Is Complacency a New Normal in Your HOA?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


Notes:

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