and it should have used 10/31/2018 data. I can guarantee no such request was made by the board.  Under these circumstances I would have used 10/31 data.
3. The board could authorize management to prepay 2019 expenses. However, if that were done to run the surplus down and prove that it was small, it would probably be fraudulent. 

Here are the numbers:

Proposal by the board for a fee increase in view of a $128,012 budget surplus

I got my proposed HOA budget for 2019. The new board can't even do the arithmetic. Here's a small portion of my comments to this so called "Board of Fiduciaries".

I have reviewed the “2019 Proposed Budget”. There are serious issues. I want to be clear about one thing. The board is solely responsible for the budget. Management provides bookkeeping service and guidance, but the decision is the boards.  The facts indicate that a fee increase is unnecessary, and the proposed increase is not 1.88% per the documents, it is actually 1.66%.

There are certain principles in these matters that guide boards:

1. Treat all owners equally and fairly. Treat them as the shareholders they are. Board members are representatives of the owners. Board members are not “higher” in stature than are the owners. They are not the exclusive member of a club of elites.
2. Boards must operate as fiduciaries. Fiduciaries represent the owners and are held to a much higher standard than other owners or management. “In the performance of their duties, the officers and members of the board, whether appointed by the developer or elected by the unit owners, shall exercise the care required of a fiduciary of the unit owners.” - Illinois Condominium Act
3. Avoid running one’s personal agenda when on the board.  To do so is a breach of fiduciary duties.
4. Board members are required to use business common sense.
5. Board members are required to operate with full awareness of the facts and merits which guide their decisions.
6. Board members must vote independently using only the facts and the guiding principles listed here. This is not about politics. Politicians are not required to be fiduciaries.  Board member are so required.
7. When using the guidance of experts, including the association’s management company, the board members must remember that these experts are not fiduciaries. They will not be held accountable as such. They provide professional guidance, but are also hired contractors. Contractors operate at the whim, beck and call of the board and can be replaced. And our management does know that. In fact, attempts have been made by boards at BLMH to replace “non-compliant” managers. For any board member to threaten a manager for failing to “go along” with the agenda of that board member is a breach of fiduciary duties.  Fiduciaries must do independent, confirming research in the fulfillment of their duties.
8. The president serves as spokesperson for the board of directors in most matters relating to general association business. As an officer of the association, the president has an affirmative duty to carry out the responsibilities of the office in the best interests of the association and as a fiduciary for the owners. As such, the president has special responsibilities to keep the entire board informed and to acknowledge conflicts of interest during the formulation of budgets, rules and so on. A failure to do so is a failure in the duties of president, which is even more significant than the duties of the remainder of the board.

The numbers indicate this board voted for an unnecessary fee increase. Each and every board member has failed in their duty to the owners of this association. Because I understand this was a “unanimous” vote the entire board has acted irresponsibly. Here is how:

1. A failure to make a decision entirely using only the facts. Those facts include an extraordinarily large projected surplus with no indication in the proposed budget that anything else will occur in 2019.
2. The board ignored all of the recent surpluses. The facts indicate that budget surplus occurred each and every year from 2012 to the present. Did the president inform the board of this? Why not? Board members promoting fee increases are duty bound to inform all other members of the board of such things during financial discussions about setting the budget.
3. The board ignored the fact that the reserves requirements are being met.
4. The board ignored the fact that additional $hundereds of thousands of dollars have been contributed to reserves since 2012. This is optional; boards in the past have transferred all budget surpluses to reserves using this means. Under the circumstances a board comprised of fiduciaries should also discuss the possibility that any reserve funds exceeding “reasonable reserve requirements” be returned to owners. If this is not discussed that too is a breach of duty. Apparently the board failed to vote independently upon the merits of the proposed budget. Why was that? Did it play “follow the leader”? Did board members vote to support a buddy on the board? Or did they simply take the easy path, rather than do their duty? Each board member represents the owners only. Voting to support the agenda of a “friend” or bully on the board is a breach of one’s fiduciary duties.
5. The board failed to take into account the current situation for all owners in the Association. For example, did the board review and discuss the any recent evictions, foreclosures and seriously delinquent owners when making this decision? “ All budgets ....shall provide for reasonable reserves for capital expenditures and deferred maintenance for repair or replacement of the common elements. To determine the amount of reserves appropriate for an association, the board of managers shall take into consideration ......the financial impact on unit owners, and the market value of the condominium units, of any assessment increase needed to fund reserves…” - Illinois Condominium Act (complete text of this section of the Act is contained later in this letter.)  I can state the when I, as president,  introduced this as a discussion topic during a recent budget meeting that one board member who insists upon annual fee increases attempted to shut down this conversation by stating that “We are not supposed to cater to the lowest common denominator.”  Bailey, Scudder and Seery were present for that pronouncement.   Boards are supposed to represent all owners!
6. The board is not mandated to make reserves “as high as possible”. Per the Illinois Condominium Act, the board must provide for “reasonable” reserves.
7. The board failed to take into account the willingness of the City of Wheaton to assume responsibility for the Associations Water Mains. That willingness represents $millions in savings for owners; more money than the recent roofing project, which took more than $million in owner fees. Why was this  ignored? Because one board member says “It will never happen?”  Really? Neither the board or management can predict the outcome of this future event. But boards can destroy it by failing to do everything in its power to make it a reality. Such a failure under those circumstances would be sabotage of the owners.  The board is obligated as fiduciaries to do everything in its power to make this transfer occur.  What has it done to move this forward? My guess: “Nothing”. Yet, the board apparently prefers to pretend to ignore this significant financial event when constructing a budget. That’s disgusting, particularly for the sole purpose of orchestrating a fee increase.
8. The board is not to base fees upon their personal financial ability, or inability to meet the fees required to live in our association.  Nor is it to raise fees because of the financial ability or willingness of friends or neighbors in the association, because they “can afford it”. Your “friends” and “neighbors” have no fiduciary responsibilities. Only the board does.
9. Board members are to vote independently. Following the lead of anyone on the board is a failure of fiduciary duties.  It is lazy and irresponsible to vote a certain way on a board comprised of fiduciaries because someone told a board member to do so. For example, board member question: “Is this fee increase necessary?” Response of the president: Absolutely necessary.” The board member who asked the question thereupon voted for a fee increase.
10. To use one’s position on the board to promote one’s agenda, and in this case, to promote an unnecessary fee increase for no other reason than because “I can do so because I am a board member” is callous and self-serving. At its worst, it is malicious.
11. Voting for an unnecessary fee increase simply because “it is a small one” or because of a belief that “We always must have a fee increase” is a failure of duty. There is no legal or financial reason for an annual fee increase. Fees are to be based upon the numbers and the facts available. This is another manifestation of a personal agenda on the board.  Personal beliefs and agendas are not facts.

It is likely that boards since 2012 have directed an additional $440,000 into reserves than was required by the budgets. All of it came from budget surpluses. Apparently the board wants more.
One definition of “Greed” is a fear of not having enough. Apparently this board is being greedy. 

Some owners have asked me why I chose not to run once again for the board of this HOA.

1. I decided to create an opening for others to step up to the plate. “Nature abhors a vacuum.”
2. I decided to see if my eight years of guidance, mentoring and positive results had made any difference with the entrenched on the board.
3. I wanted to observe how a board with three members (now four) with 50+ years of "experience" would operate, after I departed. LOL. They all reverted to being "the lowest common denominator" which is the term one board member used to rebut the discussion I initiated about the financial impact on our owners when the board constructs the budget. I was quoting the following at the time: " All budgets ....shall provide for reasonable reserves for capital expenditures and deferred maintenance for repair or replacement of the common elements. To determine the amount of reserves appropriate for an association, the board of managers shall take into consideration ......the financial impact on unit owners, and the market value of the condominium units, of any assessment increase needed to fund reserves…” - Illinois Condominium Act. 

Yes, we have had board members who hold owners in complete disdain and disregard. All owners that is, who aren't personal friends.

I had concluded after eight years on the board that we had board members who were grossly incompetent or unsuited to be fiduciaries with such responsibilities.  They were not operating for the benefit of the owners, but for personal agendas, and the agendas of their leader on the board, or friends. However, the only way to dislodge them and prove my case would be to leave the board.  They would soon show their hand. Owners could then choose.

The answer to question #2 is obvious: Nope, none at all.

That’s not good for the owners of this association.  I guess the primary duty of owners is to pay the bills for the decisions of the board.  We have had some really incompetent boards. Will 2019 be better than this? Or just another bad board?   

In my letter to the board I said "I look forward to a candid response from the board. Not from management. These decisions are being made by board members and they need to stand on their own two legs, rather than hiding behind management and lawyers. “The incompetent gleefully spend the money of others to defend their poor decisions. “ – Norman Retzke""

I suggested to the board that they take a stroll down memory lane:

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. But by the fall of 2008 the angry owners had enough. The president and most of that board was replaced.

In 1998 I understand the reserves totaled $86,321.  By October 2008, with Lakecliffe Drive failing, the board had allocated only $90,208 to Paving and that included all streets and 84 driveways.  The roofing project began in 2005 at 1775-1777 Gloucester, the address of the president at the time. That roof had previously been re-shingled in 2001, according to a 2006 letter my management. That was the only roof  completed prior to 2009.  By 2009 the reserve allocation for roofs was lacking about $1,241,000, which is the reason the board prior to 2009 stated during board meetings that it would replace roofs “at the last possible moment” and maybe one or two per year. There was no formal pronouncement, but I concluded this was because of funding issues.   There was no money allocated in the budget for water main failures, yet they had occurred frequently commencing 2001 or so.  There was a large and growing backlog of other projects, as the board attempted to accumulate sufficient funds for the roofing project. Yet, no formal information to owners. There had never been an independently conducted outside reserve study for the association. 

Yes, there were real money issues and a lot of angry owners.  Some people prefer to operate out of the past, because it is easier the living in the present.

But that was then and this is now. This association is very, very different today than it was in 2008.  Board members should operate in the present.

 It is my understanding that other Associations now visit ours to see what a really well run and maintained association looks like. Yes it is very different today. It really is time to live in the present, not in the past.

According to the Illinois Condominium Act:

(765 ILCS 605/9) (from Ch. 30, par. 309) 
    Sec. 9.

(2) All budgets adopted by a board of managers on or

after July 1, 1990 shall provide for reasonable reserves for capital expenditures and deferred maintenance for repair or replacement of the common elements. To determine the amount of reserves appropriate for an association, the board of managers shall take into consideration the following: (i) the repair and replacement cost, and the estimated useful life, of the property which the association is obligated to maintain, including but not limited to structural and mechanical components, surfaces of the buildings and common elements, and energy systems and equipment; (ii) the current and anticipated return on investment of association funds; (iii) any independent professional reserve study which the association may obtain; (iv) the financial impact on unit owners, and the market value of the condominium units, of any assessment increase needed to fund reserves; and (v) the ability of the association to obtain financing or refinancing.

The above emphasis is mine. Here is the most  recent reserve projections for this association. This was presented to every owner and board member who attended the September 2018 annual meeting. It has also been presented to boards earlier, as part of normal board business discussions.

Present for this were current board members Bailey, Calvo, Scudder and Seery.  The data indicates reasonable reserve requirements have been met. I'll be posting more on this.

Projected Reserve Balances

It has come to my attention that one owners is now stumping for the board and promoting a fee increase. Based primarily upon that individual's ability to pay it, and the fact it is a "small" increase.

Merely an opinionated owners who wants to support her friend on the board. These opinions are bullshit.   Boards are fiduciaries and they operator for all owners, not simply for those who can afford small fee increases. Here's what one of the friends of the current president says about this. I need to point out that this fee increase is unnecessary and that this individual is "tony" and can afford the small increase:

"I believe modest increases (maybe not every year) are important to avoid getting into a similar deficit situation as we were years ago. If Briarcliffe Lakes was in great shape and there was no possibility of costly surprises in coming years, I would support your endeavor.  However for me, that rational is unrealistic. Being prepared and gently padding the reserves, regardless if budgets/projections warrant it or not, in my opinion are the right path to take.  "

A few years ago this same owner was also promoting a multi-million dollar mortgage for this association. Why? Probably because she could afford the payments. But not everyone can. My point is, owners act on their own behalf; they are not fiduciaries. Boards who pick and choose the comments of owners as a justification for their actions are irresponsible. They are not operating as fiduciaries.

Bad business decisions are bad decisions, and the association is to be operated like a business. Board members are not a group of elites in a private club.

The question owners should ask in these situations is this: "If the board is not operating on my behalf, then on whose behalf are they operating?"  If owners don't like the answer, then they should do something about it. 

LOL

Proposed 2019 Budget, potential $128,000 surplus = 1.88% Fee Increase

Well, she's back and it shows. With a potential $128,000 budget surplus, the new board led by the "Fee Raiser" has decided upon a "1.88%" fee increase. Why? Well it seems she thinks costs are going up by about $22,415. Yet that board is using the same basic budget that was created in the fall of 2017.

If those numbers seem an odd justification for a fee increase it is because they are.

This board apparently believes that even if they use the 2018 budget for 2019 which projects a surplus from expenses of more than $94,000 that they will be completely unable to generate a surplus in 2019.   Is that the definition of incompetence? I'll let the reader decide.

Even though there are absolutely no numbers to support such an outlandish position, she tells the board that a fee increase is necessary because costs will somehow, magically rise more than $116,000 in 2019. However, she can only identify cost increases of $22,415.  Oddly reserve categories are being ignored and to justify a larger fee, some reserve items are going to expensed in "Operations and Maintenance".  To get her way she'll do just about anything I guess.

I'm sure management will get the blame. Or perhaps she'll throw the new treasurer under the bus.  But here are the facts.

The board is solely responsible for the “Proposed 2019 Budget”. The role of management in these financial matters is to provide a bookkeeping service and to provide sufficient guidance to keep the board from going completely off the rails. Management will not and does not construct the budget. It is really important for the board to ask the right questions of management and prepare. Management will not argue against unnecessary fee increases proposed by any board. Management is well aware that it serves solely at the discretion and whim of the boards. Boards and owners should read the Illinois Condominium Act for further details about the duties, responsibilities and legal obligations of the board.

Now you know why I am off the board. 
I've had to deal with this since 2011. That included ugliness and personal attacks at anyone who didn't agree with a fee increase each year. There was a dislike for a former president who was a CPA. When he left after three years she and the locksteps did not say a "thank you" or even a "goodbye". Even going so far as to accuse the Finance Committee of "malfeasance" because they would not vote for yet another of her unnecessary fee increases.  A favorite expression: "Throw them under the bus."

Our mortal sin? A fee decrease of 2% one year and a 0% fee increase another. Yes, we actually decreased fees one year. That was unforgivable, but we had a valid reason. And what really pissed her off was that a budget surplus occurred. 

The three of us decided not to run and I decided to see what she and her lockstep buddies would do. Well, now we know. Financially flog the owners once more.

I do understand it is a small increase. But it is absolutely unnecessary according to the finance projections. We are not behind in our reserve contributions. In 2018 we identified a multi- million dollar cost saving for owners. I don't think this is the manner in which fiduciaries are supposed to operate.

All I can say is "Owners get the boards they elect". So again at BLMH the owners created this. They decided to sit back. LOL.

She will really make me look good. Here's my leadership record, and let's not forget all of the capital projects that were completed:

• Average annual fee increases of less than 1% from 2014 through 2018 (Actual 0.40%).
• Annual budget surpluses.
• Full funding of reserves during the years 2014 through 2018.
• Approximately an additional $300,000 added to reserves 2014 through 2017.
• A potential addition of $440,000 added to reserves 2014 through 2018.
• Avoidance of 5% annual fee increases while achieving the same results.

I'll say that again. To replicate the results would have required an annual fee increase of 5%.  But that was the preferred method. To me it is apparent that the lazy prefer to raise the fees on the owners. "fiduciary"? what is that? Believe me, to get her eyes to really pop, all I had to do was talk about our owners as the "shareholders" they really are.

So here's some the legacy: Over a period of 11 years, from 1998 to 2009 the boards and I do believe she was president for all of those years, they 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. But by the fall of 2008 the angry owners had enough. The president and most of that board was replaced.

So what was the state of infrastructure during the above:

• In 1998 I understand the reserves totaled $86,321. 
• In October 2008, with Lakecliffe Drive failing, the board had allocated only $90,208 to Paving and that included all streets and 84 driveways. 
• The roofing project began in 2005 at 1775-1777 Gloucester, the address of the president.
• Only one roof was completed prior to 2009. 
• By 2009 the reserve allocation for roofs was lacking about $1,241,000, which is the reason the board prior to 2009 stated during board meetings that it would replace roofs “at the last possible moment” and maybe one or two per year. This was apparently because of funding issues. 
• There was no money allocated in the budget for water main failures, yet they had occurred frequently commencing 2001 or so. 
• There was a large and growing backlog of other projects. 
• There had never been an independently conducted outside reserve study for the association. 
• Yes, there were real money issues and a lot of angry owners. 

I made the critical error of asking her back as Treasurer in 2011.  She is a good bookkeeper and can sign checks and compare invoices to assure they are ours. She likes to hobnob with the powerful. A typical politician.  She even brags about how she accomplished all of this success with a columnar pad.  Insists that computers including spreadsheets are unnecessary.. Hmmm, perhaps that is a part of the problem. LOL.

How much is enough?
Somehow she intends to spend more than the budget that is being used by the 2018 board under such "leadership". How much more out of Operations and Maintenance? Oh, about $116,922 more in 2019 than was spent in 2018.  How can that be?

Never mind that we've had budget surpluses every year since 2012.

We had a large projected surplus in 2017, but 2018 is the largest ever. How large is this? Back in 1998 this individual was on the board and I understand the entire reserves were about $90,000. I'll be posting more about the consequences of this management style. LOL.

The "Fee Raiser" insisted to the one board member who asked "Is this necessary" that "Yes, it is absolutely necessary". So the board ignored the budget surplus and decided to raise fees, apparently just because they can.

The "Fee Raiser" was voted out in 2008 and may be seeking revenge upon the ungrateful owners who booted her and most of her board that year.

I've done the numbers and frankly this is stupid. ? Instead, the board chooses to ignore the projected surplus and is pretending there is a budget issue when there is none. Why is that?

What are the Owners? 
Well, their sole purpose appears to be to generate income for the association, unless they are friends.

Favorite Quotes
Our Fee Raiser is long on quotes:
"Follow the numbers" (apparently only applies to others)
"You can paint a pig but it is still a pig" (describing BLMH)
"You can throw them under the bus" (describing others)
"Stupid is as stupid does" (describing others, including boards and owners)
"You can't teach an old dog new tricks" (proves that!).
etc.

Perhaps she's living by her mottos. Who knows?

I've sent specifics to a few owners. One of the questions I'm asking the board is "How much is enough?"  Apparently as much as she can squeeze from the owners.

I wonder how long it will take to ruin the association?  Any bets?

Here's the most recent budget. This one is the one that's being replicated for 2019 and this one will apparently generate a six figure surplus:


BLMH 2018 Budget