HOA Committees - Purpose and Issues

If you are a HOA owner or are considering a purchase you will see a list of "board members" in your newsletter or a list of "directors" or "committees".   What is that about?

I'll use our association as an example. We are a not-for-profit corporation. That means we have the following corporate officers:

• A President
• A Secretary
• A Treasurer

However, for practical reasons we also need someone to chair the meetings and perform the president's duties in the event of the absence of the president, and so we also have:

• A Vice-President

The above roles provide no guidance and minimal insights into the duties performed or required by the board of a HOA, so the board divvies up the duties. In our HOA as many as 7 people are elected or appointed to the board. In recent years we usually had 6 on the board.

Board Position Assignments and Committees
Once a year our HOA holds elections for board positions. I assume that is so for other HOAs. Owners decide to run for the board and from the list of candidates a sufficient number are (hopefully) elected to fill the empty or expiring board positions.

Once elected, board members may be provided with a list from which to choose their duties. Why? Because there are many tasks to be done and these are accomplished by part-time volunteers. That means  1) there are time constraints, 2) the volunteer may have a specific interest or skill, 3) there may be a personal agenda, and 4) there may be an interest in having a position that requires minimum involvement or work.

The board members can pick and choose their duties and hopefully everyone will be served, all positions will be filled, and more or less equitably.  In practice that doesn't occur. Not every elected board member is willing to choose the difficult positions, so it may be required that a single board member will fulfill the duties of multiple positions.  In fact, unless boards are willing to enforce a "everyone works" policy it may have board members with no assigned duties. Those individuals are required to only read official materials before meetings, attend the meetings and vote.

While personal agendas may be present, they are not inherently a problem unless the board member runs that agenda whenever possible to the avoidance of all else, or to the detriment of the HOA and the owners.

Here is a list of our current board position assignments, in no particular order:

• Architecture & Projects
• Finance
• Landscaping
• Maintenance
• Rules & Regulations
• Welcoming

We've also had additional positions in the recent past, such as:

• Communications

Each of the above positions leads a committee. Each committee may be comprised of one or more board members, and of interested owners.

At BLMH, we currently have no owner participation on committees. Or to be more accurate, no formal participation. We do have a social club and several board members attend the club meetings. I think it is fair to say that some social club members use those meetings as a means to avoid attending the formal HOA meetings while achieving access to board members. Some may also attempt to influence the board members and so the club members could be considered unofficial members of committees.

Our board is fully staffed and there are committees. It should all be smooth operations, right? Not quite!

Are the requirements and duties equally distributed?
In a perfect HOA they would be; but this is reality we are dealing with. It is useful to remember that these positions are entirely voluntary.   Some members of the committees pick and choose their tasks within the committee. Of course, all board members vote. That's one reason to be on a board and it is the only task that is equally distributed on boards.

When I first came to have a board position we had the following official duties per person:

• Architecture, Projects & Maintenance
• Finance
• Landscaping
• Rules & Regulations
• Welcoming
• Communications

For a time, these were the actual duties assigned per person for 5 board members:

1. Architecture, Projects, Maintenance & Newsletter.
2. Finance.
3. Landscaping.
4. Rules & Regulations.
5. Welcoming.

I suggested to the board that maintenance be seperated, but the board at the time resisted that. Having one person responsible for all capital projects and maintenance seemed to be a bit excessive. Furthermore, it struck me as one of the reasons some issues were overlooked.  In the recent past the task was largely maintenance, with less than $180,000 collected for capital projects each year. The age and condition of the HOA changed that and the reserve collections more than doubled, and expenditures reached up to $450,000 in a single year (roofs, streets, water mains, streams, common decks, driveways, etc.). One board member was attempting to orchestrate this, read specifications, bid documents, monitor the actual construction, etc. And that same individual was doing the same for a variety of maintenance projects and spearheading the newsletter.

Finally the board did agree to separate the two positions when another board member agreed to be the Maintenance Committee. However, the projects and maintenance committees do continue to work closely together.

Why were board members reluctant to separate the positions? Some are resistant to change. Perhaps some insular board members think they that the new members should carry a larger burden, or perhaps the board can succeed at driving off new members by burying them in tasks. That's a good strategy.  At BLMH for a variety of reasons some board members don't regularly walk the property and some are limited in their physical activities. Some don't consider such activities to be their responsibility and of course, we are all "busy".  Some board members rely upon others to do the "heavy lifting".  Some rely upon others to provide photos, surveys, videos, printed reports and spreadsheets.

Why the unequal distribution? Basically time, technology access and ability,with personal inclination. Board members and committees are comprised of some members with a lack of available personal technology, minimal technology skills, physical impediments and time constraints. As a consequence duties are not equally distributed and a few may do the work required of the many.

Getting committee tasks done
Whatever the board committee size and structure, these committee tasks do have to get done, don't they? The straightforward answer is "Perhaps not."  For example, when I first assumed a board position in 2010 I was surprised to discover that there had not been any surveys of garage floors, concrete patios, etc. in many years.  No one on the board could tell me their specific condition and there was no documentation. Management had not recently been instructed to conduct such surveys with a board member.   Boards apparently operated based upon owner complaints. Why? One reason was insufficient funds. It is difficult to look for problems when you know you may not have the funds available to solve any you discover. However, operating with a lack of information makes good decision making impossible.

There was one exception. About 10 years ago the Rules Committee had multiple members. The goal at the time was to streamline the rules and get rid of those which were unpopular among a group of owners. For a short time the HOA was run like a social club. Those rule changes never came about because the board members involved resigned upon realizing that the entire board would not take their approach and there would probably be insufficient board votes for the proposed rules changes.

Sometimes boards avoid committees
Committees can always use members outside the elected board. However, some boards are insular and operate as if owners are pests or that owners may have an agenda or ulterior motives. For board members it is true that having an owner or owners on the committee does require direction of those owners.

Some boards don't like to be observed by owners. Having an owner on a committee provides that owner with insights into issues, problems and access to board operation. In the worst examples board members are distrustful of owners.

Some board members will go to great lengths to prevent owners from participating on committees.

What are the warning signs?
At BLMH some board members say that "owners are disinterested and uninvolved". I agree that in a community of 336 owners there is ample evidence that owners are uninvolved. The average number attending recent monthly HOA meetings is fewer than 6, and sometimes two of those are former board members. However, I don't include the annual meeting or winter meetings, as weather can make attendance inconvenient. In fact, recently the board decided to cancel a meeting due to weather concerns. As for the annual meetings, we were unable to get a quorum of voters for the elections, so it was necessary to re-run it. Yes, there is a lack of interest.

So what gives?  The HOA appears to be running well. Some owners take that to mean that their involvement isn't necessary.  Ditto for the boards; owner involvement may be considered of little benefit to the HOA. I assert that from time to time when owners approach the board and request to serve on committees that they are rebuffed. My evidence? Even though owners have made that request, we haven't had a non-board member owner on a committee in 8 years.  There is a reason for that.

Is that a problem? Yes it is.

How to get more owners on committees and fill board positions
There are things that can be done.

1. Make continuous requests of owners who attend HOA meetings.
2. Make continuous requests in the newsletters.
3. Make it a point to board members that owners participation in committees is normal while the opposite is abnormal.
4. Use owners who ask to join committees, rather than rebuffing (ignoring) them. 
5. Communicate with owners about the issues. 

Why won't this work?

If most of the board doesn't want owners involved, then they will find a way to discourage them and burn committee members. Resistant and insular boards do burn other board members, too.

If owners prefer complacency, that is the way it will be.

The challenge is to get realistic and helpful owner involvement. If the HOA doesn't, the day will come when new board members with no prior experience will attempt to run the HOA. That did not work well in the past and there is no evidence that it will work well in the future.

Water Metering Charges

You might not be aware of the current water metering charges. These have increased in recent years as the City of Wheaton moves water infrastructure costs as well as water costs onto the water bills. This is a good approach, similar to what our HOA does with its capital costs. However, this has caused significant water charge increases in the last 15 years.

To be fair, some of the cost increases are attributable to Chicago which provides the water. Other increases are attributable to decreased revenue sharing the by State of Illinois. Communities are being squeezed as the state borrows money and diverts tax income to the bond holders.

The following is the current minimum billing, even if there is zero water usage. I was told by the city that the "usage" is increased as necessary to assure a minimum $20.69 monthly bill.

Constructing the Rule

With expert opinion, the rules can be changed. Our association goes through rules changes periodically. One could ask "How is it that certain issues come to the top of the list while others don't?"  That's a good question and it all depends upon whose hot button gets pushed. I've seen rules committees stonewall rules changes and I've seen rules committees insist upon other rules changes. I'm of the opinion rules changes are difficult to make and even more difficult to enforce. That opinion is the result of years of observations and walking the entire HOA, attending numerous meetings, etc.

However, if a rule change is to be considered, there are questions to be asked and expert opinion to be obtained. Preferably, questions shouldn't lead the experts to a specific conclusion but I see that all the time. I suggest many flawed rules are a direct consequence of personal agendas at play.   Based upon practical experience, there is no point to revising or creating a rule if the rules committee isn't behind it. Which is one explanation for why things are the way they are.

Here are a few of the questions to be asked by boards and rules committees when addressing rules changes. The following is directed specifically at a proposed rule change to reduce ambient and impact sound in a HOA. This rule change is being proposed and spearheaded by the rules committee.

It the following question aren't asked or if the rules committee doesn't address them then the rule may be flawed. What do I mean by "flawed"? I mean ineffective, too narrow, undesirable, or unenforceable. Getting this right is the responsibility of the rules committee:

1. What sound rating is desired?
2. At what cost to owners?
3. At what tangible benefit to owners?
4. What sound rating will be actually required?
5. In which units is the rule to apply?
6. How to address existing floor treatments?
7. When are these changes to occur?
8. Who will write the rule?
9. How much money is the board willing to spend to update the rule? (Experts $65-$150 per hour and upwards, attorney $200 per hour and upwards).
10. How will the rule be enforced? What inspection and impartial enforcement methods are to be applied? When, by whom and how frequently?
11. When will owners be informed?  During the discussion or after it is a done deal?

Of course, all of the board members are involved in this, or they should be. But it is the sole responsibility of the rules committee to get the necessary information, elicit the support and input from the other board members, draft a rule that is workable and then once it has been passed enforce it.  This obviously requires some communications skills. In the good old day committees might just ram the rule down the throat of boards and owners. Such an approach simply isn't workable. Such an approach shouldn't be necessary.

It really is important to attend HOA meetings, in particular the annual meetings

Owners may feel that it is not worth their time to attend HOA meetings. Or to study the documents prior to making a purchase, or even after making a purchase. At BLMH the first meeting I attended after purchasing had two owners in the audience. They were me and my spouse! BLMH has 336 units. Some owners never attend meetings. 

The quantity in attendance at meetings increased in 2007-8 when an resident posted a notice about "special fees for dog owners" and pet owners stormed a HOA meeting. It was "fake news". The attendance also changed when some owners decided the fee increases were "too much" and about 30 began attending the monthly meetings in 2007 to voice their opinions. But 30 is fewer than 10% of the HOA ownership!

Of course, in 2007 it was too late and that is my point and the point of many of the charts I publish here. Participating after the money has been spent or has not been saved is too late to have any meaningful influence about controlling fees. "How could this happen?" is a refrain I've heard but in fact, the numbers don't lie. Owners who argue for lower fees more often than not are merely shifting costs to future owners with the burden of fees required to pay those future costs.  Future boards will also be burned by this.

In 2008 or when about 30 owners decided it really was worth their while to attend monthly meetings the streets had been recently replaced, but some already showed stress. The roofing project was underway with 6 roofs replaced, as I recall. The HOA was committed to a course of action, and boards after 2008 discovered that they were trapped by the financial decisions of the earlier boards and owners. 

The newsletters revealed little detailed information about the 10-year financial plans by the board. Attending meetings wasn't all that helpful either. But by attending it is and was possible to ask specific questions. It is unfortunate, but when angry owners show up, rational discourse goes out the window. IMHO attending the meetings, asking the difficult questions and staying calm and non-confrontational is the best approach. We did ask some of the difficult questions and a few were answered sketchily. When owners become combative that also allows board members to avoid answering the difficult questions. I think some board members goad owners so as to shift the conversation away from the difficult or uncomfortable and to the emotional. When owners begin shouting it is easy to write them off as just an angry mob, isn't it? 

How to avoid this?  

1. Attend meetings regularly and ask pertinent questions. 
2. Do your homework.
3. Keep notes and use them to achieve board accountability.
4. Did you like what the board said on the candidates form? Then after the election ask how he or she will accomplish those promises.
5. Ask about maintenance and capital improvement budgets. 
6. Ask about fee increases over the next 5 years.
7. Does the association have a 5-, 10- and 20-year plan? Can the board articulate it to the owners? Does it do so at annual meetings? Ask questions and ask for charts, etc. to substantiate the answers.
8. Ask about delinquencies and foreclosures. What are the statistics over the last 5 years? How many owners owe more than $100 for more than 60 days? Is the number increasing?

My suggestion to potential and current owners of a HOA is to consider the following:

1. Be aware of the contents of the Declarations, Rules & Bylaws.
2. Do your due diligence and anticipate fee increases if you are considering a HOA purchase.  As an owner you should expect fee increases. Inflation cannot be avoided so the cost of things do increase year to year. 
3. Reserves are an important part of owner fees. They determine long term maintenance and must be considered. Study the reserves and ask the board what things cost. Ask about capital projects. The board should be able to provide details for the immediate 5 years.
4. I'm merely providing BLMH as an example.  What is useful is the fact that the budget situation at BLMH is today the consequence of the planning and decisions that occurred 20 or more years ago. That is true for each and every HOA. For BLMH see the chart for the most recent 18 years of fees.
5. Each HOA is unique. Newly built may experience a grace period but that infrastructure has a finite life and begins wearing out on day one. Even newly built HOAs need to consider a reserve study and then begin accumulating funds for those long term capital maintenance expenditures. 
6. Failure to consider the reserve requirements will negatively impact future fees. It could lead to special assessments. 
7. Even with good planning special assessments may occur. For example, in a high-rise condominium there may be a boiler. These can cost millions to replace. The actual life may be difficult to determine or to plan for. So how should boards deal with this? Be aware that there are choices. Should a portion be saved each year anticipating a failure date 25 or more years in the future? If so, how much? 
8. Owners may be inclined to gamble. After all, as a homeowner one might say "I'll paint the pig and flip my uit before the roof needs replacing or the refrigerator or hot water heater fails" and so on. HOA boards are comprised of owners. HOAs have boards which are required to maintain the common elements. That is in all owner's best interests and is required by statute in Illinois. However, boards are comprised of owners and they may have difficulty operating as a fiduciary. Some may operate from a personal agenda. Furthermore owners may manipulate boards because boards are elected from the ranks of owners. A board member once put it this way "But, these are my friends." 
9. The situation at each and every HOA is a combination of past events, the current situation, owner desires and board decisions. The current situation will determine your fees in the future as will any unforeseen events. We can't deal with the unknowable, but we should educate ourselves, plan and prepare. 
10. In some HOAs the preceding is far more the responsibility of owners than they are willing to admit. 
11. In some HOAs some of the owners are very irresponsible about financial matters. 

Note: In Illinois, the statute for HOAs is the Illinois Condominium Act. This is revised from time to time by the legislature. Check your state's statutes. 

Click to go to: http://www.ilga.gov/legislation/ilcs/ilcs3.asp

Not responsible for any errors or omissions. (c) N. Retzke 2018 All Rights Reserved.

10 years later - It is all merely a coincidence

Spent a good part of 4 days working on condo stuff. Time to reflect. The above chart is our annual fees. The actual are the blue, the projected is the red. As you can see, the blue departs from the red in 2009-2010. 2008 was the year of the revolution. 2010 is the year I joined the board.

I'm the pres and the architecture/project director and I also assist the treasurer and the maintenance director. In fact, we are actually two boards. One half does little to nothing. About half of the board is aligned and the other half is not. Why did I get involved? One picture is worth a thousand words.  Look above. The red line indicates the trajectory for our fees. The blue line indicates the actual fees. With my involvement after 2008 the fees stabilized and the actual (blue line) departed from the punitive red line trajectory imposed by previous boards. 2009-2010 is the date the actual blue fees departed from the red projections. Not an accident. This coincided with the wholesale firing of a terrible board. "Terrible" as in not capable of effective communications with the owners. "Terrible" as in not able to make good, long term financial decisions. "Terrible" as in not being honest, truthful and forthright with owners and "terrible" as in unwilling to take full responsibility for their actions and finally, "terrible" because of the undermining efforts of some of the board members.

In 2008 a "Change" board took over and attempted to run the HOA like a social club. I'd had enough. That's how I became a board member and one would think things were resolved, but they weren't. Boards are comprised of human beings and we all bring our preconceived notions, inabilities, laziness and whatever with us. One old timer lingers even today for God knows what purpose. Perhaps it is simply spite or to protect a legacy. What a waste!

Some of this continues to this very day, which is why getting some board members to write a newsletter article is like pulling teeth. In fact, when the board developed the 2015 budget I had to stare down the former president who continued to push for even larger fee increases. At that meeting I stated that 1) There was no evidence that such fees increases were necessary, 2) It is inappropriate for boards to operate from a fear of "not having enough" and financially punishing owners as a consequence, and 3) If that is the way the HOA is going to operate I will immediately sell my unit and move on. I have absolutely no desire to live in such a community.

As a consequence the person on the board who has caused so much financial pain for owners took the position that "The budget meeting should not be an open meeting." In other words, it was intended to make these decisions behind closed doors so owners would be unaware of what was transpiring.

I was elected in 2010 only because our previous treasurer resigned immediately upon being elected; I was next in line. Yes, it was a desperate ploy. Yes, there was a group of owners committed to preventing my achieving a place on the board. Some in the HOA were passing around the slander that "Norm is dangerous" and "If you elect Norm your fees will increase." Somebody actually drove nails into the sidewalls of my tires.

At the time our major street was failing less than 7 years after replacement, the board had begun a $1.6 million roofing project with insufficient funds, other capital expenditures were on hold, fees were on a trajectory since 2001 to reach more than $450 a month by 2018. The blue line in the chart is reality and you may notice a dramatic change in 2010 when I achieved a board position. In 2008 we were in the middle of the "financial panic" when the $8 trillion housing bubble popped and people were frightened.  Foreclosures were increasing and some owners were afraid they could no longer afford the fees. One little old lady offered to work on the property to reduce her fees.

The leader of the cabal that created this mess still believes she did a great job. I have asked "How much financial pain did the decisions made under your leadership cause for owners at BLMH?"  That has earned me the stare of death.

In my business I would tell people "We can do anything, all it takes is time and money" and I would add "The impossible takes a little longer". In my case at this HOA it has taken thousands of MY man hours to do this. That is a part of the problem in HOAs. Boards don't prioritize, some board members expand the task to fill all available time, some don't have reliable email much less have a PC or can make a spreadsheet, and some aren't willing to put in the necessary hours or acquire the necessary skills. Owners are oblivious or lazy. Just like voters. In fact, in 2017 we couldn't even achieve a quorum at the annual HOA election. Some HOAs are entitlement programs.  It's a mutually destructive situation in which both boards and owners expect someone else to get the job done.

Why a Long Term Perspective is Essential

It is about financial security.

I've been an owner in a HOA for more than 15 years and on a board for more than half of that. One thing I've learned is that boards worry more about the next week than they do the next 10 years. That failure of long term planning has serious repercussions.

It is important to realize that board members are drawn from the ranks of owners. In this "just do it" and "short term planning" society it is to be expected that some board members have difficulty planning for the year's bills, much less paying them.

Nevertheless long term planning is essential in a HOA as well as in one's personal life.

Here's a graph which depicts the consequences of a willingness to plan for at least 10 years. This is a chart of a possible retirement financial plan. The chart indicates the consequences of hard work and planning from the "Panic" of 2008 to the present.

At present the stock market is undergoing one of a normal sequence of "corrections." These happen periodically and can be exacerbated when the lemmings flee for the exits.

The chart shows the consequences of planning, saving, and developing a balanced portfolio comprised of bonds, cash and stocks. Of course, one can't invest unless one saves. That requires one to earn sufficient money to pay today's mandatory bills, control discretionary spending and save the rest. There really aren't that many differences between one's personal financial approach and a HOAs financial approach. So the graph presupposes that 1) One is living within their means, 2) Saving the difference, 3) Prudently investing what is saved in a retirement account.

This is precisely what HOAs require of board members: save, invest and plan for a distant future.  One would be surprised if boards are simply about getting votes and meeting today's bills. But that is so, so inadequate. It is also a very real approach in some HOAs  Which is why financial plans so often fail. "Short term planning = Long term failures". The chart indicates that there are other possibilities, even in one's personal life. But to do so will require education, planning, preparation and sacrifice. Not necessarily what boards are capable of.

In a HOA this is a direct consequence of the owners, who demand short term results, want their fees low, and have no problem passing the buck and the bills to future owners. It has happened here.

Nevertheless, this is what having a long term plan can provide to one's retirement planning:

Owners may not agree, and may vote for the politicians and the promises. After 15 years at BLMH I can state that approach doesn't turn out well. It took substantial intervention to overcome this approach.

The Value of Stocks, Bonds and Cash in Retirement Accounts

One picture says it all. A good blend of stocks, bonds and cash in a retirement portfolio allows for portfolio growth and also provides smoothing. In other words, the impact of volatility of assets can be reduced.

This is important as was demonstrated this week by the 4.6% tumble in the Dow Industrial Average.

Here's a chart of a portfolio of about 60% stocks and 40% bonds and cash. The cash portion is larger than the bond portion. The performance is over a 12 month period through February 6, and it compares the total return of the portfolio (thick line) including dividends to an index (thin line). In the chart the index is a "diversified broad market index that targets 97% market capitalization coverage of the investable universe".

The important thing is the way the total return mimics the index return. However, you will notice than when things got interesting in December to February, the large spike in the index and subsequent decrease was muted in the total return of the portfolio.  In other words, the portfolio did share in the gains and losses, but to a much lesser degree. Nevertheless, the portfolio in the graph has achieved a very nice 11.69% return over the previous 12 months.  Keep in mind that overcoming the effects of inflation while maintaining safety are the most important long term goals, IMHO.

This is not a recommendation but it is an observation.

What if we were fully invested in bonds? Here's a chart over the same period comparing the portfolio to a US bond index. The thin line is the performance of the bond index while the thick line is the performance of the portfolio. The bonds returned 1.46% over the previous 12 months:

The third chart is a potential "retirement ready" portfolio chart. This portfolio is comprised of 13 holdings currently 45% cash and bonds with 2.35% stocks, 1.5% commodities and the remainder in stock based mutual funds. This portfolio returned 4.06% over the previous 12 months: