Certainty versus Chaos - Why I choose to run the numbers

This week we began the budgeting process for our association. However, one board member was unable to attend the meeting and so we were unable to complete. He and I did discuss the issues that came up during the meeting and I did provide a letter with the text about this to the missing board member. I'll get a copy to management and each board member early next week.

I was asked if I really like running the numbers. My response is that in fact, I don't. But I consider it better than the alternatives, which include uncertainty, breakdowns and chaos.

This is something I learned in real life, in my business and in my work in financial planning, which includes retirement planning, saving and investing. I also learned it is far, far better to practice preventative maintenance rather than breakdown maintenance.

I am also certain that no matter what we do there will be unforeseen circumstances and breakdowns. That's normal. However, diligent and rigorous planning can reduce the occurrence of these problems, which the unprepared will erroneously call "accidents." Boards can and do become completely ensnared dealing with the consequences of breakdowns and that includes angry or upset owners. IMHO it is far, far better to spend the time planning and preparing. However, not all agree with this approach.

It is a process
It does require many steps to put in place a workable plan for a large association like ours. The same approach has benefits for all home owners associations. Our larger association covers about 40 acres with two lakes, 44 manor style buildings, 15 acres of turf, three streams with waterfalls and ponds, our infrastructure including 84 driveways, 84 patios and decks, the electrical systems for our street lighting, the streets, walks and water mains.

What are some of the things that have been put into practice in recent years, and which I've emphasized in my 6 years on the board?

1. Regular, professionally prepared reserve studies (by outside, unbiased firms).
2. Regular condition surveys of the property. This includes nearly all aspects of our infrastructure includes the streets, driveways, garages, walks, drainage and rainwater conveyance systems, roofs, patios, decks, streams, waterfalls, ponds, gazebo, building entries, carpeting and other common area elements,
3. Regular consultation with our management and contractors and also with engineers about identifying perceived problems, dealing with maintenance and infrastructure repairs and replacements and so on. 
4. Frequent cost estimates and proposals to obtain the best possible numbers for updating the reserve studies using our internal data as well as that of the reserve study professionals. 
5. Annual or semi-annual financial reviews of the state of capital programs. Are we on track? Are we falling behind? Are we missing anything? 
6. All of the above is then incorporated into our regularly prepared reserve studies. These are prepared by outside, unbiased firms.  
7. Using professional contractors for all aspects of maintenance has additional benefits. Our managers and contractors provide regular assessments of the state of the infrastructure to the board. Obviously, there is also a real benefit to working with the same firms on a repeat basis. However, we have had board members take the position that an army of handy men could do as well, and some board members have taken the position that it is easier to hire a new firm than work out the issues with an existing firm. 

After we have done the above we also do the following:

1. Additional analysis of the 10-year plan on an ongoing, annual basis, This is in addition to the 30 year plan, The 30 year plan is "fuzzy" but we can really get a good picture for the 10-year plan. 
2. Avoid kicking the can down the road. This can create false security because reserves that are not spent in accordance with timetables will accrue. When boards and owners see these growing numbers there is a natural tendency to think that we might be collecting too much for reserves.A failure to keep current also creates "time bombs" which will show up at the most inopportune time. Certain repairs are impossible or extraordinarily expensive during our winters. Furthermore, future boards may be unprepared to deal with the cumulative effects of maintenance backlogs. 
3. Avoid knee jerk or automaticity when designing budgets. We do try to come up with realistic annual budgets, but we can't predict everything. For example, our association does maintain the streets in winter. That means snow plowing and the application of ice melt on streets, drives and at building entrances. We really can't predict how much snowfall we'll get in any year/  

There are financial choices to be made and balance to be achieved
We also have to face the issue that really long term infrastructure problems, those beyond 20 years, can be difficult to properly save for or to implement.  Can anyone really predict the cost of a replacement program 30 years distant? For example:

1. Determining how much to save for a large and distant infrastructure program can be difficult. Factors to be considered include long term inflation, impact on savings (return on investment). In recent years and for planning purposes we've seen annual inflation numbers promoted from 2.0 to 3.8%. That is quite a spread over 30 years. 
2. To prepare for really long term projects may require supplemental analysis such as engineering studies. I have a moderate amount of confidence in the professional firms who prepare our reserve studies. However, we've seen projects promoted which would have required several million dollars, one of which we determined was unnecessary and we could and were addressing via annual maintenance programs. That program was already in our Operation and Maintenance budget in the amount of $20,000 per year. That's $500,000 that will be spent over 25 years and that is much less costly than the $1 million to $1.5 million that was expected to be required. This is an example where regular preventative maintenance is superior to deferred maintenance accomplished by reserves.  
3. The above example is also superior because it more fairly applies the fees of owners. Each year a small portion of the current owners' fees is applied to this infrastructure work. 
4. In considering our fees for reserves and the amounts to be saved, the Illinois Condominium Act requires that the "budgets adopted by a board…..shall provide for reasonable reserves for capital expenditures and deferred maintenance for repair of replacement of the common elements. “ It is also stipulates that “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. “  
5. I would also think that balance dictates that we consider both current and future owners. "Kicking the can down the road" can result in lower fees for current owners to the detriment of future owners. After all, the maintenance will have to be done one day. On the other hand, Saving for nebulous and uncertain projects 20 to 30 years into the future can result in higher than necessary fees for current owners, which essentially transfers wealth into the pockets of future owners who might be the beneficiaries of lower fees in the future. 
6. In some circumstances there may be alternatives to be considered for large and expensive capital projects. There can be undesirable outcomes to be considered. For example, in 2003 a board decided to begin a more costly roofing project. That will have long term benefits for owners as it may increase the life of the roofs by 10 years. This was also the approach used in replacing a common street used by all 336 units. 
7. Earlier boards made a decision to go with a less costly street replacement and that necessitated significant repairs commencing six years after that street was put in and complete replacement at an age of about 12 years. So a street which should have had a life of 25-30 years failed, and this caused major disruption for all owners. We should strive to avoid these types of problems. 
8. Balance dictates that all owners, both current and future be treated fairly. This means that reserves must be fairly accumulated. For example, all owners should pay for the benefits of maintaining infrastructure, That includes roofs, driveways, streets and so on. If future owners want to add amenities such as swimming pools, community buildings and so on, they should pay for this in part via a special assessment and future owners should be fully responsible for paying for the benefits. Charging current owners for such distant improvements and benefits is inappropriate, in my opinion. 
9. Saving millions of dollars for distant projects can be problematic for another reason. Current owners may pay for these benefits, but future boards and owners may be inclined to spend the money saved over decades in different ways. We cannot control the actions of future boards and owners. So amassing large reserves may simply prove to be too tempting to future owners who will vote for boards to reduce their fees. There is a balancing act for current boards to consider. 

Good boards take all of the above into account. It can require more work to establish certainty for future capital intensive infrastructure projects. In HOAs comprised of volunteer boards, there may be some resistance by current board members to doing this work. It may also be viewed as something that is optional and will benefit future owners. Current boards may be inclined to pass this duty to future boards. That is a mistake as it does take many years to accumulate the necessary funds. Here at BLMH, the real saving for our mega dollar roofing project began about the same time as that project began. Too late in my opinion and it did require some large fee increases for reserves over a 10-year period to accomplish. I've pointed out that this was a major contributor to recent fees increases. In 2001 12.28% of the fees in thour HOA went toward reserves. By 2011 is was nearly 34%. Over one 10-year period the contributions to reserves increased an average of 9.64% each year. Two of those years the increases were more than 22%. In two of the years the increases were 0%. 

Note: 

1. The annual fee to deal with Operations & Maintenance for the average owner at BLMH has increased about 40.7%. However, over that same period the annual fee to deal with Reserve requirements has increased 227%. These large Reserve contributions were embedded in the total fee, so it was not readily apparent to owners what was actually occurring. 

Living in the Gap

This association is in transition, as are all associations. The question for owners in an association to ask is "Are we living in the gap, or are we drifting in the gap?"

The answer to that question provides insights into the tremendous differences that can be found among condominium associations. It's easy to shift from "being on course" which in my opinion is "living" to floating through life, which I call "drifting."

There is a lot of work that goes into planning a course of action, creating action plans, and implementing those plans. Building an organization is difficult. It can take years to put all of the necessary pieces into place.  It's relatively easy to disrupt those plans; it takes a few well timed events, or one election in an association to lose momentum, direction and all of those plans!


What is the Gap?
What is the "gap" that I am referring to? I'll answer that question directly, but for now, let's say it's about vision and planning. All organizations should have a detailed and specific plan. That plan identifies where we intend to be at some point in the future. Once we know where we are currently, and where we intend to be, it is then possible to determine how to get from here to there. The plan can be broken down into shorter time increments of one, five, ten, twenty and extend to a time horizon of 30 or more years.

Family units are also organizations. It's pretty obvious that I promote planning for families, too.


Core Necessities
There are certain things necessary for constructing such a plan. One thing is a "vision" which is where we intend to be. Another is a reserve study, or the equivalent. And yet another is a budget. Part of that is having certain tracking controls in place.

Even the simplest organization should have a budget. With a budget comes some cost accounting, so we know where the money is spent. A budget and cost accounting implies tracking income and expense. In an association this includes tracking fees and delinquencies, expenditures (payments) and open expenses (bills). Any organization that fails to do these simple tasks will have financial difficulties. In the simplest terms it will run out of money.


The Advantage of Having a Vision
There are many different ways to accomplish the vision of an organization. A Mission Statement is one support tool. What is our purpose? What is our ultimate goal?

Many organizations avoid preparing such a statement. Others develop really elaborate statements. I recommend a simple and straightforward statement that will direct and empower the members of the organization, and will communicate the "mission" to the shareholders. In an association, that is, to the owners. Such a statement also establishes further accountability for the "leaders" of the organization. In complex organizations such as a condominium association which has governing documents and is to operate in accordance with statute, which in Illinois is the "Illinois Condominium Act" (ICA), there are a lot a things that need to be done. There are also many paths and approaches that can be used. If that were not true, then every association would be an exemplary one, there would be adequate reserves in each, and so on.

It's also realistic to assume that there may be owners and others attempting to move the association in a direction that is at cross-purposes to the mission statement. It's certainly easier to do so if no such statement exists.

Having a vision and a public mission statement is a huge assist in determining the goals and the paths to be chosen.  It can be helpful when choosing the different methods and establishing priorities to get to the stated goals.

There are many reasons associations don't have a mission statement, which is a public vision. It can be difficult work to develop one. It can be difficult for all the leaders to agree. Some boards may consider it a constraint on their activities, or on the activities of future boards. I suggest that it's more important to develop guidance and a structure. This will permit owners can ask "Is this activity consistent with our mission statement?"

Future boards have the freedom to adapt or to change any mission statement. However, such board activity should be public and published.

Empowerment
Of course, it is also important to view the big picture when evaluating the direction of the association. Any one activity may seem inconsistent with the stated goals, but that does not necessarily indicate an overall change in direction. A good example taken from nautical terms of sailing is the maneuver called a "tack." It is not possible to sail directly into the wind, so sailboats sail at an angle acute to the wind. At any moment it is apparent that the sailboat is not sailing in the direction it must be going to be on course. However, observing such a boat over a period of time and after several different changes in direction, or tacks, it becomes obvious that the overall movement of the sailboat is in the proper direction. Observing the various board actions and activities and then evaluating the whole is usually a good method of determining the direction of the board, even if it is not clearly stated.

Here's an example for an association. Suppose there is a maintenance program, that has been previously voted "Aye" by a board, and work is being done in steps, or phases. A year or so later, on viewing current realities, a board decides that in order to keep an assessment increase from exceeding a certain percentage that some programs must be postponed. Is that a change in direction? Perhaps it is. After a year or two if the program hasn't resumed, at that point I would say it is such a change. One concern I have is if the board makes such a change or changes, but doesn't publish the change or its intention to resume at some, appropriate, future date. The lack of such published statement is an indicator of a true change in direction.

It's a balancing act. I appreciate that boards must balance current benefits with current costs and future financial liabilities. I also appreciate that financial prudence dictates that not everything can be done "this year, or the next." Maintenance programs can be designed to set a pace and control spending. However, if maintenance is passed into the future, shouldn't the owners and future boards be advised of this? I like to think of it as "there is no way to escape the future."  Of course, some owners hope to sell before it's time to "pay the piper." I suppose in some associations those owners do take over a board. If that occurs in an association I think it's reasonable to ask if the board is operating as fiduciaries, or for their own financial gain?

Empowerment is accomplished through action and effective communications.  If there are issues about spending, and I think there are always such issues, then it is my preference that there are ongoing discussions about "austerity" and that conscious choices be made. There is always a choice! Spending priorities can be established by the board by listing all priorities and then striking some to get to the current financial goal. This information, including the current compromises, could be included in the Newsletter with a stated commitment to revisit this in the following year. Budgeting and setting initiatives is an ongoing, annual task.

Another method is to simply drop out certain initiatives. That's the easiest way to sometimes meet financial goals. Using that method there is no "plan," things are removed until the budget is met. There may be no published statement by the board. Some years later some owners may ask "why aren't these things getting done?" In fact, the current board, if separated several years from the group that made these decisions, may be completely unawares.

In reviewing the different methods, the question to ask is "Which is consistent with a mandate to maintain the property?" I also ask "Which method empowers not only the current board, but also future boards and of course, the owners?

To the owners I also ask "Are all the positions on your association board filled, and do all such positions have accountabilities and specific responsibilities, duties and assignements?" If the answer is "No" then I suggest the board is not fully empowered by the owners.

If a project or program is simply "dropped out" is that a "bad" thing? It depends. If the project is completely "dropped out" then perhaps the association has, indeed strayed.  If this occurs, it will remain for future boards to re-discover this and begin discussions. This points toward another aspect of running an association and that is, good documentation and good communications. Many boards "turn over" with little passing of information about current programs and initiatives to the new boards. Professional managers frequently deal with multiple associations, so the emphasis is on operations.

These factors all contribute to the "drift" when in that gap.  That is opposed to "action." I suggest these things should be conscious, planned decisions. The alternative is to avoid responsibility and to be a reaction to current events.


What is the Gap?
The gap is the place between where the association began and where it will eventually be, decades in the future. Where the association currently is, in this gap is the "here and now." The place it will be at some point in the future is the established goals, if the association adheres to the plans. In a long term endeavor such as BLMH, the ultimate destination is so many years away that it is possible not a single original owner will be living here when the association reaches that place.

This highlights why it is so very, very important for all boards to operate at all times with a view toward guiding an "association" toward that distant "destination." It really isn't about the individuals; its about an entity which is a community. "The whole is greater than the sum of its parts." This, of course runs counter to individual egos, wants, needs and desires.

Establishing goals for this year, and the next, and so on and then comparing those goals to where we are currently, is one way to determine where we really are in the gap, and how well we are doing. This objective evaluation must occur each year.

Having goals is one necessity. Another is a means of measurements that determine where we are in the plan to accomplish these goals. Regularly, the board must compare the measurements to the goals. It must also balance external forces, such as the ICA and even certain Federal guidelines when decisions are made. Of course, there are also certain financial realities to be dealt with. However, good internal measurements will point these out.


Forward Planning Indicators
But what about forward planning and economic indicators? We don't need to read the Wall Street Journal, MSNBC, C-Span or Fox TV every day to know that we have experienced a terrible recession. However, much information available from the Bureau of Economic analysis and other reliable data sources are extremely helpful when making forward looking plans and decisions.

In 2006 there were serious indicators that this economy was headed against the shoals. That was two years before the "panic of 2008" and a year prior to the official recession (December 2007 - June 2009). The "panic" occurred when a lot of people suddenly realized that the music had stopped and a bank had indeed, failed.  However, using the forward indicators, there were some who, in 2006, began adjusting plans to accommodate serious economic hardships, and I do admit that I was one of them.

The question I pose for you is this. Is it prudent for an association to consider these things when looking into financial projections? As individuals, is it also prudent to consider these types of "headwinds" when we make our personal financial plans?

In other words, we are all living in the "gap." We may not be aware of it or we may be unwilling to acknowledge it. That's immaterial; reality has a way of intervening into our dreams and fiction.


What is the Real Purpose of the Board?
The purpose of the board is to operate as fiduciaries and keep the association always in view as the thing that is being guided. It might be helpful to view this association as the 'HMS BLMH' with the owners as "passengers," the board as the ship's "officers," and the various contractors, vendors and suppliers as the "crew."

At various times, some passengers depart, and others get on board. Some passengers are unruly or complain, or argue with the crew or the officers. Some want better amenities and are unhappy with their quarters. That may be a diversion for the board.

The real purpose of the ship's officers, the "board" is to get the ship to its next port, which is to say, it's next destination, and then to the next thereafter, and so on. This will continue for as long as the association exists, on a long, long "voyage" spanning many decades.  In that span of time there will be many boards. So how does a new board determine where the association is going? How to assure that the "course" of the 'HMS BLMH' is maintained?

Having goals is similar to having a chart on a ship with a course plotted. The board, at any time, will use various measurements similar to the compass and GPS on a modern ship. Those measurements determine where along the course, the association really is. In our association, there are financial and other measurements each month.


What are the Tools Available to the Board?
The association has many. They include a professional, experienced "crew." That crew includes professional financial, professional legal, professional management, professional maintenance and professional landscaping support. Notice the emphasis on the word "professional." That's not an accident. If the association is to make continuous headway, then it needs a "crew" capable of making decisions consistent with the long term goals of the association. One of the purposes of the crew is to advise the board. The board must be aware of the condition of the association. Who is to do that impartially and with professionalism? Who has something at stake in the outcome for the entire association?

Another tool is the reserve study. This association has had two in recent years. They each provide 30 year goals for this association. One of the interesting thing about having two reserve studies prepared by two different firms is the entirely different conclusions reached. Was that a consequence of different goals established by different boards, or different perspectives by two firms? Or both?

If an association does not use the tools, or doesn't develop specific plans (steps, dates, costs, fees) to accomplish the stated vision or goals, then that association is kidding itself, and the owners.

Operations and Maintenance
Operations and Maintenance, or "O&M" is directly in the sights of any planning by the board. It's the single largest area in which funds are expended in most associations. Take away O&M and what is left is landscaping and certain contracts.

The ICA dictates that boards "maintain the association." What precisely does that mean? Some of the owners, which is to say, the "passengers" of HMS BLMH have expressed that their definition of a properly maintained association is contrary to that of the boards. For some owners, it means that "their" building should be impeccably maintained. For a few, it may mean an impeccable association. This includes the grounds, structures, walks, streets, driveways, trees, lanscaping and so on. That's quite a tall order, and it is somewhat confusing when some of the the same owners argue that the fees are "too high." This type of behavior trips my "personal agenda in play" alarm!

What's a board to do? I advocate listening to owners. However, I don't listen as in "tell me what to do." I listen as if I were listening to passengers on a ship. Yes, they've paid for the voyage. However, it's not the purpose of the board to cater to individuals. The ICA is a guide in this. All owners are to be treated equally. In other words, the board can only do for one owner what it will do for all owners.

Some boards may attempt to skirt this fiduciary requirement by avoiding their duty. One way to do this is to listen and respond to a certain group of owners, and to only respond to complaints. In other words, in that type of association, the "squeaky wheel gets the grease." How to determine if your association is operating that way? Check the roster of special owner's groups. Also monitor "official" publications. If the board makes up a significant percentage of any owner's group and if the official publications fail to advise the owners of different initiatives available to owners, then it is possible that your association may be operating on the fringe of fiduciary compliance, and catering to special interests. Boards may attempt to operate this way for simple financial reasons. The budget may not allow "everyone" to have the special amenities. So if they aren't advertised, that will keep the costs down, won't it?


Striking a Balance and Accomplishing the Same
So, there is a need to strike a balance between short term maintenance needs and the annual budget. There is also a need to strike a balance between the complaints of individual owners and the need to provide broad maintenance in the association.

How best to accomplish this?

I prefer several methods and approaches.

1. Annually - Review the incompletions of previous years and adjust current plans.
2. Annually - Review the reserve study and look at 5-year requirements.
3. Annually - Establish maintenance goals and specific projects.
4. Annually - Publish various initiatives so all owners are aware. Provide updates in newsletters.  
5. Monthly - Discuss and report to the board.
6. Bi-Monthly - Publish summaries in each Newsletter. 

My Answer to the Question
At the beginning of this post, I asked the question "Are we living in the gap, or drifting in the gap?

That's a question each owner should consider not only about their association, but about their individual lives.

The question implies that in "living" there is some planning and management necessary. The alternative is to drift which implies doing as little as possible, going with the status quo, and hoping for the best.

What's my opinion about where this association is in this process? To answer that, I'd suggest we remember that at the time this association was founded, the board was handed a new development and a clear slate. There was a waiting list of buyers; there were no foreclosures and few or no delinquencies. There was no reserve study, there were no planning guidelines. One manager did it all, from internal accounting to planning to managing of the various contracts and contractors. The board had no history to go on and dealt with problems as they occurred. As a consequence our fees zig-zagged all over the map as the board struggled with meeting cash flow requirements, establish a base fee, and then maintain fees "as low as possible."

I'd say that over the years "We have made great progress." I am also of the opinion that if the association were run today as it was in the early years, that we would today have some really serious problems. But the association is an established one, some of the stalwarts are not only older, but wiser, and we have some really good tools and good contractors including extensive management support.

My answer to the question is: "I think we are doing extraordinarily well by some measures." By "we" I mean the entire board of BLMH, I say that with a view that "the whole is the sum of the parts."  The association does have "gap management" techniques in place and does use them; so we do have a "course."

I would suggest that any organization which does not have and use such techniques is "adrift." It either has no viable purpose, or it is operating at cross purposes to the stated goals.

What are some of the measurements to determine if we are "living in the gap" rather than "drifting in the gap?" I'd include:

1. Do we have a mission statement?
2. Do we have long term plans?
3. Do we have long term programs in key areas?
4. Do we have, and use, a viable reserve study?
5. Do we closely monitor our finances, and do so monthly?
6. Do we closely monitor other aspects of the plans?
7. Do we manage our managers, our contractors and vendors?
8. Do we manage delinquencies and foreclosures?
9. Are our decisions based upon current finances, projected income and projected expenditures, or is it based upon "How much do we currently have in the check book?"
10. Do we monitor and maintain statistics about rules violations?
11. Do we provide the same information to all owners?
12. Do we have people on the board with applicable professional experience?
13. Do we have board members with long term association guidance experience?
14. Do we have board members who avail themselves to fiduciary and other association training?
15. Does the board understand the ICA?

 Notes:

1. I began this post with the statement "This association is in transition." I would suggest that owners consider what that means. 
2. The principles of gap management are applicable to all organizations, be they families or HOAs or even social clubs. I would suggest they are mandatory in any organization or endeavor in which funds are collected from some of the members and where there is supposed to be a "purpose." 
3. The 'HMS BLMH' is not a pleasure cruise, and the owners are not passengers in the usual sense. In other words, this isn't "The Sapphire Princess." All owners have duties and responsibilities and that includes maintaining their units. There are no stewards or concierge on board. When different owners begin making demands of the association, it is somewhat like having the "passengers" attempt to "take the wheel" and steer the ship. It does happen, and some boards forget the charts and the itinerary and give in to those owners. The question I ask is this: "Do those owners have a fiduciary duty?" Of course, the answer is "No." The next question I ask is "Is such behavior by a board consistent with their fiduciary duties?" The answer to that question is: The board should never forget its fiduciary duty and should adhere to plans. If the board decides otherwise, then it should review any and all plans that could be affected by the change. Then all owners should be advised of any consequences, and any changes should be applied equally to all owners. 
4. Coming soon "Communal Living."

Establishing Programs, Initiatives, and a Vision or Mission Statement

One of the things I have discovered is that some owners, and even the board, will be an impediment to "getting things done."

Before the reader gets excited by this statement, I'd like to provide a context. Also note that this post is based on several years of observations. Not specific events.

There seems to be a tension or opposed forces at work here. I am referring to one approach, which I would call the "reactionary" or "don't fix it until it breaks" approach, and another which I will call "preventative maintenance" or an approach that favors the establishment of planned programs.

While this may appear to be something which is limited in application, it can be applied to many other areas. It's about planning and preparation as opposed to reacting. Oops, there I go on my soap box, again!

There are a lot of reasons to advocate a "reactionary" approach, and I can see the attraction for board members. This technique is probably learned first at home and then "brought the to office." First, it is the easiest for the board to implement. Sit back, and wait for the next problem, make a quick decision and delegate! No management or planning required! One perception is that using this approach may save money. Another perception is that by taking no action that is not an absolute necessity or "reacting," it may be possible for the the association, which is to say the board and management, to delay dealing with problems until such dealing becomes an absolute necessity. i.e, less work to do and not much thinking. Deal with the cards as they are dealt, as it were.

Boards can take the above approach with just about anything. Rules, for example, may not be enforced unless an owner complains about a violation. Mechanical or other problems may be delayed or avoided until something actually breaks, or an owner is inconvenienced. The operating philosophy could be "If an owner doesn't complain, then don't do anything." Hmmm! Has that happened here?

This approach may create the illusion of "saving money" as reserves grow. In reality, it pits owner against owner, creates additional expenses as repairs occur as breakdowns. In the "real world" how many "breakdowns" wait until Monday 9:00AM to occur, rather than occurring at 11:59PM on Saturday? Weekend problems become overtime repairs, at substantially higher cost, and inconvenience. Delaying needed repairs, for example, roof repairs until leaks occur may inconvenience owners, create interior damage, and require the replacement of damaged and water soaked plywood roofing and possibly framing and insulation. Mold can also be the result.  Owners can become unhappy or downright frustrated if problems are not resolved. I'm not talking about "My stoop is crooked" type problems. I'm alluding to "My building is settling and I have half-inch wide cracks in  my ceiling" or "Every time it rains I get a mini flood in my bedroom" type of problems. Unfortunately, if a board operates from the perspective "we are here to keep those owners who complain very happy" you can see the tension that creates.  "Where does my money go" may become a battle cry. Animosity may occur when one owner gets repairs because he or she came to association meetings and complained, month after month after month. "The squeaky wheel gets the grease" and the complacent owner gets short shrift.

Of course, certain owners, like the mice who are trained in laboratories to work their way through mazes, will discover this game and will use it to their personal advantage. Do we have owners or renters at BLMH who would do this? Attend a few association meetings and find out for yourself, and learn a few tricks from the masters!

If the issue is maintenance related, problems cascade and costs escalate. Those unrepaired items are waiting, effectively an "account payable" and are problems waiting to happen. Meanwhile, a sense of overconfidence may occur if the owners and the board, seeing the reserves grow, don't keep a list of maintenance problems to compare to that "mound of cash."

Consider also that there is board turnover, and that when this occurs, information may be lost. At BLMH we have a professional management company and a manager. We also have professional maintenance. That provides some continuity. But new boards may, and do, have their own approach to doing things. New boards sometimes scoff at the "old guys and gals" and deliberately shun them and their information. Things as simple as contacts at vendors and different city departments, may be lost. What about lists such as the one I produced for the purpose of rating garage floors? Are you aware of a "Board Members" manual for BLMH? There is one, but it hasn't been expanded and updated, and many documents were shunned by later boards. There is no concise statement of what board members can expect and what their accountabilities are, as fiduciaries. Nor is there a list of "duties and responsibilities." (Note 2). For example, the "Board Member Oath" which included the statement "11. I will not make public statements without the express authority of the board" and "12.  I recognize that I am a fiduciary on behalf of all owners and in all decision-making by the Board I will attempt to use sound business judgement." was replaced by a recent board with the CAI "Rights and Responsibilities for Better Communities - Principles for Homeowners and Community Leaders." That document stated that Community Leader are to "Fulfill their fiduciary duties to the community and exercise discretion in a manner they reasonably believe to be in the best interests of the community."

I had a big problem with that document. It's fine in my personal life to operate in the domain of "should" or "could." However, when I'm operating as a fiduciary my personal "beliefs" have no bearing on accomplishing my duties and responsibilities. I think the "neighbors club" can and should operate from the principles set forth from in the CAI document. I think the board should operate as fiduciaries, take the competent advice of the professionals, including our attorney and our management company, and take responsibility for our actions as a board. That means, we don't have "roles" to play. We have "duties and responsibilities" to accomplish. New and current board members should understand this.

Losing the Path
This can occur with rules which become obsolete or are not kept up to current standards and mores. The "welcome packet" which is a wonderful booklet, may not provide information in a way it may be readily absorbed (Note 1). In my working life, I have to absorb and teach a lot of really obtuse and difficult stuff. Believe me, how information is presented, and with frequent repeating, has a large bearing on how information is retained. You may "know" or be proficient at something, but telling me about it has no assurance I will also "know" something after you stop telling me about it. Learning is an interesting and at times, difficult, process.

If you think that what I am describing is fiction, you are incorrect. I've seen this occur here at BLMH.

An Alternative
Creating standards, descriptions of board member "duties and responsibilities" and other information to augment that of our managers and professionals, can be helpful to a board in accomplishing its tasks. Creating a program of planned upgrades, is also helpful. A framework for such a program does exist at BLMH. For example, exteriors are painted and repaired on a multi-year schedule. Balcony railings are being replaced on a schedule. So too for spalling columns for garages.  I'm unaware of such a schedule for replacement of hallway carpeting, or for limestone replacement of brick window sills, and we know that there is only a very rough schedule for roofs. How about patios? What about drainage issues? How about underground water mains which pass under roads and driveways? Should they be replaced when roads are replaced? Should we have a "tree bank?" What other programs are lacking?

None of this can be planned, or can occur, if the goal of the board is to wait until it breaks. If the water main fails after the driveway it passes under is replaced, too bad! So too if it passes beneath a road. Do we have sufficient B-valves on the property to isolate different sections? If not, perhaps they should be reviewed and added, to permit isolating failures when they occur, rather than shutting off the water to more residents than is necessary.

All things to think about. Or not!

I am a proponent of the creation of a long term vision for BLMH and of a brief and concise mission statement.  Will that happen? Or will we go back to "shooting from the hip" in September?

Comments, Corrections, Omissions, References

Note 1. I had a conversation with a new owner who had been given a copy of the "Welcome Packet" several weeks prematurely by a board member. Did having that information prove helpful to the owner? Well, one day after the closing, this person called me and began asking a few basic questions. I concluded that the information in the packet had not been fully grasped. So I gave a 10 minute "Owner's Introduction to BLMH" and covered all of the basics, from utilities to fees to TV to landscaping, keys, who maintains doors, the role of the board, and the end of the owner's domain which is at the extreme of their patio, etc. I asked "Have you walked the property?" and when the response was "No!" I proceeded with a description of the grounds, etc. I provided a brief description of how to communicate with the property management company, etc. 

My point is, this kind of dialog could probably take place which each new owner. Or, in it's place, perhaps a "summary" document which spells out the basics.

Note 2. It's possible to make such a document. One has been written and the board is currently reviewing "HOA Board Member Duties" a document prepared by the current board as a guide to new members.