Another Year Comes to a Close

As December 28 approaches we are nearly upon the end of another calendar year. It is a time to pause and reflect. We might be inclined to wonder if 2016 will be more of the same, or better or worse than 2015.

I'm of the opinion that we should not expect things to be better unless we have put in place those things that are required to make 2016 a "better" year. In a HOA, if the boards, owners and other residents operate the same as they did last year, then it should be expected that the results will be no different than the previous year.  Of course, there will always be circumstances beyond our control. I won't be worrying about those in 2016.

As for BLMH what is to be expected in 2016? It will be whatever we create as owners, residents and board members. Added to that will be a few breakdowns and a few surprises.

Living in a HOA is community living. If we think of life as having "ups and downs" and accept this as normal, then we discover that community living is like a heartbeat:

Community living involves certain risks. We assume our neighbors will be good neighbors and they assume we will also be good neighbors. We assume everyone will pay their fees, will keep the rules and will cooperate with management and the board.

We assume some people will show up to perform the tasks of board members. We also assume things will proceed smoothly. As the above graph demonstrates, even the blood flowing in our veins and arteries does so with some inconsistency.

Our heartbeat becomes smooth and unchanging only after death. So it is with life in general; only after we are dead will the chart be a straight line:

I expect 2016 will have ups and downs and more of the same as did 2015.

The attitude and involvement of our owners follows the classic bell shaped curve in which there are several distinct groups and most fall into the center. Here is an example of such a curve for grading tests; as can be seen, most test scores would be a "C" or average. There will be a few "A"s and at the other extreme a few "F"s. The curve shows the percentage of students who received each grade:

Similarly, the owners and residents of a HOA fall into similar groups. We aren't grading them, merely describing where they are in most things.

For example, there is the keeping of rules. That is measurable. Paying fees in a timely manner is a rule, completing census forms is a rule, cooperating with the neighbors in a community is a rule and so on.

Some owners don't keep the rules in any month. They may fail to pay their fees, may fail to move their vehicle preferring to store in on the street, leave their trash receptacles outm or may get into a feud with a neighbor. They will be the small group to the left of the curve. Most owners pay their fees in a timely manner, cooperate with the HOA management and the board and in general are nearly invisible to others and could be described as "good neighbors." They are the group in the middle. To the left of the curve are the group that doesn't vote at annual elections. To the right of the middle of the curve are those who do vote during annual elections. To the right is also a smaller group which attends HOA meetings, those who participates as committee members and further to the right are the members of the board (currently numbering 6 out of 336).

What we cannot predict is in which group each of our HOA owners will fall, beyond that obvious central group. In that group most owners will pay their fees and will be more or less invisible. Similarly if we charted events at our HOA, we could conclude that most will follow last year's events and fall within that central group of "C's".

If the above is correct, then why would we ever expect 2016 to be any different than 2015? Another way to say this is to state that if owners expect a "better" 2016 they will be the one's who create it. It won't happen by itself. In fact, entropy is the nature state of the universe. Unless we create a better future it will most likely be worse than the past.

The Never Ending Projects

Revised notes December 17, 2015

There is a dilemma facing boards in HOAs. That is "What is the appropriate reserve level?" Determining how and when reserves will be spent is necessary to come to some reasonable answers to this question.  This is a complex problem for HOAs in which the solution may span decades and many boards.

"The roof project at BLMH began as a shining example of how not to do a project." (see notes).

For example, our roofing project will require about 16 years from first roof to last. That is in fact longer duration than is prudent for this project. However, the real question is how to financially prepare for such a project. I'll use our HOA project as the basis for an example.

Let's assume the total cost of this project to be about $2,000,000, which is about $125,000 saved each year for 16 years. Why use 16 years to accumulate the necessary funds? Read on.

So how much should a board have set aside for this at the time the project begins? Of course, one should not deplete reserves for a single project. So, beginning such a project with $125,000 or less allocated to it would not be a good idea, would it? To do so would require collecting funds as the project proceeds; a sort of "pay as you go" approach. That approach would require the delay of roofs as funds are accumulated and that's what occurred at BLMH, and why a 10 year project will take about 16 years and some roofs may reach 23 years of age.  At the other end of the savings range, one could delay until the full $2,000,000 for this project has accumulated in the appropriate reserve account. But that puts a large fee burden on owners for many years prior to the actual project begins.

I think we'd agree that the reality is some where between these extremes. That is a problem for boards to determine and it must be replicated for streets, driveways, garages, walks, streams, decks and so on.

Furthermore, this problem will not be solved by one or two boards. In fact, it is not uncommon to have board members turn over every other year or three or four. Some may stay longer, and some may depart after one year. So how do boards deal with multi-decade projects? How are new board members received and how are they brought up to speed? How is continuity maintained? At BLMH in 2008 we had a near complete board turnover. In such circumstances will chaos be a result? It could be. Not only are reserves and projects impacted. So too are rules and the many tasks boards are charged with completing. Board turnover can result in what I call "working on the engines of the airplane while it is in the air." It did happen here at BLMH and it is why I say I've been cleaning up messes created by others each and every year I've been on the board. It has taken me about 3000 manhours to get to where we are today. This is something to be avoided. That's common sense.

Reserve studies are helpful, but boards have latitude about when to begin projects and how rapidly to complete them. Some boards may not use the studies for the tools they are meant to be. That is a problem.

BLMH was built in about three years. New construction can proceed at a very rapid pace as compared to repairing occupied buildings. Boards cannot simply reconstruct a large HOA while hundreds of residents are living in it. Consider the inconvenience and disruption to residents projects may cause. Some of this may not be avoided, but it does need to be considered when planning these projects. Some common sense might be necessary. For example, it might not be practical to replace 10 large roofs in a year. We had great difficulty doing eight in one year. The other extreme, replacing 2 per year is certainly easy, but that approach would require 22 years for a project, and the existing roofs had a life of 15 years.

Of course, all of this is explained to each new board member in the "Board Member Handbook" they are given upon assuming their duties. Handbook? What handbook? Some HOAs have great difficulty getting a newsletter put together. Handbooks are apparently for professional organizations.

Nevertheless, boards will have to cope with large capital projects and each year the HOA board must figure out how to do this. One of the first tasks facing a board with such a large project as roof replacement on 44 buildings is to determine the remaining life of the roofs, determine a practical annual limit to the number of roofs that can be replaced and then develop a budget. That budget might require some funds for existing roof repairs if scheduling allows some roofs to reach an age 5 or more years beyond their design life. The next task is to determine how much to save for the project, when to begin accumulating funds and for how long. After doing this, the owners should be appraised of the situation and of course, fees have to be collected.

But one can't wait until the beginning of such a project to begin collecting fees. Or I should say, one should begin collecting and accumulating fees for such a project some years before it commences. But how many years? Alternately, a special assessment could be used to "jump start" such a project if the reserves are inadequate. If such projects aren't planned then the 'worst case' scenario might require a special assessment to begin the project and a large fee increase to fund it as it proceeds. Alternately, the project can be delayed while fees ramp up and funds are accumulated.

Let's assume that a pro-active board recognizes the problem and decides to begin saving for this roofing project 6 years before it begins. In such an example, the full project duration would be 6  + 16 years = 22 years. That's six years of saving and then a actual roofing for 16 years. This is not the best solution because 22 years is beyond the lifespan of simple asphalt roofs. In other words, if a roof has a 15 year life, then it might be possible to delay replacement of some roofs to 18 years if they are in good condition. But some roofs might be delayed for 22 years. In such a situation will they make it? In such a situation we are beyond reasonable limits and so I'd guess one would have to use a crystal ball.

I suggest it is best to plan using real world lifespan numbers. Neither the 'best case' or the 'worst case'. Here at BLMH we were once informed our old roofs should be expected to have a lifespan of 15 years. Today, we have some old roofs that are 22 or 23 years of age. Now, that is really pushing the envelope IMHO.

So how should a board proceed with such a project? If a board decides to begin replacing some roofs based on condition, and if those roofs are 15 years old, then it is implied that savings must begin 6 years earlier to accumulate and have on hand sufficient funds to replace all roofs in a reasonable time. So, if fees are collected for six years and then four roofs are replaced each year thereafter, the roofing project will be completed in the 16th year. Actual roofing will require 11 years from first roof to last.

However, if all of these roofs were originally constructed in a span of four years, we have another complexity. If a board decided to delay roofing replacement until absolutely necessary, then it is probable that some roofs might be replaced at the age of 13 years. These are the early failures. But what about the rest of the roofs? At that time the youngest will be 9 years of age. These roofs will reach 15 years of age in 6 years. If we assume some roofs might fail early, at 13 years, it is also likely some will do well for 18 years. In other words, the project will most likely begin when some roofs reach 13 years and will be completed when some reach 18 or even 19 years of age.

The above roofing project will require about 9 years from replacement of the first roof to replacement of the final roof. Is that a reasonable, practical possibility? Boards do have to figure this out. In my example, replacing 44 roofs would require replacing about 5 each year. In fact, at BLMH our "real" roofing project replaced one, two, three, four and eight roofs each year. It has taken more than 9 years to complete and some roofs are approaching 23 years of age.

Of course if the new roofs have a life span of 15 years then it is possible the first roof completed will reach 15 years four years after the completion of the final roof. In other words, saving for such roofs would be a continuous process. As soon as one roofing project was completed, the next would begin in about six years.

So what would a 16 year cycle of saving look like? After 5 years of saving the HOA in our example would have $625,000 in the "roofing reserves' fund. It would continue to put an additional $125,000 into this fund each and every year. However, in the 6th year the draw down on the fund would begin as roofs are replaced. In the 16th year the final roofs would be completed and the final $125,000 spent for a project total of $2,000,000.

However, the HOA in my example would immediately have to begin replenishing the roofing fund in year 17. So another $125,000 would be collected and saved in that year and for every year thereafter.

This is but an example, and there are some other things to consider in the real world:

1. Projected lifespan numbers are per experts. I have my own opinions but I do not encourage homeowners or HOAs to roll the dice with roofs and I am more than a little uncomfortable with the current age of some of the roofs at BLMH. Our real word experience as well as mine in a home supports the expert opinion that simple asphalt roofs over tar paper can indeed provide good service for 15-18 years. It is also possible for some roofs to survive longer and some may fail at 13 years. My home which was built nearby had a roofing experience similar to the buildings at BLMH. A second layer of asphalt shingles were applied at the end of life of the first. The combined lifespan of the two layers was 32 years, or about 16 years each. I didn't wait until the roof was failing to replace the shingles with an entirely new roof. In other words, it might have been possible to gain another year or two on my home. Of course, that is flirting with leaks and interior damage. Not a good idea for homeowners or HOA boards, IMHO. 
2. Inflation must be accounted for when doing the numbers. It is reasonable to assume that the cost of roofs 17 years hence will be greater than the cost today. So future boards would find it necessary to save more than the $125,000 in the example.
3. The new roofs at BLMH are architectural roofs and are a significant improvement over the old. The new include extensive ice and water shield, kynar edging, etc. The new roofs are projected to have a lifespan of 30 years with pro-rated "lifetime" manufacturer's warranties. I've studied the warranties and they provide benefit but are no guarantee of 30 year service. 
4. Future roofing projects may not have the same scope as current projects. For example, at BLMH the boards of 2001 and thereafter made a decision to reconfigure gutters and downspouts to move water off of driveways and adjacent to entrances. This decision required significant drainage improvements to most roofs. Boards after 2007 found that they had been committed by the earlier board to a much larger project than simply replacing roofs. Each and every owner is to be treated equally and fairly in a HOA. Future roofing projects should not require funds for these as this work is being done during the current project. However, some drainage system repairs may be necessary. 
5. The roof project at BLMH began as a shining example of how not to do a project. Create an expensive project at a time there are no funds for it. Begin the project while attempting to increase fees for it while doing one or two roofs per year. Create a project that commits future boards to a decade or more of fee increases in a "pay as you go" scheme. Create and begin the project with no viable financial plan. Don't communicate the scope and cost to the owners. Don't communicate the full range of problems to replacement boards. Suck the reserve coffers dry and curtail other projects including stream repairs,  concrete patios, common area patios, streets and so on. Gamble on 15 year roofs surviving and providing service for 20 to 25 years. Leave it all for someone else to figure out. Leave it to others do do the heavy lifting. What a mess!

Lead, Follow or ?????

The following is attributed to WWII General Patton:

"Lead me, follow me, or get out of my way."

With HOA boards I have discovered that the three paths taken by board members are:

• Lead
• Follow
• Undermine

Things are Looking Up in Illinois!

Some Illinois statistics:

• Debt per capita: $4,992 (11th highest in the U.S.)
• Credit Rating (S&P/Moody’s): A-/A3 (the lowest in the U.S.)
• 2013 unemployment rate: 9.2% (third highest in the U.S.)
• Median household income: $56,210 (17th highest)
• Poverty rate: 14.7% (25th lowest)

As you can see, Illinois residents do make a goodly amount of money, and the poverty rate is just about in the middle for the broader US.

Yet, 24/7 Wall Street had this description of why Illinois is the second worst-run state in the US:

" Illinois collects more than $3,000 per capita in state and local taxes each year, one of the highest per capita tax revenues. Yet, the state’s fiscal management system does not appear to be operating optimally, which is the main reason it ranks as the second worst-run state. For example, Illinois has one of the smallest rainy day funds compared to other states, at 1% of its general annual budget — an indication the state may not be able to satisfy its short-term obligations. Illinois’ debt is equal to more than three-fourths of its annual revenue, also one of the highest shares in the nation. Similarly, the state’s pension fund is not financially healthy. The state only has assets on hand to meet 39% of its pension obligations, the lowest ratio of any state. Perhaps as a result of the state’s finances, Illinois has the worst credit rating and outlook from S&P and Moody’s of any state.

The housing market in Illinois is also struggling. One in every 73 housing units is in some state of the foreclosure process, nearly the highest foreclosure rate in the country. As is often the case in states with particularly high foreclosure rates, home prices in Illinois have dropped by more than 10% from 2010 through last year. This decline was the worst in the country during that time."

The good news? Last year Illinois was the worst run state in the US! We're moving up. WaHoo!

Return for Thanksgiving

Well, it's good to be back in the area for the holiday. We each have a lot to be thankful for.   I'm not only thankful for the present but also for the future. I've been busy planning and preparing and creating that future.  Hopefully, I'll live long enough to experience it.

So on Monday I returned to this area to spend the Holiday with some of our local relatives and to complete some things.

O'hare was bustling and it was a pleasant airline trip. Left on time, arrived on time and best of all I completely missed that 8" snowfall.

We Need to Live in the Present, But History is Important

While the board was discussing the budget for 2016, I made several remarks and one of the board members countered "But that was history!"

History is an interesting phenomenon. In fact, considering the age of this planet and the lifespans of human beings, what most of us do will generally have little impact upon the future. Therefore it is most important to live in the present, have as much impact as we can in the present, and avoid screwing the future. In a HOA that means making rules, maintenance, project and financial decisions that allow future owners to live unfettered from bad decisions, debt and the consequences of poor rules decisions.

Budgets are always difficult to prepare. It is unfortunate that boards are frequently so uninformed or unwilling to bone up on history. "History" can teach us important lessons and "history" can allow us to avoid serious financial pitfalls. The new board of 2008 was particularly uniformed about the history of this HOA and they fell into a financial trap set by previous boards. Today this HOA continues to pay for new roofs because of historical decisions made by the boards of 2001-2008. This HOA also experienced road failures about 15-25 years earlier than expected. But some boards don't want to know about history or use it.

I do use history as a guide because it is such a great teacher. It can guide us to avoid the pitfalls of the past and avoid the mistakes made by previous boards. Not everyone agrees with this approach and I suspect personal agendas do play a part in HOAs. Promoting a personal agenda and a legacy can really screw things up.

It is somewhat ironic that back in 2008-2010 when things looked really bad at BLMH that I was singled out for personal attacks because the word being promoted was "Elect Norm and he will raise your fees."

Nothing has been further from the truth. In fact, I've been the foremost champion in this HOA for fiscal responsibility, proper maintenance and the lowest possible and realistic fees.

I'm the one who championed the fee decrease for 2015 and it was based on solid research. In 2015 I again spent the many, many hours to come up with the basis for a budget for this HOA for 2016 with the two most junior members of the HOA who agreed to be on the "budget committee." Yet, I again find myself with them under personal attack. Why? Because we did the research which indicated that a 1.5% fee increase for 2016 would me more than adequate. Meanwhile, some board members argue for 3% to 5% annual increases. Based on what?

There is absolutely nothing in the three most recent reserve studies that indicates this is a requirement. Each of these studies have been imperfect, yet have been discussed and rebutted by boards thanks to the hundreds of hours I have put in to do this. That includes getting proposals for some of the issues raised in these studies. The advantage of physical surveys and obtaining proposals is they provide real substance to the issues of replacement costs, in real time.  This work was done with the participation of management which is the proper way to do this.

I've also done solid work on methods to alleviate possible concerns about some possible infrastructure issues 30 to 40 years hence. I've discussed this with management and presented it to the boards since 2013 not once, but annually.

We've shifted from a reactive approach to water main problems to a preventative maintenance position. We have replaced our "minefield" Lakecliffe Blvd with a solid, properly engineered and installed road. We are way, way ahead of the curve at this point, I've personally reinvigorated the maintenance of this HOA and we are doing a damn better job than the boards of 1990-2008 did.

Yet I again find myself under personal attack, and this time it is from within the board. Some old dogs cannot and will not learn new tricks, I guess, except undermining ones.

It is ironic. I'm the one who puts in the hundreds of hours in this HOA to do the work which ultimately defends the owners. I have no personal agenda, I do solid research and yet I am the one attacked.  It reminds me of that old expression "No good deed goes unpunished."

Fortunately, I don't have to live here. I can sell or rent my unit at any time. In other words, I don't have to spend all of that time dealing with this bullshit. I do really have better things to do and I can provide my services where they will really make a difference. I have learned the lessons of history. Too bad some have a personal agenda and will throw others, including this entire HOA "under the bus" in order to achieve it. But some will never learn from history.

I have warned owners about the pitfalls of not paying attention and participating in their HOA.

Reserves of $86,321- Assessments and Budgeting

This is another post in a continuing series on HOA budgeting.

"In 2014 the reserve contributions were 312.4% higher than they were in 2001. The Operations & Maintenance (O&M) budget in 2014 was 14.9% higher than it was in 2001."

In other words, in 2014 the average monthly owner fee for the O&M budget at BLMH was $28.56 greater than it was in the 2001 budget. In 2014 the average monthly owner fee for the reserve budget at BLMH was $83.68 greater than it was in the 2001 budget.

The above is why I pay so much attention to reserves at our HOA and why you should at your HOA. Our reserve contributions climbed nearly four times that of the O&M budgets.

".....we need to live in the present."

"I have made a general statement that I think it is a mistake for a HOA to move forward with 0% annual fee increases. However, the actual budget each year should be based upon the actual finances and not some general theory or knee jerk, emotional reaction. The problems at BLMH can all be traced to the condition of reserves. In recent years boards have dramatically changed the approach to this very significant component of fees at BLMH.  This change has had a profound impact upon our HOA finances."

In February 2010 I sent an email with five links to the Architectural Director of the Board of BLMH. These had to do with fees and budgeting at our HOA. Four of these links are contained in this post.

As I have stated elsewhere in this blog, I had been doing my own research about the finances of the HOA since considering a purchase in 2001. All I had at that time was the information provided by the various boards to each of the owners and the most recent newsletter; that information (excepting the 2001 newsletters) is adequate and included published budgets and balance sheets.  Some of my research had been completed prior to purchase, but there really isn't a lot of time to delve deeply into this prior to making a purchase commitment. Of course, back then it was a seller's market. Today it might be easier to take one's time to do sufficient research. I had legitimate concerns about reserves and fees.

The first budget I was given was the 2002. It showed a reserve contribution of $108,000 for the year 2001 and a 2002 budget with a $148,108 contribution for reserves.  However, I later discovered that the total reserves at BLMH in 1998 were $86,321. The average annual fee increase had been 2.59% over a period of 10 years. This changed when a new management firm came on board in December 1998. Commencing in 1999 there were large annual fee increases of 11%, 11%, 9% and so on. Owners had become accustomed to very low annual fee increases in prior years. But those budgets were inadequate.

At BLMH the Operating & Maintenance budgets (O&M) were not separated from Reserve requirements in the percent changes to fees provided in the "Welcome Packet." Nor were reserve fund balances provided year by year. I suspect that a few owners might have become alarmed had that information been provided in that form. But it was in the "Balance Sheets" for the HOA and not flagged. But then, as is the case today, owners are largely uninvolved in the affairs of managing this HOA. Today, most owners prefer to let another owner in a board position do the work. When things are not to their liking a few of the "owners' will show up to express their displeasure and make demands upon the board of volunteers. Boards will frequently be inclined to acquiesce. That's the way it was, and that is the way it is today in our "entitlement" society.

Returning to my financial concerns in 2001. This information was available in the prior balance sheets. This HOA had less than $100,000 in reserves in 1998 and yet would begin a multi million dollar roofing project in about four years, and a complete street replacement in four years. Simple arithmetic would indicate that there would be insufficient reserve funds to do these projects unless drastic action was taken.  Boards had no choice and so fees increased at an average annual rate of 7.41% during the period 1999 to 2008. Projects were delayed to allow the accumulation of funds to do the work. A significant amount of the money collected for these capital projects was spent as soon as it was collected.

But no one at this HOA read about this in any letter and any newsletter. So most of the owners were blindsided. They didn't know that the boards prior to 2008 had thrown us under the bus, spent money on a defective street project and, with about $250,000 had embarked upon a $2 million dollar roofing project commending with the building which housed the president of the association.

This history is why so many boards have struggled for nearly 20 years with annual budgets at BLMH. This history may also be why some board members have been so averse to 0% fee increases in recent years. They may remember the pain and the owner angst and they want to avoid it.

But as 2016 approaches it is important to realize that this HOA is not operating or being managed the way it was in the 1980s and 1990s. I am of the opinion each and every owner is better for it. Anyone who disagrees needs to state their case rather than simply gripe, or make derisive remarks under their breath during HOA meetings. A few probably prefer the "good old days" when we either didn't know what was going on, or we were fed "pap" with articles about architecture in England. Either way, ignorance may be bliss until reality sets in.  In HOAs the blissful hope they sell their unit before the reality sets in.

I do recall the newsletters of 2002. Back then the "big deal" was the winter tips. Reading those newsletters, one would assume the board had everything under control and we were in great shape. It was a sham and nothing could have been further from the truth. But one of the favorite expressions of the leader of the board back then was about "throwing people under the bus." And so they did. But for as long as possible boards and the board presidents of this HOA did what they could to keep up the facade. Reality intervened then as it does now. But today it is a different reality. The newsletter is no longer a facade or a "feel good" piece of paper. We do have reserves and we do know what they really intended to accomplish. The HOA is aging, but it is no longer falling off of a cliff.

I cannot go back in time and fix the past. We can and do address identified issues in the present, while planning a 30 year future. That is not the way it was, and those who participated in those years should take responsibility for their actions. That includes owners and former board members.

We today have owners who have lived here for 30 years and remember "the good old days" when annual fee increases averaged 2.59% and for many years the fee increases were 0%.  We also have one current board member who was on the board back in "the good old days" and experienced it all.

However, we need to live in the present.

I have made a general statement that I think it is a mistake for a HOA to move forward with 0% annual fee increases. However, the actual increases each year should be based upon the actual finances and not some general theory or knee jerk, emotional reaction. The problems at BLMH can all be traced to the condition of reserves and several projects began in 2002, including an incredibly costly roofing project.

In recent years boards have dramatically changed the approach to this very significant component of fees at BLMH. This change has had a profound impact on our HOA finances. These changes began slowly in 1999 but became more sophisticated by 2011. But until the roofing project is completed and the redo of the streets a lot of money will continue to be spent. Unfortunately our streets began less than 10 years after they were replaced in 2002 or 2003.

In 2014 the reserve contributions were 412.4% higher than they were in 2001. The Operations & Maintenance (O&M) budget in 2014 was 14.9% higher than it was in 2001.

The percentage of fees for reserve items has increased from about 0% in the 1980s and 1990s to about 31% or more in recent years. Reserve contributions via fees peaked at 33.9% with the 2012 budget. In 2011 there was a 7% increase in assessments to owners. All of it went to contributions for reserves. In fact, the budget for O&M items actually decreased that year by 1.1%. In 2012 the budget called for an approximate 3% fee increase. Of that increase nearly half went to reserves.

In recent years the boards temporarily shifted to a multi-tiered approach for reserves and very closely monitored requirements for the 10 year future period while also considering 20 and 30 year requirements. Had this been done from 1985 to 1998 there would have been no need for me to do the work to create the information contained in the links later in this post. I also probably wouldn't be providing about 450 to 700 hours of free services to the HOA each and every year.

The earlier approaches of low fees with minimal reserve contributions created the financial problems of the 2000s. The grandiose or poorly executed projects which began in 2002 sealed the fate of this HOA for the next two decades. It was the available funds that probably dictated the approach used for the street replacement project in 2002. That is understandable if a HOA lacks the funds to do it right. Understandable, but not excusable. However, for a time the HOA owners did get the low fees they wanted. This could not continue and owners from 1999 to 2008 paid for this and got average annual fee increases of 7.41%. That's 3 times the fee increases each and every year as compared to the earlier period 1982 to 1998. Most of the money for the annual increases after 1998 went into reserves and to pay for immediate capital projects including the 2003 street replacement and that $2 million roofing project.

It is only since 2010 that this HOA made the huge leap to more sophisticated and realistic reserve requirements. This has not been smooth, either. But boards are getting better at this. A lot of time has been spent by a minority of boards members since 2011 looking into reserve requirements and implications for finances. This was necessary because of the condition of Lakecliffe and other streets, which were not predicted for retopping until the 2020s. Instead we found we had to completely replace Lakecliffe Blvd. Other projects and surveys which had been delayed are finally being addressed. 2014 and 2015 have been very different years as compared to the preceding ones. This needs to be considered when preparing HOA budgets at BLMH.

Here are the links I mentioned at the beginning of this post. Yes, we can plan and prepare. Yet, it is true that some can't, some won't learn from the past, and a few expect a totally different outcome no matter what they do. Yet, boards are supposed to muddle through. History can be a great teacher if we are willing to learn the lessons it provides. The reader may not agree with all of the following, but it does include some eye opening information:

September 2008 - Assessment History


November 2008 - Where Our Fees Will Go in 2009


March 2009 - A Method for Arriving at Assessments


June 2009 - Unit Owner Budget

Budget Meeting 2015 - Part II

"The fees collected for reserves at BLMH have increased by nearly 8.75% each and every year for the period 2001-2015.   The O&M expenses actually increased by less than 1.5% each year." 

The above statement is the result of my ongoing cost/fee analysis at my HOA. This is precisely why I have put so much effort into scrutinizing the reserves here at BLMH. Because reserves are nearly one-third of our owners fees, any moderation in reserve requirements will have a very large, and disproportionate effect on annual budget requirements and on our owners fees. Conversely, if reserve requirements go upwards, that too will have a very large effect on fees, and it has, for 15 years.

Not everyone understands this. Boards at BLMH have historically focused on the O&M expenses. In doing so they miss the elephant in the room. This is not news. It began decades ago when boards focused on meeting annual expenses and darn near ignored capital expenses and replacement costs. Some boards operated on automatic which is why there is resistance to fees determined by actual budgetary requirements. It is easier to do an O&M budget and then increase fees by 2 or 3 percent. Any income excess can be allocated to reserves, ignoring actual requirements.

It could be worse. In some HOAs the boards simply go with low annual fee increases, or none, and then pass special assessments to deal with budget issues. But in recent years our HOA has declared that we want a steady approach. I agree because I think that is best for our owner/shareholders. That sounds simple. Getting there is not and doing the work falls on a few of the board.  In other words, making these grand statements is easy. Doing the work to make it happen is not. Which is why I put in 450 to 700 hours each year as a "volunteer" on a HOA board. What a bad deal!

Last year this HOA had a 0% fee increase. For some board members, you would have thought that was sacrilege. However, if one realizes that reserve contributions have increased nearly six times faster for 15 years than have O&M costs, then this is not really so difficult to comprehend.

I'll say it again. Reserve contributions have increased six times faster than O&M contributions for 15 years. So where would you put your talent if you want to deal with HOA budgets? I decided some years ago that the reserves were the Achilles heel of BLMH. Therefore they must be monitored more closely and scrutinized.

How do you think we did water main replacements and street replacements decades ahead of what was planned? It wasn't fun, and there have been consequences. For example, all of the drainage improvements would be done today if our streets hadn't failed. That is a fact. But that is another issue. For budgets, long term situations can have serious consequences.

Budgeting Overview
A short time ago I posted about the annual budget meeting, which is the first task a new board is faced with. At BLMH this occurs immediately after the election and assignment of officers.

As I am fond of saying "We need to hit the ground running." Not that I think that's the way it should be, but that is the way it is, each and every year. Is it any wonder a new board might struggle?

Budgeting should be straightforward. In a HOA it might not be. This and subsequent posts will provide some insights into the budgeting process and why it may be difficult. It also provides some history and emphasizes why it really is so important to get the budgets right. However, this is 2015, not 2000. A lot has changed since then. Some of our owners can't comprehend this.

In my blogs, it is important to understand that board members are also owners. So I may use the terms interchangeable. A "board member" is also an owner. When I describe owners, it is to be realized that what I am saying also applies to board members because they too are owners.

We are each either a part of the solution, or part of the problem
Budgets are a necessary part of any business. But many HOA owners don't run their personal lives like a business, and so a few don't expect their HOA to be run as a business, either. Some of these owners become board members. Owners bring their practical experience with them. Also their personal judgements, opinions and beliefs.

Nevertheless, the annual budgets are serious business, with long term consequences. Nothing more and nothing less.

The October 9 post delved into the some of the discussion items for the budgeting process. I have a link at the end of this post. That meeting was long because the budgeting is not a simple task and boards sometimes make it more difficult than necessary. We also have other things to do during the meeting. This is a full meeting and there are the usual agenda items, including the Homeowner's forum.

We're taking a closer look at some of the underlying assumptions and so the budget remains unresolved.  One of the problems to be solved is determining the projections for the Operations & Maintenance portion of the budget. We have information about how the money was spent for the first 9 months of the year, but our budget ends on December 31. Management prepares a "projection" for the remaining three months and that provides the board with the anticipated expenditures as of December 31.  There is obviously some guesswork involved.

It is done this way because "This is the way it has always been done." I suggested an alternative approach a couple of years ago with a long time board member and they were inflexible. As I pointed out at the time, this puts any new board member at a serious disadvantage and can create pitfalls for boards, both old and new.

So we continue to do our budgets with a certain amount of guesswork. The sole reason is so owner fees can be adjusted on January 1 of the year. I am of the opinion that is an artificial date imposed by boards and have stated so.

Budget Issues
I have not been completely satisfied with the budgets amd the methods used to arrive at budget projections. For example, are they straight line approximations? Should they be otherwise? I am of the opinion that the budgeting could be improved, and should be. In recent years it has been, but this is a slow process and it occurs incrementally. Change can be difficult. In my experience there may be resistance. Remember the expression "The best defense is a good offense?" Call into question how people do things and that's what one may get. It's called "push back."

I am of the opinion that with an entirely new board it could be easier; no methods or turfs to defend. On the other hand an entirely new board would have to get up to speed in less than 30 days. Won't happen and entrenched boards may have a lot of automaticity. As in, for example "We always did it that way."

Additional Scrutiny
This year, I've provided additional scrutiny to some aspects of the budget and I asked a few more questions. The purpose is to arrive at a better budget.

Each year boards literally agonize over some of the budget decisions. Boards need to meet O&M budget requirements plus reserves and then set fees. Sounds straightforward. However, if a board overspends the total O&M budget, then the HOA must make up those funds. If we use more maintenance hours than were allocated, then we may have to "borrow" hours from the next year. This of course, reduces the hours available in that following year. "Robbing Peter to pay Paul" is not a good method. It also places additional pressure on the new board. There is nothing worse than starting the year with a deficit. 

If the opposite occurs and if we are under budget, then we collected more via fees from our owners than was absolutely necessary to run the HOA for the year. If this is a moderate amount, it is acceptable. To be 1% under the O&M budget could spare owners from larger, future fee increases. If we are within 1% for O&M then we are actually within about 0.7% for the entire budget because O&M is about 70% of the annual budget.

Trying to hit that bulls eye is difficult. In a household budget of $50,000 that would mean we are within $350 of such a budget, or within $175 of a $25,000 budget. I would guess that most of us aren't able to manage our household annual budgets this well. Yet, owners demand and expect that boards get it right.

Boards simply do the best they can. I suppose if we worked on the budget for the entire year, we might do better. But the reality in any HOA is some board members come to the meeting and may not be fully prepared. We have been discussing reserves for several months. But not everyone participates in the details of the planning.

How Much is 1%?
When budgeting it is really important to separate O&M requirements from reserve requirements. Why?  For example, let's assume that our HOA is attempting to get our O&M budget to within 1% of the actual. That's an attempt  to get the O&M budget to within $2.32 per owner per month. I'm using the average owner. What the board is attempting to do is project the costs of the future utilities, snow removal, printing, postage, legal, tree repairs, grounds maintenance, miscellaneous repairs and all other unknowns of 2016. It cannot be done with absolute precision, or if it is, it is part luck and part planning. 

Owners expect and a few demand that boards walk these tight ropes and get it right. I understand the expectation and I think that's acceptable. However, for those who make demands of the board, I guess that's all a part of their desire for apartment living, where some one else is supposed to make things work.

A few years ago I brought a crystal ball to the annual meeting as a tongue in cheek symbol of the problems all boards face. If we get it right, our budgets balance. If we don't, then we either under collect the fees (overspend) or over collect fees (underspend). The only way I know to do this is to identify all known costs, and also identify the unknowns. Add them up and that's the budget.

I think everyone would agree that HOA boards should not collect money simply because they are concerned about the future possible shortfalls. Fear is not a good business plan. We need to do the numbers and then base our decisions upon them. Nor should HOA boards spend money simply because it is in the budget.

Avoiding Debt
HOAs have financial limitations and most don't want to go into debt. In a household, when people overspend and run out of cash, it may be handled by making purchases with a credit card, which can be paid off in a few months or years. HOAs don't have access to this type of quick credit, which is probably a good thing. It is my understanding that the average household owes $7,529 on their credit cards. If our HOA did this, we would have $2,529,744 in credit card debt.

With no credit card available, boards work hard to get this right, and they have been doing so for about 40 years at BLMH. If boards get it wrong, they either collect too much from owners or collect too little. It is a fact that it is impossible to get this absolutely right and have the budgets balance to within the penny.

It is obvious that a few of our owners have experienced this in their personal lives. That's why in HOAs there are delinquencies and foreclosures. 

Avoiding the Short-Cut

Because we know we won't get it absolutely right some boards may take a simplistic approach. Add up what we think we know about the future budget, increase by 2 or 3 percent and then collect the necessary fees to match. It is my understanding that this is to avoid larger fee increases in the future and avoid a budget shortfall while dealing with inflation. This may not work as planned because:

1. Budget surpluses don't remain in O&M accounts and so each year stands alone.
2. Historically, the largest budget shortfalls at BLMH came from capital projects and reserves.
3. Reserves can and do accumulate and that's essential to have the funds available for projects such as roofs and streets. But these funds can't be used for O&M.
4. Reserves can and should be determined by long term planning, but some boards have problems doing this. 

If boards do want to take the easy route, then I am of the opinion that two budgets must be closely scrutinized each year. These are the previous year and the coming year. For the previous year's budget, what we are interested is identifying:

1. How well the crystal ball worked. Did we make good decisions? If not, why not? 
2. To identify those areas that may have experienced significant budget changes.
3. To avoid runaway escalation of fees. 
4. To avoid nasty budget surprises. 
5. To learn from our mistakes.

As with all things budgeting, a board must be willing and able to do the necessary research and ask responsible questions. 

Annual 3% budget increases might not sound like a lot, but over time these small amounts add up. Fees will double every 25 years.  

Long Term Versus Short Term Trends

Now, over long term periods it is true that the cost of maintaining a HOA does increase. These costs may vary each year as water rates change, or we receive more or less snowfall, or roofs need repairs, or ice dams form, etc. 

That's one of the pitfalls of taking, for example, the budget for expenses in 2001 and comparing it to the budget for expenses in 2015. Of course, total expenses have increased since 2001. But those increases don't occur in smooth and steady increments each year. For example, in 2001 this HOA spent $19,000 in roof repairs. In 2015 it spent $0. If we simply added 2.5% to this number each year, it would be expected that this HOA would have budgeted and spent about $27,000 in 2015 on roof repairs, but we didn't.  Costs for utilities (electric and water) have increased since 2001 and by about 3% per year. However, overall the costs of O&M at BLMH have increased by less than 1.5% per year. But you wouldn't know that unless you 1) did the research and 2) separated reserves from the total amounts of fees.

But some boards do like to use generalities. It is my opinion that isn't good budgeting. Trends may be useful for identifying anomalies. This is useful for detecting changes or errors. 

The Elephant in the Room

Now, there are those at BLMH who might look at historical changes to fees for guidance. But to do this properly, one must separate reserve contributions from O&M contributions. The information on fee increases is contained in the HOA welcome packet, but the percentage of fees allocated each year to reserves was not tracked in that manner. For decades, boards were concerned about total budget and the O&M accounts, but overlooked the elephant in the room.  

In fact, the fees collected for reserves at BLMH have increased by nearly 8.75% each and every year for the period 2001-2015.  The O&M expenses actually increased by less than 1.5% each year. 

Here is the change in fees collected for reserves over the past 15 years:

2001 percent fees for reserves = 12.27%

2015 percent fees for reserves = 28.6%

2001 amount of monthly fees to reserves, average owner = $26.79

2015 amount of monthly fees to reserves, average owner = $93.27

Change in monthly amount of fees, average owner, since 2001 = $107.40

Boards are Comprised of Owners

Let's look at it this way. Boards are comprised of normal human beings. How many households in the US have viable 30 year financial plans? How many have a retirement financial plan? How many households live debt free? That's what a HOA board is expected to construct for the association. If this were so easy, most of our households would be debt free. But they aren't.

Yet, these owners as board members are the very people who create our long term budgets. I think it is fair to say that owners bring the burden of their personal finances with them when they become board members. They also bring their skills and knowledge. 

Why Are My Fees What They Are?

That's one of the labels for this post. I wish that owners became more engaged in the budgeting process. By that, I wish they would observe and listen. A few will do this. Others will come to a meeting and then will complain. Some show up thinking they will figure it all out in 20 minutes. Most really don't know why their fees are what they are, and a few prefer to throw blame at someone else. Ah, the joys of apartment living where some one else is supposed to take responsibility for my well-being! But HOAs aren't apartments!

Earlier Post on Budgeting 2015:

http://briarcliffelakes.blogspot.com/2015/10/budget-meeting-2015.html

HOA Newsletters - Some Changes

I hope boards continue to make the newsletter a priority for communications. This truly is an essential group effort.

The newsletters are one of those chores that board members may choose to avoid. The newsletters have changed at BLMH as time has passed and boards have come and gone. I'm sure there will be changes in the future. Preparing newsletter articles has been among the more unpopular board tasks. As a consequence the newsletter is what it is. Some of this could be technology issues. There is no requirement for a board member to use email, or have a personal computer. There is no requirement to have a telephone either.

If asked I will tell anyone who listens that low owner involvement is unhealthy for a HOA. That's my opinion. However, purchasing and living in a HOA is voluntary. The only people who have a duty beyond paying fees and keeping the rules are the board. That's a fact. HOA boards in Illinois did not write the Illinois Condominium Act. The legislature did. "It is what it is."

As a consequence, preparing the newsletter and other forms of communications is a board responsibility. Owners may choose not to read it. They are under absolutely no obligation to do so. However, if they don't they have no excuse for complaining about "I didn't know" or "How could this happen?" Similarly, if owners choose not to attend HOA meetings, they should have no complaints about being unawares of what's going on. It is unfortunate that owners cannot be held to higher standards, but the legislature assured that when the made the Illinois Condominium Act.

I am inclined to scoff at any owner who complains about "a lack of transparency." I can only do so because of what is published in the newsletters and the various mailings. In fact, the newsletter is mailed to all offsite owners. Some board members don't get it and based on their positions about communications I am certain they never will.

We are making progress. The newsletters are now prepared and published by two board members. However, there have been other changes. Some may be more apparent in the coming months.

Anyone in our HOA should have noticed that the newsletters are usually published at the end of the publishing period. They usually contain factual articles about what occurred during that time period. We do six per year, so for example the January-February newsletter may not be published until late in February. That "six times per year" approach will probably be the minimum number of newsletters per year unless the board decides otherwise.

I have had the opinion that there are two "must" articles each month. One is by management and the other by the president. That takes up the front page. Two interior pages are reserved for the other articles on finance, landscaping, maintenance, projects & architecture, rules and welcoming. That's three articles per page. However, with the changes on the board this may no longer be the desire of the board.

In a good issue there are three or four board members as authors. With the split of Architecture & Projects from Maintenance there are now two board members actively involved in these areas and that also splits the load for these articles. Recent newsletters have had regular articles by the President. Architecture & Project, Maintenance and Treasurer. Added to that is whatever other board members feel is prudent and necessary for owners to know.

An owner might assume that no article means there is nothing important or going on by a director. That's a reasonable assumption, but it might be an inaccurate one.

For years, getting this done has been like "pulling teeth." In fact, I can state that I have spent substantial time from 2011 to 2015 hounding board members to write articles. In fact, I spent less time for the other tasks of  writing my own articles and composing, editing and sending the complete newsletter to the printer. At times it bordered on the comedic. I recall one board member argued repeatedly that "They (the owners) already know that" when we discussed the need for an article on a specific subject. Of course, we get one or more new owners every month. That same individual would also argue "It's in the rules" or "It's in the bylaws." Sure it is. That same individual would also complain "No one reads the rules or the bylaws." Okay, so where do these types of circular arguments lead one? I guess it is all about "I don't want to write an article."

The newsletter was one of the reasons I found myself spending from 450 to 700 hours "working" for this HOA. But of course, I'm not a paid employee. I'm a volunteer. I've concluded that this is what owners and some board members expected and demanded of me. But there are limits to the amount of time that can be spent in a year. That is precisely why some things didn't get done. It would be foolish to assume that more will be accomplished in 2016 with fewer on the board. It won't happen unless everyone "bellies up." Considering the history of this HOA, that is not going to happen.

At times the newsletter contained articles by as few as two or three board members. In the past, this was not obvious. One mistake I made early on was to function as a ghost writer. I thought that might "jump start" some articles. I took photos and put them in the newsletter and asked board members to "please write something." In fact, that approach never got us to the next level and so I no longer do that unless specifically asked to do so and with a really good reason. Why? Because I shouldn't  make statements for another board member. We were each elected or appointed and we each need to state what we are doing and what we will do on the board in our own words.  Making these statements is a part of being accountable and should be among the duties of a board member, shouldn't it? That's also why I suspended editing what is provided by a board member, unless I am specifically asked to do so. In the past I tweaked grammar, spelling and even addressed what I thought were factual errors. I then returned the articles to the author with my request that my changes be reviewed. Some of these things also made a difficult task more difficult and would delay the printing. Prior to printing I had an educated professional read the articles to see if they were comprehensible and made sense. But no longer.

Of course, with two preparing the newsletter we now have two sets of eyes to look for glaring issues. I think this will work fine.

These changes are only possible because the newsletter duties for some months now have been taken on by another board member. Partnership is a wonderful thing. It worked for developing the delinquency spreadsheet and it is working here. Because I take hundreds of photos of the association each month, I continue to provide the masthead photo, which is cropped and resized to keep file sizes reasonable.  I write articles and I help. My commitment to the newsletter remains unchanged, but I'm no longer the main event. We work together well and I do what I am asked to do, including editing and review.  Similarly, my articles are reviewed and we discuss them.

I will continue to pursue board members when I think their articles are critical. For example, with a hundred scars on the property, landscaping has a lot to do in the next few years. A lot of money will be spent. Owners need to know what the board is really up to in this area. But in fact, what area is not important? Landscaping, Maintenance, Architecture, Projects, Finance, Rules, and Welcoming are all important aspects of the HOA. If that were not so, why have a board position for them?

Some board members provide articles as Microsoft Word documents, some are hand written and others are text embedded in an email. It all must be formatted and fitted into the available space. That also increases the time required to do this. One never knows who will write in any given month, nor do we know the length of the article that they will provide. .

In the past, I took the position that whatever a board member wrote was what they thought was important. I was of the opinion that it was best to use what they provided verbatim. So articles were seldom if ever edited for length. I wrote articles which were formatted for the remaining available space. These are intended to be factual and educational. How does this HOA work? What are we doing? What are the priorities? What are our plans? What are the issues we face? and so on. It has been my opinion that the shareholders need to really know what is going on. In that, there has been some real disagreement among various boards and board members. I know we are all busy and I do understand that in any given month there may be no interest in preparing an article. But all it takes is about 150 words per month. How difficult can that be?

We certainly have sufficient material and ample subject matter for newsletters in an HOA as large as this one. Each HOA meeting provides additional information. All I have to do is go through my meeting notes, or owner questions during the HOA meeting or whatever else has occurred in the previous 45-60 days. I pick the most important or what I think might answer the burning questions posed by owners during HOA meetings, or explain something that has occurred.

As more board members wrote articles or lengthier ones, I trimmed mine to fit what was left. Sometimes I added more photos and at other times there were none. With the 2015 change and someone else doing most of the work of assembling and distributing the newsletter, I now provide several articles each month, in MS Word documents. These can be selected as relevant, copied and pasted into the newsletter and the others discarded or saved for a future newsletter, space permitting. They may also be edited. Some editing is always required to fit all of the other articles into the available space.

At one time I provided articles to the communications director which were of a specific word length. That is a good approach if everyone complies. But I also decided that I wanted board members to have sufficient freedom to state their piece in their own words. Of course, there are real space limitations. When the day comes and six board members write 1000 word articles, it will be a real problem. It could happen. When it does authors should expect to be asked to reduce their articles to a specific word length.

Why go through this newsletter effort? Owners should be optimistic because they are provided with facts and position statements in the newsletter. No one likes unpleasant surprises. Owners should not be blindsided by board decisions that are not published and repeated to all owners. Of course, sensitive or lengthy material can and should be mailed. A lot has been published in newsletters, but there are also glaring omissions, One thing to keep in mind is the newsletters are all published on the internet. There are some things that should be only for the shareholders who own a unit and "have skin in the game" or for residents.  The newsletters are not intended to be entertainment, or part of a social club.

I find it easy to determine what is of concern to owners. I simply listen to them. Then I respond with an article or articles. Some board members have dismissed owners and owner concerns. I get it. Writing newsletter articles requires:

1. Doing research, developing plans, making decisions and then publishing them. 
2. Making a committed statements to owners.
3. Treating owners as the shareholders they are.
4. Doing work; writing accurate and factual articles is not a simple task.
5. Being held accountable for our actions. Yes, owners may some day come to the meetings and say "You said this in the newsletter; why didn't it happen?" 
6. Taking the time to do so. 

HLC Report Excerpts - (Community) College of DuPage

The Higher Learning Commission found COD non-compliant in the area of institutional integrity and in the area of effectiveness of administration and governance. This could result in the college being placed on probation. It also found problems with the Suburban Law Enforcement Academy at the college. I've had the opportunity to read the 45 pages of the report (a link to the report was published in an earlier post dated October 20, 2015.)

It's been apparent that recent board and administration have had functional difficulties. The report makes quite a few observations and recommendations. Here are a sampling and anyone who thinks this is going to be cleaned up quickly is kidding themselves.  The report states that one of these problems was apparent during an earlier visit in 2007. Eight years have passed and it seems things are worse today. But the college has successfully spent several $hundreds of millions of taxpayer money on a sparkling campus upgrade complete with many new buildings and roads, fountains and large ponds that were once wetlands, lots of parking lots, storm sewers and thousands of trees and shrubs.

From the HLC Report, last paragraph on page 23 which continues to page 24:
“The College of DuPage Foundation is a separate legal entity from the College of DuPage and operates under its own governing board and policies. The Foundation and College operate under a Memorandum of Understanding (MOU) dated June 22, 2009. Over the last number of years, the College entered into a number of competitive and non-competitive bids with vendors whose owners (or persons who work for the vendors) also serve on the COD Foundation Board. Questions have arisen around whether or not such activity, especially with respect to the awarding of noncompetitive bids to such vendors, was proper or permitted. There is also the question of whether the awarding of such contracts avoided potential conflicts of interest or even the appearance of such conflicts of interest. Investigations by some external entities and by attorneys retained by the College are ongoing. In addition, the College itself identified one particular contract as being improper. During an interview with the internal auditor, the team was advised that a contract with Herricane Graphics was entered into after the contract deadline. According to the internal auditor, this contract was therefore invalid. Yet, despite knowledge of this clear violation, the contract was still accepted by the College.”

Page 18: "........fissures in the linkages among the stakeholders of this academic community are visible. The most poignant of these observations was a quote from a COD student, recently elected by the student body as the student representative on the Board of Trustees, 'Many times the discussion progresses and falls into a political or financial debate accompanied by bickering that focuses on the past and rarely the future.'"

Page 21: "The COD Board of Trustees would benefit from an enriched professional development program focusing on governance within higher education, duties of board members, and communication both during and outside of Board meetings. The lack of appropriate training and ongoing strife that exists among the Board members serves to impede the Board’s ability to serve the public good. Further, the role of operations should be delegated to the President and College staff. Therefore, the team finds that the evidence demonstrates that further organizational attention and Commission follow-up are required."

Page 43: "As a whole, faculty held a generally unfavorable review of the Division of Continuing Studies." "....the College has not permitted the faculty to participate substantially in the development and implementation of curriculum. "

"Finally, during the team’s interview with the Board, it was reported to the team that the Board felt faculty relations between the College and the faculty were good. However, the faculty asserted that even with the President on administrative leave, the “next level down in the hierarchy” have not addressed concerns faculty raised in the vote of no confidence (dicsussed (sic) earlier in this report). In fact, the faculty complained that practices involving “bullying and corruption” continued. During the open faculty interview, the faculty as a whole felt they were the “B-team.” This particular issue was noted by a visiting team in 2007. Yet, it does not appear that circumstances have improved since that time. In fact, the vote of “no confidence” indicates that matters involving the faculty continued to deteriorate. This is consistent with faculty comments regarding the lack of a true shared governance structure."

Pages 42-43: "......during an interview, criminal justice faculty complained they were not consulted about the recent change in the number of credits for the SLEA program. These faculty members provided a history of the awarding of nine criminal justice credits as the work of administrators and one former criminal justice faculty member in 1994. At that time, the faculty disagreed with the awarding of the original nine criminal justice credits.

Moreover, SLEA instructors indicated they, too, were not involved in the recent decision to increase the criminal justice credits awarded saying they “know nothing about it.” SLEA instructors said they have not seen the criminal justice objectives or the crosswalk completed by administrators. In fact, they teach the ILETSB curriculum (discussed above in connection with Core Component 3.A.).

The Vice President for Academic Affairs stated during an interview that faculty should be involved whenever there is a change in credits such as a change from “3 to 4 credits for a course.” When asked if the faculty was involved in the decision to change the number of credits awarded from 13 to 22, she replied that they were not. When asked why she approved the change in credits, she replied that she thought the faculty were involved since the Associate Dean for Social and Behavioral Sciences brought it to her for approval.

From a broader perspective, fifty-four faculty members attended the open session with faculty. Without a dissenting voice, faculty members indicated they were upset that the administration had increased the number of criminal justice credits awarded to SLEA cadets without faculty involvement. They expressed concern that administration would repeat this action in other programs citing the Carpenter’s Apprenticeship  Program, Pharmacy Technician, Real Estate, and Massage Therapy as potential examples. Faculty also asserted the College’s alternative credit peer review or Prior Learning Assessment is distorted. Administration and faculty agreed in separate interviews that COD had no consistent format for evaluating prior learning. For example, SLEA and the carpenter’s union credit program were handled in different ways by College faculty and staff. Faculty also felt that a “crossover” program was going to be increased to turn more non-credit courses into awards for credit. At this point, the College maintains that only two above-referenced programs exist of this kind.

As a whole, faculty held a generally unfavorable review of the Division of Continuing Studies. Individual faculty felt that Continuing Studies were naming their non-credit programs similar to credit, accredited program in order to “confuse” students that appears to have an effect of driving down enrollments within Academic Affairs. Faculty cited examples that include medical assisting, pharmacy tech, and medical coding classes which appear in the Ed2Go portion of their catalog."

Suburban Law Enforcement Academy (SLEA)  
Pages 12 and 13 of the report: "As discussed later in this report, the amount of credit awarded, as well as the process in which the credit hours were determined, raises concerns in connection with several Criteria and Core Components."

Excerpts from Pages 34 to 39: “.........there is the potential for these “students” to receive federal and state financial aid for 22 credits in violation of the federal credit hour definition. The federal definition of credit hour is the standard for all of higher education. COD’s practice of awarding this number of credits for SLEA participation is not appropriate to higher education.” “The College’s Vice President for Academic Affairs (Jean Kartje) likewise referred to it as Prior Learning Program credit. The College, however, does not have a Prior Learning Program policy even though some individual areas grant credit for prior learning.”

"In sum, College of DuPage is giving 22 college credits for the non-credit SLEA program by simultaneously enrolling students in college courses and in the non-credit program. The crosswalk between SLEA instruction units and the objectives of the three recently added criminal justice courses does not show that adequate attention is given to the criminal justice courses’ objectives. In addition, the institution made a concomitant change in credit hours without an increase in the hours of instruction and was not able to justify the number of credit hours. Likewise, the clock hours allocated to the SLEA curriculum and the credits awarded do not follow the federal definition of a credit hour."

Updated -Some Observations About SS and Retiree Well-Being

(See Notes) - Added Medicare Premiums 2016

In any HOA, some of the owners and residents are retirees. The incomes of  retirees are determined by pensions, savings and social security benefits. I'm going to quote a well known financial writer "Social Security wasn't designed to be an investment vehicle for retirees; instead, it had the goal of providing at least a modest supplement to retirees' incomes."

The important word above is "supplement." There was no intention for retirees to live entirely from social security. According to the Social Security Administration "Social Security made up 50 percent or more of the retirement income of 66 percent of Americans age 65 and older in 2009, up from 64 percent in 2008. However, in August 2011 the SS Administration stated that "more than a third of retirees (35 percent) receive 90 percent or more of their income as a monthly payment from the Social Security Administration."

More recent data indicates that Social Security benefits represents 90 percent or more of income for about 44% of all retirees who receive benefits. (2012 data, released 2014). Intended or not, for about nearly half of retirees social security income has become their main source of income.

Currently, about 12.5 % of Americans are retired and receiving SS benefits. The SS Administration estimates that 97% of all Americans aged 60 to 89 will receive such benefits. Furthermore, those benefits are modest. "The average Social Security retirement benefit in June 2015 was $1,335 a month, or a bit over $16,000 a year." For retirees over the age of 65 the median benefit  was $19,276 or  $1,606 per month in 2012. Single retirees (including widows and widowers) over 65 received $1,183 monthly in SS benefits while married retired couples received $2,029.

Using Median data can be deceptive. Here are some additional data using quintiles, The advantage of quintile data is it divides the population into five groups. Those groups range from the lowest 20% income via SS benefits to the highest 20%. This provides a better indicator of the income extremes. Here is same information presented in the paragraph above, but for a one-person beneficiary family. This includes all SS income for all beneficiaries aged 65 or older.

• Lowest Quintile: $791 per month.
• Highest Quintile: $1,483 per month.

It is impossible to determine the specific sources of income for the elderly in any HOA, or their net worth. That information is personal and private. The financial status of retirees is also determined by where they live, their earnings while performing their duties during their working years, and their current health.

But figuring out some of this isn't rocket science. The deterioration in retirement income since 2008 should be a cause for concern for all of us. The financial panic of 2008 wiped out a lot of the retirement saving of those over 55 at the time. Extremely low interest rates on cash savings and low bond returns have also taken a toll on the financial health of all of us.

There is no question some retirees are struggling. "Some" might actually be "many."  One thing to be aware of is the current financial status of all of us. HOA board members do get a glimpse into the financial health of the owners of the HOA. This information occurs as foreclosures and delinquencies.

Future Financial Well Being Issues
Another indicator of future financial well being is the national savings rate. This has steadily declined for about the past 40 years. In 2014 the rate reached was a measly 4.8%. The long term average is 8.4%. According to JPMorgan there are an alarming number of people who are not even interested in saving. "In 2014, only 44% had tried to calculate how much money they would actually need to save for retirement."

So, it is common knowledge that we will live longer, but we are saving less. So where and how will those people live? If they are in HOAs, I will expect they will demand lower fees. After all, it is a fact that couples age 65 today have an astounding 97% chance that at least one of them lives another 10 years and an 89% chance that one experiences their 80-year birthday. Most of those 40 somethings and 50 somethings will certainly live to beyond the age of 80. Will they do well on $1,600 a month in SS benefits? Of course not.

From my October 14 post: 
For anyone who is interested, I've read reports that most probably anyone living on social security income will get the same amount in a check next year as they did last year. This is also true for many workers. No salary or wage increases for many in 2016. I do take the well being of our shareholders into account when looking into budgets and fees. [Posted at the Social Security Website October 15: "No Cost-of-Living Adjustment for 2016"  by  Jim Borland, Assistant Deputy Commissioner, Communications, SSA  - "The CPI has not risen since the last cost-of-living adjustment in 2015. As a result, your SSI benefit rate and, for most people, your Social Security benefit amount will stay the same in 2016."]

Medicare Premiums 2016
Why did the Assistant Deputy Commissioner state that the 2016 benefit amount will stay the same for most people? It is possible that some retirees will see an increase in Medicare Insurance costs. These costs are automatically deducted from their SS amount.

According to USA Today: "Retirees have been bracing for a large increase in Medicare Premiums for 2016. However, the US House of Representatives passed a bipartisan budget deal on Wednesday, October 28. It has yet to go to the Senate.Without the deal, some 30% of 54 million Medicare beneficiaries would have seen Part B premiums jump 52% in 2016, from a base rate $104.90 per month to $159.30. With the proposed budget deal, about 17 million beneficiaries would see their Part B premiums rise 14% instead, to a new base rate of $120 per month in 2016, plus a $3-per-month surcharge."

Notes:
1. Click the following to go to the primary source of SS data for this post:
https://www.ssa.gov/policy/docs/statcomps/income_pop55/index.html

2. Click for USA Today article on Medicare Premium increase for 2016:
USA Today - budget proposal could mean no 52 jump medicare part b premiums

3. Expanded this post.

Higher Learning Commission Report on College of Dupage - Does Not Meet Core Components

The "College" of DuPage has released the following information about the Higher Learning Commission "Advisory Visit" in July, 2015. I've included links at the end of this post.

The HLC issued a 45 page report. Because of the findings of the HLC at the college the HLC "will consider imposing the sanction of Probation" on the college. Here are excerpts from the October 15, 2015 letter from the HLC to the college:

"The Advisory Visit took place on July 21-22, 2015. The team subsequently compiled its findings regarding the College’s compliance with Commission requirements in a report. As is typical with an Advisory Visit, the report makes no recommendation regarding Commission action. With this letter I am providing you with the Advisory Visit Team Report to you along with the options available to the Board in policy based on the findings of the team.

The evaluation team determined that the College does not currently meet Core Component 2.A related to issues of integrity; and Core Component 5.B related to issues of effectiveness of administration and governance. In addition, the evaluation team determined that the College meets Core Components 1.D, 2.C, 3.A, and 4.A. but with concerns.

Because the team has found that one or more Core Components are not met, the Board will consider imposing the sanction of Probation. The Board may also consider the sanction of Notice if the Board concludes that these Core Components are met but with concerns.

The sanction of Probation is disclosed publicly by HLC and indicates that an institution is not in compliance with one or more of the Criteria for Accreditation. An institution that is placed on Probation must host a comprehensive evaluation visit within no more than two years from the date the sanction is imposed to demonstrate that it meets all the Criteria for Accreditation and has remedied all the issues that led to the imposition of the sanction. At the end of the Probation period, HLC’s Board of Trustees determines whether to remove the institution from Probation or withdraw its accredited status. (See Commission policy INST.E.10.010 for more information about sanctions, Show-Cause and related policies.) It is important to note that an institution on Probation remains accredited. The Board, at its discretion, may determine based on the findings of non-compliance that a Show-Cause Order is warranted instead of Probation.

Alternatively, the Board may conclude the College meets these Core Components but is at risk for noncompliance in the future if these issues are not immediately resolved and may impose the lesser sanction of Notice. The Board may also determine that the HLC should continue to monitor the institution but not impose either a sanction or show-cause.

The report of the Advisory Visit team is enclosed for your review. You have the option of providing a response to the report and to this recommendation, which I will need to receive no later than October 29, 2015. In that response, you should identify any errors of fact in the evaluation team report as well as respond to the substantive findings. The Board will consider the team report, its options for action as noted above, and your response at its next meeting in November 2015, or at subsequent follow-up meeting. The action of the Board will be communicated to you following its meeting."

The letter from the HLC also states that "I further notified you that, although the team had the authority to review the College’s compliance with all of the Criteria for Accreditation, it was specifically charged with reviewing the College’s compliance with the following:

• Criterion One, Core Component 1.D, “the institution’s mission demonstrates commitment to the public good,” including but not limited to Core Component 1.D.2, “the institution’s educational responsibilities take primacy over other purposes, such as generating financial returns for investors, contributing to a related or parent organization, or supporting external interests,” with regard to public concerns about whether the College is appropriately dedicated to its mission and demonstrating commitment to its mission by ensuring that educational responsibilities are primary rather than secondary to supporting other interests;
• Criterion Two, Core Component 2.A, “the institution operates with integrity in its financial, academic, personnel, and auxiliary functions; it establishes and follows policies and processes for fair and ethical behavior on the part of its governing board, administration, faculty, and staff,” because it is not clear based on these reports that the College has or follows effective policies and processes to support its operations and decision-making. Because of this concern, I am also asking that the team review Assumed Practice A1, “the institution has a conflict of interest policy that ensures that the governing board and the senior administrative personnel act in the best interest of the institution;” 
• Criterion Two, Core Component 2.C, “the governing board of the institution is sufficiently autonomous to make decisions in the best interest of the institution and to assure its integrity,” including but not limited to Core Component 2.C.3, “the governing board preserves its independence from undue influence on the part of donors, elected officials, ownership interests, or other external parties when such influence would not be in the best interest of the institution,” because of concerns about apparent conflicts of interest and self-dealing. These allegations raise questions regarding whether the Board has sufficient autonomy to act outside the agendas of individual Board members and consistently acts in the interest of College constituents or whether the Board is influenced by other interests; 
• Criterion Three, Core Component 3.A, “the institution’s degree programs are appropriate to higher education,” due to information regarding the change in assigned credit hours for a program without a concomitant change in instructional or educational program requirements; 
• Criterion Four, Core Component 4.A, “the institution demonstrates responsibility for the quality of its educational programs,” related to the questions raised regarding the Suburban Law Enforcement Academy, the changes to its program, and resulting changes to College data points such as enrollment of students based on full-time equivalency; and
• Criterion Five, Core Component 5.B, “the institution’s governance and administrative structures promote effective leadership and support collaborative processes that enable the institution to fulfill its mission,” and specifically Core Component 5.B.1, “the governing board is knowledgeable about the institution; it provides oversight of the institution’s financial and academic policies and practices and meets its legal and fiduciary responsibilities,” because it is not clear that the Board and administration have provided effective leadership."

Letter over at the Edgar County Watchdogs:
College-of-DuPage-Letter-10-15-15-FINAL.pdf


Report over at the Edgar County Watchdogs:
COD-Team-Report-Final-101515.pdf

Home of Edgar County Watchdogs:
http://edgarcountywatchdogs.com/