"If We Don't Spend It We Don't Have To Collect It as Fees"

I will impact and change this culture. I already have. More remains to be done. This post also includes further information from my 2010 report to the board.

One old but alive attitude at BLMH is "If we don't spend it we don't have to collect it as fees." It is a disease in this HOA which has not yet been eradicated and it won't be. Why? This has a wonderful, logical sound and appeals to the low fee groupies and the flippers. It is simply too appealing for misinformed or financially short-sighted individuals.  It is overly simplistic and it is financially dangerous.

The Challenge
The problem isn't spending money. The challenge is to spend it well so as to achieve real value and in so doing lower annual costs. I think most owners would agree our new roofs are a good example and good value. We hope to get 20 years of good service without leaks and other issues. Perhaps longer.  I think the reconstruction of the north section of lakecliffe is another. We are in the midst of five expensive foundation repairs, which is another example. The drainage improvements that have been underway for four years are designed to avoid these typed of problems. The buildings with the foundation issues have not yet gotten the drainage improvements, which are being done in tandem with new roofs and exterior improvements. In some respects, I have had a 40 year backlog of some problems here. We can choose to deal with these annually as maintenance issues and spend money every year doing so and forever. Or we can decide if some problems are worthy of solution. Worthy projects reduce annual costs and have a benefit. Or we can take the seemingly low cost route, deal with consequences when they arise and feel a false confidence that we aren't spending money needlessly.

In the first decade of the existence of this association it's my understanding there were a lot of construction issues, inducing some defects to deal with. The boards must have worked very hard to deal with these, and finances were a mess. But something happened. In the 1990s things seems to come to a crawl and some repairs simply stopped. Was it board burnout? Malaise and apathy on the part of the owners? I don't know, but that decade resulted in some very costly decisions. We are again in momentum. Is this but temporary and another flash?

Kill the Vampire
If I have but one lasting achievement in this HOA, it will be to put a permanent stake into the heart of the vampiric attitude which is the title f this post; vampiric because it sucks the life out of the association. I am convinced this belief was the basis of this HOAs lack of reserve funding for decades. The symptoms included owners who argued "our fees are too high" and boards which "kicked the can down the road"  to defer reality. For an extended period boards and owners did this. Year, after year, after year with minimal or no contributions to reserves. At BLMH this has had financially serious consequences for current owners. It is precisely why our fees are what the are today. Currently we have 336 owners contributing an additional $50 per month toward reserves. thats about $200,000 additional per year. I remind the reader that this HOA had about $222,000 in reserves in 2002, had just embarked on a major roofing project and a street project.

As I have previously stated on this blog, that's to make up for past shortfalls, past shortcomings and past lack of vision. The owners complained about "too high fees" and the board acquiesced, or simply didn't do the numbers.

I doubt I will ever get anyone to admit they were a part of the problem. The standard excuse is "we didn't know." Ignorance truly is bliss, until the bills come due. And the bills did come due in the first decade of the 21st century.

This attitude or philosophy can infect newer boards, too. The experienced board members may say "it worked before" while ignoring current reality; i.e. why exactly are our monthly reserve contributions what they are. Over the years, it seems irrelevant how much education our board members have; it's my understanding we've had at least one PhD candidate on the board of BLMH. Clearly, education has not been the impediment. So what is the problem?

An Example
Here's an example of "kicking the can down the road." In October 2010 I prepared a 9-page analysis of a reserve study for presentation to the board of BLMH. Only the president was willing to discuss this over coffee at a nearby neutral location. Every other board member did not, but I provided a copy of my report to each; I'm persistent. When owner fees are at risk, I think persistence is a virtue and an absolute necessity. There was a very limited discussion during the following HOA meeting and I suspect some board members didn't bother to read the report; some of us have limited capacity for bad news, or anything contrary to our beliefs. Yet, owners at BLMH wonder why their fees are what the are. One could say I wasted my time. But I did persevere.

Our streets are but one visible example. Some of our owners wonder why I am seemingly angry about some of these issues. Let me see. As an owner, I attempted to point out the financial issues in 2008, but that board was committed to running this HOA into the ground (a former treasurer came to an annual meeting and declared "I don't want to live in a ghetto." Very melodramatic! Shortly thereafter she sold her unit). After two years of continuous pressure, I had gotten the attention of a sufficient number of owners to create a vital shift. During that two year period I did a ton of research, published 200+ articles, attended all meetings, etc. as an owner. I'm sure I put in more time than the board did. In fall of 2010 after arriving on the board, with a debacle of a reserve study, my first task was to clean that up. That was the first of many messes created by others that have occupied far too much of my time on the board. Finances is another one. We do have a plan. This HOA has always had a plan. Unfortunately, many of those plans were inadequate, had long term financial and infrastructure consequences,  or had serious side effects (such as much higher future fees, or deferring maintenance for 5 of more years, which created a serious maintenance backlog and higher future fees). It is not a coincidence that many of the plans created higher future fees. That was deliberate on the part of owners, the most visible and vocal of which pressured the board for the lowest possible current fees. Such an approach ignored or understated reserve requirements.

Have things changed? Yes they have. However, that financial disease remains forever popular and it can and will resurface and at the most inopportune time. Remember, in a HOA each and every owner is qualified to be a board member, and in our HOA we have had serious delinquencies, foreclosures and so on. My concern? In a HOA the financially challenged individuals can be on the board and can make all sorts of decisions, or they can influence the board. Some decisions are good, and some terrible. It has taken me six long, hard years to get things to where the are today. I clearly did not do this alone, yet it was an uphill battle, literally and figuratively, each and every step of the way. It will take a few more years to reach stability.

That "stability" will be transient and temporary. It will require recommitment each and every year. In a PUD nearly 40 years old and with at most 7 board members and about 60% of the owners who don't even bother to vote at the annual elections I can be assured there will be breakdowns. "Planning and preparation" are the only things that will save us, the owners. All of us, voters, non-voters or whatever!

Here is an excerpt from my October 2010 analysis to the board. I also remind the reader that 10 months prior to the analysis I had sent a strongly worded warning about the impending failure of a portion of Lakecliffe to the HOA president. That is the section we replaced in 2014.

Asphalt Projects - Streets
"According to the survey, Asphalt streets have a useful life of 15 to 20 years (20 maximum). The report states that the streets are in “Good” condition, with “minimal surface cracks or deficiencies.” The report states that “Indications of pavement deterioration due to structural causes are typically exhibited by compression of the paving (rutting), slippage cracking, delamination of overlayment surfacing, etc. Partial or complete replacement of the pavement is often necessary to correct structural or deficiencies.” (highlights are mine).

The report also states that “Periodic maintenance of the asphalt pavement surface to repair cracks, re-seal the surface and repair and (sic) deteriorated areas is necessary to achieve maximum useful life.” 

Comment: The report author stated the condition of streets to be “good” and also stated in the table on page 30 that the streets have an age of “2 years”; this is incorrect. Actual age is approaching 8-10 years [in 2010], and using his descriptions, some street sections are “poor.” The “cash flow tables” are therefore incorrect as they assume replacement in 13-18 years. For example, the comments of the author contradict the photo and text on page 60 of the report. The photo subtitle states “The streets look to have been recently repaired and patched, but cracks and missing sections is common throughout the property.” (emphasis mine). Also see the photo on page 62. The {north] section of Lakecliffe. is 8-9 years old, and has experienced some severe problems. It has 4 years remaining warranty work by the original contractor. When the street reaches 13 years of age, all repairs will fall on the association. This street will not reach 20 years lifespan without extensive repair, and perhaps not even then. The author states a street replacement cost of $458,000. If the streets have approximately 50% useful life remaining, then we should have current reserves of $229,000 for streets and we should be adding about $28,625 each year to the reserves for streets. We do not have these funds.

Streets - Summary and financial implications:
a. Estimated current age = 15 years
b. Maximum remaining useful life [as of 2010], portions of Lakecliffe = 5 - 8 years.
c. Maximum remaining useful life, other portions of streets = 10 – 15 years. (Study P. 38 indicates 18 years remaining)
d. Expenditure to replace = approximately $458,000.
e. Maintenance Interval 5 years, $34,000 = $6,800 per year
f. Amount in reserves = $10,000 if all other diverted to driveways.
g. Estimated funding annual requirement, to achieve replacement in 10 years = $45,800 per year.
h. Estimated funding annual requirement, to achieve replacement in 18 years, per study = $25,428 [per year]
i. Projected (2011) funding = $10,000?
j. Estimated funding shortfall each year commencing 2011= $25,428 per year, assuming maximum 18 years life remaining."

That concluded my report on streets.  The above was one small part of my long report provided to the board in the fall of 2010. The board did nothing. I assert they were operating consistent with the philosophy "if you don't spend it, we don't have to collect it as fees."

Since 2012 I've had various owners pummel and attack me as the current board member for A&M because of the street problem on Lakecliffe. Of course, previous boards put that street in place, and the board from 2008-2010 put their head into the sand. The game for owners is to always put the blame on the current board. Which is precisely why I am angry and why I say "I've spent most of my time on the board of BLMH cleaning up the messes created by others."

It remained for me and the current board from 2010-2014 to figure out how to resolve the Lakecliffe street problem, do it within our financial means and do it right, so we don't replace our streets every 10 years.

Who really created that problem? The owners in 1994-2004 who argued "our fees are too high", the boards who facilitated them by failing to save the necessary reserves and the boards of 2001-2003 who decided to save money by not hiring an engineering firm to prepare proper specifications and provide proper project management and oversight.

Who was held accountable for this fiasco? The boards of 2012-2014. That's the way it works at BLMH. However, I will impact and change this culture. I already have. More remains to be done.