What really disturbed me was every board member voted for an unnecessary fee increase

I did send a long letter via certified mail to each board member and also to management.

The first paragraph of the letter is as follows:

"I suggest the board reconsider its decision to propose a fee increase. In this letter I explain why I am making this request. The numbers indicate a fee increase is unnecessary. Boards are duty bound as fiduciaries. I include reserves and recent reserve contributions, the 2018 budget which is projected to generate a substantial surplus, and a review of the purported 2019 $22,415 O&M increase which is overstated because it includes reserve item(s). Combined these indicate that this board is far too eager to raise fees. "

What prompted me to write the letter? The unanimous vote of the board for the increase. I suspect they each voted for personal reasons. Basically that is an "I can afford this increase" vote.

The problem is simple. As fiduciaries boards are not supposed to operate from their personal agenda. But some do. This board has apparently decided that the numbers and the responsibilities of fiduciaries really doesn't matter or apply to them. That's sad, but for the newest board members, I can understand how it is easier to follow the leader instead of running the numbers. That's what the lemmings do. Each board member is supposed to be a leader in their own right and vote independently. That did not happen.

Here are a few excerpts from my letter. If you were to read my letter and the accompanying spreadsheet it is obvious I spent more time on this budget than our so called "board of fiduciaries."  But then I also think the vote was based upon the personal agenda of each board member. Literally "I can afford this, so it is okay" and for the elites "That's all that matters."

I wrote to the board: "The facts indicate that a fee increase is unnecessary, and the proposed increase [1.88%] is actually approximately 1.66%. ($1,352,277 x 1.0165994 = $1,374, 724). As president I always crunched the numbers on my PC during the budget meetings and came prepared with written comments to the proposed, which were distributed to the board. These and other efforts supported creating the budgets which created surpluses."

I pointed out that "The president serves as spokesperson for the board of directors in most matters relating to general association business. As an officer of the association, the president has an affirmative duty to carry out the responsibilities of the office in the best interests of the association and as a fiduciary for the owners. As such, the president has special responsibilities to keep the entire board informed and to acknowledge conflicts of interest during the formulation of budgets, rules and so on. A failure to do so is a failure in the duties of president, which is even more significant than the duties of the remainder of the board."

"The board ignored the fact that the reserves requirements are being met.

The board ignored the fact that additional $hundereds of thousands of dollars have been contributed to reserves since 2012 [over and above the budgeted amounts]. This transfer was optional; boards in the past have transferred all budget surpluses to reserves. Under the circumstances a board comprised of fiduciaries should also discuss the possibility that any reserve funds exceeding “reasonable reserve requirements” be returned to owners. If this is not discussed that too is a breach of duty. Apparently the board failed to vote independently upon the merits of the proposed budget. Why was that? Did it play “follow the leader”? Did board members vote to support a buddy on the board? Or did they simply take the easy path, rather than do their duty? Each board member represents the owners only. Voting to support the agenda of a “friend” on the board is a breach of one’s fiduciary duties."

"The board failed to take into account the current situation for all owners in the Association. For example, did the board review and discuss the any recent evictions, foreclosures and seriously delinquent owners when making this decision? “ All budgets ....shall provide for reasonable reserves for capital expenditures and deferred maintenance for repair or replacement of the common elements. To determine the amount of reserves appropriate for an association, the board of managers shall take into consideration ......the financial impact on unit owners, and the market value of the condominium units, of any assessment increase needed to fund reserves…” - Illinois Condominium Act (complete text of this section of the Act is contained later in this letter.) "

"I can state that I, as president, introduced this as a discussion topic during a recent budget meeting. One board member who insists upon annual fee increases attempted to shut down this conversation by stating that “We are not supposed to cater to the lowest common denominator.” [Three of the current board] were present. Boards are supposed to represent all owners!"

 "The board is not mandated to make reserves “as high as possible”. Per the Illinois Condominium Act, the board must provide for “reasonable” reserves."

And so on.

I will post the entire letter here in the coming days.

Our owners do deserve better than this board seems capable of providing to them.

Facebook Group for Briarcliffe Owners

I've opened a new Facebook group for BLMH owners.  This will be an informative and "No Hold Barred" Group about the Association and the activities of the board.

It should be fun.  I'll be bringing my effective experience on the board to my unique and informative insights after 15 years of experience in this HOA. From time to time I'll have some "insider" board member comments to post.

Remember the days when the current president was denigrating the ROCs with remarks like "Communication is not their Forte".  Well,  now the shoe is on the other foot. so we didn't get a newsletter. Not a surprise.  The board members who pushed for a frequent newsletter and wrote 90% of the articles have departed from the board.

I even "ghost wrote" newsletter articles for other board members, simply to inform owners.

Here's some background information of the terrible mess created by earlier board. Now, the "president" is back and the push is on to raise fees. LOL. Yep, we are talking about a one trick pony "Raise the Fees", LOL. With half of our owners new since 2009, they are unaware of who led the charge that created the following:

Over a period of 11 years, from 1998 to 2009 the boards under current leadership ramped up fees at an average annual rate of 6.85%. Owner fees nearly doubled over that period, reaching about $295 per month in 2009.

By by the fall of 2008 the angry owners had enough. The president and most of that board was replaced. Yes, that is our new president.

• In 1998 I understand the reserves totaled $86,321.
• By October 2008, with Lakecliffe Drive failing, the board had allocated only $90,208 to Paving and that included all streets and 84 driveways.  
• The roofing project began in 2005 at 1775-1777 Gloucester, the address of the president at the time. (Yes, the same one)! That roof had previously been re-shingled in 2001, according to a 2006 letter my management. That was the only roof completed prior to 2009. 
• By 2009 the reserve allocation for roofs was lacking about $1,241,000, which is the reason the board prior to 2009 stated during board meetings that it would replace roofs “at the last possible moment” and maybe one or two per year. There was no formal pronouncement, but I concluded this was because of funding issues. 
• There was no money allocated in the budget for water main failures, yet they had occurred frequently commencing 2001 or so. 
• There was a large and growing backlog of other projects, as the board attempted to accumulate sufficient funds for the roofing project. Yet, no formal information to owners.
• There had never been an independently conducted outside reserve study for the association.

facebook Briarcliffe Lakes Manor Homes

Proposal by the board for a fee increase in view of a $128,012 budget surplus

I got my proposed HOA budget for 2019. The new board can't even do the arithmetic. Here's a small portion of my comments to this so called "Board of Fiduciaries".

I have reviewed the “2019 Proposed Budget”. There are serious issues. I want to be clear about one thing. The board is solely responsible for the budget. Management provides bookkeeping service and guidance, but the decision is the boards.  The facts indicate that a fee increase is unnecessary, and the proposed increase is not 1.88% per the documents, it is actually 1.66%.

There are certain principles in these matters that guide boards:

1. Treat all owners equally and fairly. Treat them as the shareholders they are. Board members are representatives of the owners. Board members are not “higher” in stature than are the owners. They are not the exclusive member of a club of elites.
2. Boards must operate as fiduciaries. Fiduciaries represent the owners and are held to a much higher standard than other owners or management. “In the performance of their duties, the officers and members of the board, whether appointed by the developer or elected by the unit owners, shall exercise the care required of a fiduciary of the unit owners.” - Illinois Condominium Act
3. Avoid running one’s personal agenda when on the board.  To do so is a breach of fiduciary duties.
4. Board members are required to use business common sense.
5. Board members are required to operate with full awareness of the facts and merits which guide their decisions.
6. Board members must vote independently using only the facts and the guiding principles listed here. This is not about politics. Politicians are not required to be fiduciaries.  Board member are so required.
7. When using the guidance of experts, including the association’s management company, the board members must remember that these experts are not fiduciaries. They will not be held accountable as such. They provide professional guidance, but are also hired contractors. Contractors operate at the whim, beck and call of the board and can be replaced. And our management does know that. In fact, attempts have been made by boards at BLMH to replace “non-compliant” managers. For any board member to threaten a manager for failing to “go along” with the agenda of that board member is a breach of fiduciary duties.  Fiduciaries must do independent, confirming research in the fulfillment of their duties.
8. The president serves as spokesperson for the board of directors in most matters relating to general association business. As an officer of the association, the president has an affirmative duty to carry out the responsibilities of the office in the best interests of the association and as a fiduciary for the owners. As such, the president has special responsibilities to keep the entire board informed and to acknowledge conflicts of interest during the formulation of budgets, rules and so on. A failure to do so is a failure in the duties of president, which is even more significant than the duties of the remainder of the board.

The numbers indicate this board voted for an unnecessary fee increase. Each and every board member has failed in their duty to the owners of this association. Because I understand this was a “unanimous” vote the entire board has acted irresponsibly. Here is how:

1. A failure to make a decision entirely using only the facts. Those facts include an extraordinarily large projected surplus with no indication in the proposed budget that anything else will occur in 2019.
2. The board ignored all of the recent surpluses. The facts indicate that budget surplus occurred each and every year from 2012 to the present. Did the president inform the board of this? Why not? Board members promoting fee increases are duty bound to inform all other members of the board of such things during financial discussions about setting the budget.
3. The board ignored the fact that the reserves requirements are being met.
4. The board ignored the fact that additional $hundereds of thousands of dollars have been contributed to reserves since 2012. This is optional; boards in the past have transferred all budget surpluses to reserves using this means. Under the circumstances a board comprised of fiduciaries should also discuss the possibility that any reserve funds exceeding “reasonable reserve requirements” be returned to owners. If this is not discussed that too is a breach of duty. Apparently the board failed to vote independently upon the merits of the proposed budget. Why was that? Did it play “follow the leader”? Did board members vote to support a buddy on the board? Or did they simply take the easy path, rather than do their duty? Each board member represents the owners only. Voting to support the agenda of a “friend” or bully on the board is a breach of one’s fiduciary duties.
5. The board failed to take into account the current situation for all owners in the Association. For example, did the board review and discuss the any recent evictions, foreclosures and seriously delinquent owners when making this decision? “ All budgets ....shall provide for reasonable reserves for capital expenditures and deferred maintenance for repair or replacement of the common elements. To determine the amount of reserves appropriate for an association, the board of managers shall take into consideration ......the financial impact on unit owners, and the market value of the condominium units, of any assessment increase needed to fund reserves…” - Illinois Condominium Act (complete text of this section of the Act is contained later in this letter.)  I can state the when I, as president,  introduced this as a discussion topic during a recent budget meeting that one board member who insists upon annual fee increases attempted to shut down this conversation by stating that “We are not supposed to cater to the lowest common denominator.”  Bailey, Scudder and Seery were present for that pronouncement.   Boards are supposed to represent all owners!
6. The board is not mandated to make reserves “as high as possible”. Per the Illinois Condominium Act, the board must provide for “reasonable” reserves.
7. The board failed to take into account the willingness of the City of Wheaton to assume responsibility for the Associations Water Mains. That willingness represents $millions in savings for owners; more money than the recent roofing project, which took more than $million in owner fees. Why was this  ignored? Because one board member says “It will never happen?”  Really? Neither the board or management can predict the outcome of this future event. But boards can destroy it by failing to do everything in its power to make it a reality. Such a failure under those circumstances would be sabotage of the owners.  The board is obligated as fiduciaries to do everything in its power to make this transfer occur.  What has it done to move this forward? My guess: “Nothing”. Yet, the board apparently prefers to pretend to ignore this significant financial event when constructing a budget. That’s disgusting, particularly for the sole purpose of orchestrating a fee increase.
8. The board is not to base fees upon their personal financial ability, or inability to meet the fees required to live in our association.  Nor is it to raise fees because of the financial ability or willingness of friends or neighbors in the association, because they “can afford it”. Your “friends” and “neighbors” have no fiduciary responsibilities. Only the board does.
9. Board members are to vote independently. Following the lead of anyone on the board is a failure of fiduciary duties.  It is lazy and irresponsible to vote a certain way on a board comprised of fiduciaries because someone told a board member to do so. For example, board member question: “Is this fee increase necessary?” Response of the president: Absolutely necessary.” The board member who asked the question thereupon voted for a fee increase.
10. To use one’s position on the board to promote one’s agenda, and in this case, to promote an unnecessary fee increase for no other reason than because “I can do so because I am a board member” is callous and self-serving. At its worst, it is malicious.
11. Voting for an unnecessary fee increase simply because “it is a small one” or because of a belief that “We always must have a fee increase” is a failure of duty. There is no legal or financial reason for an annual fee increase. Fees are to be based upon the numbers and the facts available. This is another manifestation of a personal agenda on the board.  Personal beliefs and agendas are not facts.

It is likely that boards since 2012 have directed an additional $440,000 into reserves than was required by the budgets. All of it came from budget surpluses. Apparently the board wants more.
One definition of “Greed” is a fear of not having enough. Apparently this board is being greedy. 

Some owners have asked me why I chose not to run once again for the board of this HOA.

1. I decided to create an opening for others to step up to the plate. “Nature abhors a vacuum.”
2. I decided to see if my eight years of guidance, mentoring and positive results had made any difference with the entrenched on the board.
3. I wanted to observe how a board with three members (now four) with 50+ years of "experience" would operate, after I departed. LOL. They all reverted to being "the lowest common denominator" which is the term one board member used to rebut the discussion I initiated about the financial impact on our owners when the board constructs the budget. I was quoting the following at the time: " All budgets ....shall provide for reasonable reserves for capital expenditures and deferred maintenance for repair or replacement of the common elements. To determine the amount of reserves appropriate for an association, the board of managers shall take into consideration ......the financial impact on unit owners, and the market value of the condominium units, of any assessment increase needed to fund reserves…” - Illinois Condominium Act. 

Yes, we have had board members who hold owners in complete disdain and disregard. All owners that is, who aren't personal friends.

I had concluded after eight years on the board that we had board members who were grossly incompetent or unsuited to be fiduciaries with such responsibilities.  They were not operating for the benefit of the owners, but for personal agendas, and the agendas of their leader on the board, or friends. However, the only way to dislodge them and prove my case would be to leave the board.  They would soon show their hand. Owners could then choose.

The answer to question #2 is obvious: Nope, none at all.

That’s not good for the owners of this association.  I guess the primary duty of owners is to pay the bills for the decisions of the board.  We have had some really incompetent boards. Will 2019 be better than this? Or just another bad board?   

In my letter to the board I said "I look forward to a candid response from the board. Not from management. These decisions are being made by board members and they need to stand on their own two legs, rather than hiding behind management and lawyers. “The incompetent gleefully spend the money of others to defend their poor decisions. “ – Norman Retzke""

I suggested to the board that they take a stroll down memory lane:

Over a period of 11 years, from 1998 to 2009 the boards ramped up fees at an average annual rate of 6.85%. Owner fees nearly doubled over that period, reaching about $295 per month in 2009. But by the fall of 2008 the angry owners had enough. The president and most of that board was replaced.

In 1998 I understand the reserves totaled $86,321.  By October 2008, with Lakecliffe Drive failing, the board had allocated only $90,208 to Paving and that included all streets and 84 driveways.  The roofing project began in 2005 at 1775-1777 Gloucester, the address of the president at the time. That roof had previously been re-shingled in 2001, according to a 2006 letter my management. That was the only roof  completed prior to 2009.  By 2009 the reserve allocation for roofs was lacking about $1,241,000, which is the reason the board prior to 2009 stated during board meetings that it would replace roofs “at the last possible moment” and maybe one or two per year. There was no formal pronouncement, but I concluded this was because of funding issues.   There was no money allocated in the budget for water main failures, yet they had occurred frequently commencing 2001 or so.  There was a large and growing backlog of other projects, as the board attempted to accumulate sufficient funds for the roofing project. Yet, no formal information to owners. There had never been an independently conducted outside reserve study for the association. 

Yes, there were real money issues and a lot of angry owners.  Some people prefer to operate out of the past, because it is easier the living in the present.

But that was then and this is now. This association is very, very different today than it was in 2008.  Board members should operate in the present.

 It is my understanding that other Associations now visit ours to see what a really well run and maintained association looks like. Yes it is very different today. It really is time to live in the present, not in the past.

According to the Illinois Condominium Act:

(765 ILCS 605/9) (from Ch. 30, par. 309) 
    Sec. 9.

(2) All budgets adopted by a board of managers on or

after July 1, 1990 shall provide for reasonable reserves for capital expenditures and deferred maintenance for repair or replacement of the common elements. To determine the amount of reserves appropriate for an association, the board of managers shall take into consideration the following: (i) the repair and replacement cost, and the estimated useful life, of the property which the association is obligated to maintain, including but not limited to structural and mechanical components, surfaces of the buildings and common elements, and energy systems and equipment; (ii) the current and anticipated return on investment of association funds; (iii) any independent professional reserve study which the association may obtain; (iv) the financial impact on unit owners, and the market value of the condominium units, of any assessment increase needed to fund reserves; and (v) the ability of the association to obtain financing or refinancing.

The above emphasis is mine. Here is the most  recent reserve projections for this association. This was presented to every owner and board member who attended the September 2018 annual meeting. It has also been presented to boards earlier, as part of normal board business discussions.

Present for this were current board members Bailey, Calvo, Scudder and Seery.  The data indicates reasonable reserve requirements have been met. I'll be posting more on this.

Projected Reserve Balances

It has come to my attention that one owners is now stumping for the board and promoting a fee increase. Based primarily upon that individual's ability to pay it, and the fact it is a "small" increase.

Merely an opinionated owners who wants to support her friend on the board. These opinions are bullshit.   Boards are fiduciaries and they operator for all owners, not simply for those who can afford small fee increases. Here's what one of the friends of the current president says about this. I need to point out that this fee increase is unnecessary and that this individual is "tony" and can afford the small increase:

"I believe modest increases (maybe not every year) are important to avoid getting into a similar deficit situation as we were years ago. If Briarcliffe Lakes was in great shape and there was no possibility of costly surprises in coming years, I would support your endeavor.  However for me, that rational is unrealistic. Being prepared and gently padding the reserves, regardless if budgets/projections warrant it or not, in my opinion are the right path to take.  "

A few years ago this same owner was also promoting a multi-million dollar mortgage for this association. Why? Probably because she could afford the payments. But not everyone can. My point is, owners act on their own behalf; they are not fiduciaries. Boards who pick and choose the comments of owners as a justification for their actions are irresponsible. They are not operating as fiduciaries.

Bad business decisions are bad decisions, and the association is to be operated like a business. Board members are not a group of elites in a private club.

The question owners should ask in these situations is this: "If the board is not operating on my behalf, then on whose behalf are they operating?"  If owners don't like the answer, then they should do something about it. 

LOL

Roofs - Significant Reserve Expenditure Program 2005-2016 Part II

This is Part Two of a two-part post.

The Roofing Project - A slow death for the Association?
This post includes several charts I prepared for the board and for owners about nine years ago. I prepared these to calm owners. It was one of my first communication steps to inform owners of the plan and the situation.

After ten years of large fee increases and readily apparent infrastructure problems the owners were desperate and frustrated.

Even with a new board in place, two years later the situation at the Association had worsened and by 2010 the full implication of the "Great Recession" in the U.S. was impacting the owners. Bankruptcies and delinquency were a serious problem and becoming difficult for the board to shield owners from. In fact, by December 2011 the delinquencies were more than 6.5% of the annual budget. But that's for another post.

Despite some board assurances, the owners knew the Association was in serious trouble. All one had to do was drive through the potholes on our major thoroughfare, Lakecliffe Drive which sat waiting for someone, anyone, to deal with and correct. And that was the highly visible tip of the iceberg. There had been a steady stream of owner complaints about the condition of the common elements and infrastructure for several years.

In 2007 to 2011, as things spiraled downwards the roofing project slowly moved slowly forward. There was no publicized completion date and no one had any idea of where fees would top out, or when. There was no overall Association plan. It was chaos, as board members looked for scapegoats, including management.  While board members walked, or were fired,  the owners were trapped by the economy and in their units.

It is a fact that if an Association ever falls behind with finances, savings and infrastructure it is nearly impossible to catch up.  Board failures prior to 2008, and the failure of the new board to act decisively until 2010 aggravated the situation. The "decisive action" was sporadic and inconsistent. That was the mess I took upon myself in September 2010 and I knew it would take at least five years to dig out of the hole (pun intended) which previous boards had created.  I openly spoke of this as a "demonstration" of what was possible. I had no illusion about the magnitude of difficulty. In fact, because of a variety of board issues including underminers, the task was made even more difficult.

The following charts provide some background and my intentions for this roofing project. These were produced for board education and owner consumption. What you, the reader, can't be aware of is all of the financial planning and evaluation it took to produce these charts, which were a consequence of my thorough analysis of this entire association. In 2010 I began with the finances, and then plugged in all of the projects. That required numerous physical surveys and condition reports. I had the balance sheets from previous years; these are sent to all owners, and I had been an owner since 2002. But I lacked certain details. My groundwork for this and all other projects began in earnest in 2010, but it took me almost five years to really get a handle on all of this.   All the while I pushed forward with the Roofing Project, and addressed many other infrastructure issues which combined exceeded the cost of the roofs:

My proposed roofing schedule, prepared in fall of 2010 and after completing my "first pass" thorough review of the finances of this association, with about 80 hours spent on reserves and reserve planning.

My Proposed Roofing Cash-Flow, presented as part of a visual presentation to Owners after a HOA Meeting. This was one of a series of charts covering all aspects of the property

The stuff I'm rediscovering as I do the purge includes a copy of a letter. While purging files I came across a copy of a 2006 letter provided by management to an earlier board; it provides some insight.

When I took up the reigns of Architecture, Projects and Maintenance Director in 2011 I made a request of management for historical information about our roofs. I knew the cost per roof, and the number completed to date. What I didn't know was the age of the remaining roofs. These had a finite life expectancy and the clock was running. "To solve a problem it is necessary to identify the problem".  I had concerns about the remaining useful life of the roofs.

Management responded and provided me with a copy of a 2006 letter to the board. It was enlightening with insights into the age of the roofs, the schedule of the previous shingling project and the "new" roof scheduling history from 2006 to 2010.   I used this information to assess the urgency, and as an aid to develop an accelerated schedule for completing roofs from 2011 and thereafter. The management information confirmed my concerns about the age of the existing roofs. That 2006 schedule history including replacements 2006-2010 indicated the following:

1. The earlier reshinging project ran from 1991 to 2000.  That project put a layer of shingles atop an existing roof, creating two layers of shingles.  The information provided by management gave me the actual dates of the addresses shingled each year. 
2. The shingling project was followed by a project to completely re-roof. According to the documents that re-roofing project began in 2005,  with a single roof.  A total of 44 roofs would be completely stripped and replaced with high end, improved architectural shingles, extensive ice and water shield, new gutters, etc.  The replacement roof was designed for a life of 20-30 years, with kynar aluminum flashing, etc. The entire roofing protection system was replaced, including the faux furnace chimney. The specifications expanded the ice and water shielding. Roof peak vents were added for improved airflow, and attic insulation was installed. It was an expensive project. According to the specifications I was given and which were in use, everything was to be replaced except the owner's fireplace chimneys and flashing. The owner's fireplace chimneys were left "as is" including the flashing. This because these were not in the specifications and I was told were owner property. Replacing the fireplace chimney flashing would require dismantling and re-constructing the owner's fireplace chimney.  The A&M directors who preceded me had left these untouched and "as is" when they did seven roofs. Yet one of these former board members showed up at the September 2018 Association Meeting to ask me why I hadn't replaced the fireplace chimney flashings as part of the roofing project. Let's be real here. He oversaw the replacement of several roofs, but wanted to know why I had not changed the specifications he actually used. LOL!  
3. Over a period of six years, from 2005 to 2010 seven roofs had been done. It would be left to me to figure out how to do the remaining 37 and quickly.
4. Over the entire project three or four different roofers were the successful bidders. During the period I was on the board, September 2010 to the completion of the project, all bids were via sealed packages. Up to five qualified bidders were solicited by management and asked to compete each year. Specifications previously prepared were used. (I assumed a board position in September, 2010).  One year I stripped the bidders name from the bid comparison documents, for board discussion purposes. After all, each of the bidders had been selected according to a rigorous criteria. I wanted the discussion to be about the merits of the bids, not the NAME of the bidder. I had a concern that one or more former and current board members had an agenda and might influence the selection process. There was a clique of long term current and former board members. So the bidders were referred to as "A", "B", "C", etc. in my spreadsheets. A former board member objected to this approach. 
5. According to the history documents the first roof selected for replacement had been reshingled in 2000, yet it was replaced in 2005. That was at 1775-1777 Gloucester, which was the address of the president of the Association.
6. Four years later, in 2009  two roofs were replaced. These were 1605-1607 Thames and 1730-1732 Harrow.  The board had been discussing replacing one roof. But in June I took a photo of a failing roof at 1730-1732 and sent it to management and the board. (I was a mere owner with no formal duties or board responsibilities).   I expressed my concern about the condition of that roof with the board. The A&M director agreed and the board decided to replace that roof, thereby increasing the scope for 2009 to two roofs. I also expressed concerns about the pace of the project which could result in roofs with shingles 25-30 years of age (I was guessing, based upon the limited information available to me as a "mere" owner). If that were to happen it would be a problem, with leaks, etc. The board publicly stated that they would deal with this by repairing roofs if necessary, rather than replace. Of course, winter repairs are not easy to accomplish and roof leaks can inconvenience residents and create expensive interior repairs.   I gave the opinion that repair of any roof soon to be replaced is a waste of fees (paid by owners).  
7. In 2010 a new board and a new A&M director decided to do four roofs. These were 1739-1741 Harrow Ct., 1700-1702 Lakecliffe Dr., 1758-1760 Plymouth Ct. and 1780-1782 Gloucester Ct.
8. In 2011 I took over the project with the departure of that A&M director. Seven out of 44 roofs, or about 15% had been completed. 85% of the roofs remained, some 20 years old and beyond end of expected lifespan. That was a serious problem because we had 13 at the end of useful life. We had many more aging roofs.  I reviewed the specifications and made some minor adjustments. For example, roof vents were added for all interior bathroom fans. I was aware that one roofer had voluntarily done this earlier, of his own accord, even though not in the specifications. The fans were currently venting into the attic space; not a good procedure as it pumped a lot of moisture into the attic cavity. 

June 2009 Failing roof 1730-1732 Harrow. My photo was sent to management and the board, who were completely unaware of this problem because it could not be observed from street level.  There are supposed to be two layers of shingles on this roof. I only see one.  Had the previous roofer cheated the association? With no project management, this is what we got!

Buried Dormer Window - A real problem for leaks in through the windows

Ice Dams and Icicles

Icicles, and some snow removed manually

In 2011 when I assumed my duties there were 37 roofs waiting to be done. The history documents indicated these had been been shingled with a second layer in 1991 to 2000.  At a rate of four per year, the roofing project would be completed ten (10) years later, in 2021. This posed several issues for me, and a serious problem for the Association:

1. If the project were completed at the current pace and allowed to stretch out until 2021, some roofs could be 30 years of age, while others might be 21 years of age.  My financial planning indicated that with the current fees it was possible to complete all by 2016 or 2017 while other capital project issues including Lakecliffe were also addressed. The age of the remaining, existing roofs in 2016 would be between 21 and 25 years. 
2. The predicted lifespan of the existing roofs was 18 to 20 years. It would be a stretch to delay completion until 2016. It would also be a financial stretch to complete by 2016!  This I would consider to be an example of being caught between the proverbial "rock and a hard place." 
3. While it would be preferred to replace the oldest roofs first, we also had to keep an eye on the current condition of all of the roofs. 
4. How to select the roofs each year? I discussed the issues with the board. I wasn't willing to wait until leaks appeared. I walked the property and made visual inspections of each of the roofs every year. Also after any severe weather. I visually inspected fronts and rears using a telephoto lens or binoculars. I directed management and our maintenance contractor to advise the board of any and all leak issues. I asked that these be logged with work orders; all work orders go to the board each month and creating them would provide an improved history of issues. I tracked these problems from 2011 to 2016 and reported frequently to the board. 
5. With the above information the replacement would be based primarily on condition.
6. How to avoid expensive failure of those old roofs? How to avoid wasting association money on temporary repairs of old roofs? We were racing the clock. 
7. How to do this project fairly with no bias?  One thing I did was to put the roof at the address of my unit to the end of the list. Probably a new approach at BLMH, where owners were trained by boards to come to meeting and press for improvements and got them. "The squeaky wheel gets the grease" is the way it was done. 
8. How to get it done with the reserves on hand and with the current fees?  Earlier boards had crippled the Association via inadequate reserves and a very large maintenance (capital improvement) backlog.  Over a period of 11 years, from 1998 to 2009 the boards ramped up fees at an average annual rate of 6.85%. Owner fees nearly doubled over that period, reaching about $295 per month in 2009.  Simultaneously, the boards prior to 2009 had stopped a lot of other capital work on the property, in an attempt to accumulate the necessary funds. They were certainly aware of the financial issues, ergo the slow pace of the roofing project and those relentless fee increases. 
9. Over the next 9 years, 2010 to 2018, the fee increases stabilized, totalling 14%, an average of 1.56% per year. The eight years I was on the board the average fee increases were 1.75% each year (Oct. 2011 to Oct. 2018).    See the Notes at the end of this post and the link at the end of this post for the BLMH.org website data.
10. How to do it based upon "cash flow" which in this case is the amount of reserves in 2011, the other items in the maintenance capital project backlog, and the amount of cash contributed to reserves each year from 2010 and beyond?
11. How to do it given the logistical issues. What are the practical limits to the number of roofs each year?  How to coordinate with other projects, including the annual painting/exterior repair cycle, the street projects, driveway replacements, stream repairs, garage repairs, water mains and so on. A lot, and I do mean a lot of coordination was required.  While I was doing this, some on the board coasted, preferring to attend meetings and vote to complete roofs.  
12. How to simultaneously address other problems such as the failing streets?  These had been replaced in 2002-2003 but by 2007 Lakecliffe Blvd, our major thoroughfare, was failing with annual repairs necessary.  Some irate owners called it a "Mine Field".  Of course, I pointed out that this was created by earlier boards, but that fell on deaf ears. Some owners were really nasty to me.

With the assumption of these duties, I formulated a realistic plan:

1. I tracked all association maintenance and infrastructure problems and rated them as to severity. This coupled with annual inspections would provide some guidance as to condition of the roofs and their decline year over year. 
2. Using the information, I created a more thorough, specific schedule. 
3. The schedule was updated annually as determined by current conditions. 
4. Roofs were prioritized based upon condition and problems experienced. 
5. The schedule was accelerated. Four roofs in a year, then six with a peak of eight completed in a single year.
6. We began doing interior roof inspections when an issue was reported to determine if there was any evidence of other leaks, etc. By 2014-2015 we had made interior inspections of all roofs.
7. The schedule was compared to the 2010, 2011 and 2015 reserve studies.
8. The allocation of reserve resources were targeted to the roofs and the streets, while prioritizing other projects.  Some board members argued each and every year for higher fees ("at least 3% per year"). However, the numbers simply didn't support their arguments. The ten- twenty- and 30-year plans indicated we were on track. 
9. In 2010 I published a plan to complete all of the roofs by 2016.  By 2016 some existing roofs could be 25 years of age. Those roofs were designed for 18 to 20 years. Which is precisely why so much observation and monitoring was necessary.  
10. I also told the board that in my opinion, any repairs to old roofs (shingles older than 20 years) was a waste of Association funds. Those roofs had reached or exceeded life expectancy and really should be replaced. Repairs would be a stop-gap, last resort approach.
11. To avoid problems winter snow was removed from some portions of roofs in an attempt to prevent ice dams from forming. For high areas a lift was rented so workers could get to those areas.  In practice owner fees were spent on additional roof maintenance attributable to the age of the roofs. This was one of a number of hidden costs because of the delays to the roofing project. 
12. All of these steps were generally successful, but by 2015 we were experiencing increasing problems with the old roofs. 
13. The roof on the building which houses my unit was re-shingled in 1993. It was replaced in the last year of the project, at the age of 24 years. We were cutting it very close!  I deliberately avoided doing that roof until the end and based upon condition. It was "fair" condition by 2015, but there were no leaks.  I wanted to avoid the purported favoritism that occurred in the Association from time to time, and I did. 
14. Dealing with the roofing project issues did increase my workload substantially. It took a lot of planning on my part to figure out a way to juggle all of these project problems and stabilize fees with the current finances.Which is one of the reasons my "volunteer" hours quickly ramped up to 1,100 per year.  I think some of the old board loved watching my struggle with the problems that they had created. Of course, owners were struggling with the nearly doubled fees. No one wants to really talk about the foreclosures and bankruptcies among owners.  
15. I pressed the board to pay for proper project management oversight to this expensive and critical projects. I pressed for fully qualified, known, licensed, bonded and insured professionals. I pressed for engineered drawings and specifications, prepared by professional engineering firms. Our professional management company is not our engineer, our accountant nor our project manager. Yet, previous boards and even some current, longtime board members pressed management to provide such services. One board member pushed to throw management "under the bus" clearly stating that she/he would see to it that they were fired if they didn't go along with the agenda. And owners wonder why Lakecliffe failed after five years? Duh!

Here's an image of the spreadsheet data I created in Spring of 2011, based up Work Order reports of roofs which experienced issues.  Each month I added the addresses from the current list of work orders so a decision could be made in the spring about which roofs to inspect further, and to replace in that specific year.  A variety of professionals made more detailed inspections, both inside and outside the roofs.

There were similar sheets created by me for five years. These sheets were intended to aid me in guiding the board to make the best possible decision. The colors are matched to a plan of the association, which shows the precise location of the buildings on the spreadsheet. That map was used to coordinate painters, driveway replacement and other contractors and to avoid logistical conflicts. Such conflicts may increase the costs to the association.

Spring 2011 Spreadsheet Summary of Work Orders pertaining to roof leaks

Location plan, color coordinated with the spreadsheet.

Another issue appeared as I was assuming the A&M duties. The first roof, the one replaced in 2005 at 1775-1777 Gloucester had gutters added along the sides of the building. This was in the specification used for all other roofs. However, that roof also had a special treatment to deal with the gutter discharge, which had been relocated from a point on the driveway to adjacent to the front entrance.

To deal with this, at 1775-1777 an underground storm drain line was added to carry the gutter discharge away from the building. Unfortunately, that was not done at any of the subsequent roofs. As a consequence, by the fall of 2011 we were getting complaints of ice at entries, and heaving walks. In fact, a brand new driveway heaved and lifted about 1 inch and that walk cracked because of freezing water running beneath it from a newly relocated gutter  (that was done prior to 2010 and my tenure, but I did observe the problem and I knew we had a major issue to deal with).

With 84 building entrances, any common problem due to construction approach, techniques used and decision quickly escalates to serious costs. By 2011 we had a backlog of 20 entrances to deal with. And more were being added to the list each year.  A variety of approaches were selected to deal with this. Of course, this was all a consequence of the roofing project, and the total cost of that project did increase. Some of this was handled as a maintenance issue, but a lot was dealt with via reserves, as it should be.

We did also experience "wing wall" foundation issues at several addresses. These too had to be addressed, as a column supporting the roof was resting on these foundation walls. Were these problems attributable to water deposited at entrances by relocated gutter downspouts?

By 2012 I had come up with a plan with maintenance of how to address the water at the entrances. We had a backlog of new roof related problems to deal with. It took until 2018 to catch up and address all of these issues. Sadly, the earlier boards had known about this problem but failed to address it and also failed to communicate it to the boards that followed. That's an example of what I call "undermining" of future boards. This could be accidental. Communications is not the best with some boards and board members. However, I do know that there was animosity for new boards after the "palace coup" of 2008.

Here is an example of the consequence of changes, oversight and communications or the lack thereof.  I only learned of this problem when the "A" unit at 1730 Harrow Ct. was flooded after a new gutter was installed.  It discharges at the corner of the building which was a low point. Water deposited by the gutter built a pool in the corner. The pooling water rose above the foundation line and seeped into that unit. There had never been a gutter or a discharge in that location.

Communications is important, but not all board members think so.  There are real consequences to poor communications, but I've been unable to convince everyone on our boards of that; c'est la vie.

Drainage required by new gutter and downspout installed in 2009 with a new roof at 1730H. Drainage added after the unit was flooded. Photo taken in 2011.

Drainage required by new gutter installed in 2009 at 1730H, added after the unit was flooded. Photo taken in 2011.

NOTES: 

1. The 2017 fee increase was 1.5%.  That year the Association had a budget surplus of $51,035 as of 12/31/2017. Is that significant? Had the fees been 4.08% lower we would have had a balanced budget. In other words, the fee increase of 2017 was unnecessary. That was my position when we were making that budget in October-November of 2016. As a "compromise" the board agreed upon a 1.5% increase. As of September, 2018 a budget surplus was projected for 12/31/2018; the actual surplus or deficit remains to be seen, and only after all 2018 bills are in. We had a 0% fee increase for 2018, and that board decision was accomplished because of the surplus of 2017.  It became impossible for the "We need higher fees" promoter on the board to win that argument in the fall of 2017 because of the budget surplus of the prior year. Better budgeting yields better results, and that means better decisions are possible.
2. I was involved on the board from September 24, 2010 through September 27, 2018. During my tenure average annual fee increases were 1.75%, and a substantial amount of planning was accomplished. That was a result of many board actions during that period. My peak 1,100 hours each year were spent well. More on this in a later post. 
3. The question owners don't ask, and even some board members don't ask, is this: "Where does the "budget surplus" money go?"  Board members really should know the answer, and I can guarantee that all don't know the answer to this question.   
4. I became aware of a clique of current and former board members, run by our Association's most senior board member. After numerous attempts to sabotage or undermine other board members I reluctantly concluded there were both current and former board members who should not be trusted.  Beware being "thrown under the bus".   
5. The following links to the "official" 2018 budget, which shows the 2017 budget, approved 2018 budget and the "projected" 2018 year end as of September 2018.  In 2018 the treasurer and I asked management to provide several budget updates during the year, as part of our drive for tighter and ultimately better and more accurate budgets. "Better" budgets I define as 1) more useful and 2) less likely to result in poor decisions:

Click for BLMH 2018 Approved Budget with 2017 figures

Reserves and Roofs - Financial situation 2008

This is the lead-in post to Part Two of a two-part post about the roofing project and the reserve situation in this association.  I include some photos of the street situation and also financial background information. These might be useful when considering the issues that were faced to deal with the infrastructure backlog and the roofing project.

The following provides a snapshot of actual association "reserves" per a management letter dated October 23, 2008. At the time I was just an owner. The reserves according to the letter totaled $978,944, allocated as follows:

• Paving (streets and 84-driveways) $90,208
• Lake Restoration $27,405
• Carpet $45,083
• Roof $562,833
• Concrete (curbs, basins, walks, 84-entries, streams, ponds, 42 4-car garages)  $171,920
• Masonry $43,732
• Contingency $37,763

The above might seem like sufficient reserves, but it wasn't. The board had been raising fees for nearly 10 years to get reserves from about $200,000 to that $978,000. Owners were demoralized and  by 2008 there were ugly confrontations during the association meetings.

The board couldn't or wouldn't explain their "plan".  We were told that the replacement of roofs would occur "at the last possible moment, to get as much life out of them as possible".  But how does one schedule roofers "at the last possible moment"?  One cannot replace roofs in the winter. What about the other failing infrastructure, the problems with streams, common decks, the failing Lakecliffe Drive, etc.?

I concluded that the boards up to September 2008 couldn't tell the owners what they were doing because they didn't have a plan, beyond balancing the Operations & Maintenance budget and raising fees to accumulate reserves.  The board was apparently convinced there were insufficient reserves, but that was never stated. The board allowed other infrastructure to decay and delayed capital work because the reserve funds were required for another purpose; that was readily apparent walking the association. The board delayed the roofing project too. All of this led me to wonder just how serious the financial problems really were. What was really going on? What was the real spending plan for the reserves? I'm sure I wasn't the only owner with these questions. At one Association meeting an owner shouted to the board "What do we get for our money?"

I understood the necessity to increase reserves. At the time I was considering a purchase my accountant and I agreed that reserves at BLMH were very inadequate (2001 Balance Sheet). Before making an offer to purchase I sent a letter to management and discussed the situation. The management advised me that the board was committed to getting the finances in shape. At the time I told my spouse that if we purchased we should expect large fee increases.  We decided we could afford this, but knew there would be problems for other owners; not everyone can handle 5-7% annual fee increases. In fact, I told G "You should expect fireworks in a few years" and I was absolutely correct. The fees climbed steadily and by 2007 the owners were upset.

With a new board in October 2008 which seemed to be woefully ill equipped to deal with the problems I decided to look into this further. Using the above reserve numbers and what little I knew about the condition of the association I made a spreadsheet on November 13, 2008 (as an owner). I wanted to determine projected reserves collections per year, reserve balances and capital expenditures from 2009 through 2014.  I did this to provide some insight into how the roofing project might be financially accomplished. I wanted to have a serious discussion with the new board. I projected a probable collection of $330,000 per year or a total   $1,650,000 contributed to reserves from 2009 to 2013. If such a collection occurred, then the following were possible amounts accrued to reserves from 2008 through 2013, before expenditures:

• Paving (streets and 84-driveways, see Note 4) $330,208
• Lake Restoration $102,405
• Carpet $70,083
• Roof $1,462,833
• Concrete $371,920
• Masonry $193,732
• Contingency $37,763

Rationale for the above; my first 5-year plan: 

1. The above could be distributed by the board as necessary; the board can choose where to spend reserve money, and when. A thorough survey of infrastructure condition was vitally important, and was lacking.  Such a review would allow the board to determine what the priorities were to be, based on condition of the infrastructure. Then the plan could be communicated to the owners. 
2. Where boards failed prior to 2009 was the long term planning; they seemed to be incapable of this. What was urgently needed was viable, reasonable and effective  5-year and 10-year plans. That really didn't occur until I achieved a board position and made such a plan in 2010-2011. I spent about 6 years refining it, with the help of the Finance Committee (our president/Architecture director, Treasurer and Maintenance Director of 2015).  However, I simultaneously pressed forward with infrastructure improvements. 
3. The plan above would increase the contribution to reserves in 2009 from $300,000 to $330,000. There would be a reserve contribution of $330,000 to reserves each year 2009 to 2013. This was my first 5-year plan. That amount would be stable for 5 years. It would require a $7.44 monthly fee increase for each owner (average fees) in 2009. No other fee increases might be necessary if the board also worked diligently on the Operations & Maintenance budget.
4. The above "plan" indicated sufficient fees to do the roofing project at the rate of 4 or more per year. If necessary a board could do roofs at a faster rate of 6 per year, thereby completing all roofs by 2017. That might be necessary and the actual pace would be determined by the condition of roofs. I estimated that by 2016 some existing roofs might be 25 years of age. These were designed for 18-20 years. Urgency was required. 
5. I included additional funds for paving to deal with Lakecliffe which was already showing signs of distress and to do driveways. In fact, the street condition was the primary reason for the $30,000 annual reserve increase. I had no idea of the true condition of the cul-de-sacs. With less traffic they seemed okay, but it would take further research including core samples to determine the actual construction. There was no opportunity or opening to discuss core samples with the current or previous boards. My warnings about the imminent failure of Lakeciffe had been ignored. More bad news was simply too much for earlier boards, or the board of 2008-2009 to handle.
6. I anticipated that as the roofing project progressed the reserve balance would gradually decrease. I also anticipated further expenditure as the failure of Lakecliffe Drive was addressed. I was unsure of the actual cost to replace/repair Lakecliffe. I projected a reserve balance as of 12/31/2013 to be $400,000 to $750,000 as determined by other capital work completed during that period.  That would be an adequate balance, and the balance would increase from 2014 and thereafter.
7. The above plan would spend as much as $2,250,000 on infrastructure by 2014. 
8. The reserve balances would grow from 2014 onward as the roofing project was completed. I was assuming 4 to 6 roofs completed each year, 2009 onward. That would allow other needed capital repairs and replacement to occur. Logistically and financially such an approach was possible, practical and desirable. Expenditure for roofs would be no more than about $240,000 per year, allowing the reserve balance and an additional $110,000 collected each year for other capital projects. 

The Association was not interested in my numbers, or my plan.  I attributed that to 1) A belief by the board of 2009 that we had sufficient reserve funds, 2) A desire to stop the fee increases,  and 3) No interest in anything that might indicate differently.  In fact, a reserve study was commissioned in 2010, but the word being passed on the street by the board was "We have enough money."  However, there was fear among owners and underminers on the boards. In 2009 and 2010 I was told that the word being passed among the owners was "Elect Norm and your fees will increase."  Owners and boards made a serious mistake.  I compared what happened between 2008 and 2015 to my 2008 plan and it is likely that fees would have been at least $27 lower each month for each owner had my plan been adapted.

My analysis also indicated there was no need for panic, but a lot of board work would be immediately required, including a ramp-up of the pace of the roofing project. But only two roofs were done in 2009. First and foremost a thorough analysis of all infrastructure was necessary to assure sufficient funds for all infrastructure repairs.    That analysis and the detailed surveys required waited until the spring of 2011, when I did it.  That's immediately after I achieved a seat on the board. I then began the serious work I had laid out two three years earlier.  In late 2011 I was assigned to Architecture & Maintenance Director. I'd already begun the required surveys and using the 2010 and 2011 reserve studies as a starting point I was on my way. Things finally began to change in 2012.

It is not a coincidence that my being on the board straight lined fees.  I was elected to the board as of October 2010. Here are the fees that ensued.  The board fired in 2008 was on a trajectory of unlimited financial pain for owners.  With the return of one to the board, the arguments for significant annual fee increases also returned, and by 2015 there was a serious confrontation.

I'd  been informing owners via the newsletter and also during the annual meetings. But so few owners attended the meetings that the majority were unaware of the infighting and the consequences. Nevertheless I persisted. Here's a chart I presented during the Annual meeting of 2016 to show owners just what a return to large annual fee increases would look like (Hint: click the images for full screen):

Here's the chart of fees, and the red line indicates the trajectory we were on. The blue is the actual fees.  As you can see, the fees began to moderate in 2009-2010. That's the year a revolt by owners removed most of the board:

The Roofing Project - A slow death for the Association?
This next post will include several charts I prepared for the board and for owners about nine years ago, immediately upon joining the board. I prepared these to calm owners.

In 2008 after ten years of large fee increases and readily apparent infrastructure problems the owners were desperate and frustrated. The reserves were growing but the board seemed unwilling to spend the money.  The frustrated and angry owners replaced most of the previous "old guard" with an entirely new, unseasoned, and unprepared board. I considered that election to be an act of desperation by the owners. I was gravely concerned at the time and a new, unseasoned board didn't do much to assuage my concerns.

This election "reset" of the Association allowed the new board to issue a contract for the first ever formal reserve study in the 32 year history of the association. I can't understate the significance of this. The study did not solve any problems, it simply put a spotlight on the financial reality, while the roofing project slowly continued.  As I was to find out in October 2010 the study actually created as many questions as it answered and the board was nearly catatonic with the result. That study indicated even larger fees were necessary and a special assessment. 

The situation at the Association had worsened and by 2010 the full implication of the "Great Recession" in the U.S. was impacting the owners. Bankruptcies and delinquency were a serious problem and becoming difficult for the board to shield owners from. In fact, by December 2011 the delinquencies were more than 6.5% of the annual budget. But that's for another post.

Despite some board assurances, the owners knew the Association was in serious trouble. All one had to do was drive through the potholes on our major thoroughfare, Lakecliffe Drive which sat waiting for someone, anyone, to deal with and correct. And that was the highly visible tip of the iceberg.

Here's a few photos of a portion of Lakecliffe, taken in March 2010. That "stick" is 36 inches in length:

Lakecliffe Drive - street in crisis

Next post: 
Part Two of a two-part post about the roofing project and how it was largely the reason for the fee increases.

Roofs - Significant Reserve Expenditure Program 2005-2016 Part I

I'm in the process of purging files, etc. and of course I'm going through folders to figure out what to toss. Actually seven large "Banker's Boxes" of stuff, plus the hard drives.  While doing this I'm re-discovering some interesting things.

This is Part One of a two-Part post about Reserve Expenditures and it focuses on some of the details of the roofing project.  I expect to post additional insights about finances in the near future. I chose this review of the roofing project because it represents a microcosm of the Association. It is a good example of what I encountered here at BLMH, the culture of this Association and of boards, and also what had to be done to overcome numerous obstacles in order to complete this project in a timely manner.

The project was begun by an earlier board. Three sequential boards were involved, as were at least four Architecture & Maintenance directors. The project duration was 12 years, plus an additional two years for completion of drainage issues.  I completed 85% of the roofs in six years.

My research indicates that this association had a history of very low reserves and low annual reserve contributions. This changed with the roofing project. Here are some statistics. Monthly dollar amounts are average amounts per owner:

• From 1991 to 1998 fees increased an average of 3.0% per year.
• From 1999 to 2009 the fees increased an average of 7.2% per year.
• In 2001 the amount per owner contributed to reserves was less than $27.00 each month.
• In 2014 the amount per owner contributed to reserves was more than $111.00 each month.
• In 2001 the Association budgeted reserve contribution increased to about $108,000.
• In 2012 the Association budgeted reserve contribution was about $440,000.
• As fees increased, so did the reserves. In 2005, the year that the roofing project began the budgeted contribution to reserves reached $185,000; the highest to date over the previous 27 years of the association. But that amount paled compared to what was to come. The 2005 contribution to reserves was less than 50% of the peak amounts for reserve contributions, reached in 2011-2012.
• As fee increases continued, more and more was allocated each year to reserves. 
• The reserve balances continued to increase, peaking at about $1,300,000 in 2014, but about 40% of the roofs remained to be done, and our major thoroughfare, Lakecliffe Drive, had failed prematurely and was replaced in 2014-2015.
• As of September 2018 the reserve balance was about $700,000 and is expected to increase thereafter.  This is on target, per the work done by the financial committee in 2015. See the chart later in this post.
• The roofing project began in 2005 and fee increases greater than 5% per year continued for five more years.

The history of reserve contributions is not readily apparent to owners because boards did not provide separate statistics on the reserves. After observing Association operations from 2002 to 2008 it became apparent to me that the emphasis was meeting the Operations & Maintenance budgets. Meeting those annual, out of pocket expenses were the main thrust of the earlier boards.  The reserves were called a "Replacement Fund" with rough categories. The Welcome Packets included a table of annual fee percentage increases from 1978 to the present. There was no history of reserve amounts and annual reserve contribution amounts. A prospective owner was give the Association financials which included the Budget and Balance Sheet. Owners were given a simple snapshot which included the current amount in reserves and the amount allocated for the current fiscal year. I'm sure that what was provided did meet legal requirements.

Here's a chart constructed in 2015 as we neared the end of the roofing project. The "flat" reserve balances predicted for 2015-2018 were a consequence of all of the projects expected to be completed in those years. It included a projection of completing other significant capital projects which were in the "backlog" of delayed projects:

Projected Reserve Balances 2015 and beyond - 2015 data

According to documents the roofing project began in 2005, was paused and resumed in 2009. Apparently, the pause was to allow reserve balances to grow, although no board member openly stated that, to my knowledge. However, the delay also meant that roofs would wait and continue to age.  The decision to delay and do roofs at a slow pace was probably a financial decision, but it didn't accommodate the age of the roofs, as the reader will see.

When the roofing project resumed, one roof was 18 years old (end of life). Fifteen were between 14 and 18 years old, and so on.

The roofing project would ultimately cost our owners about $2 million in fees. It became apparent there was a financial problem when looking at the reserve balances leading up to this project and the amounts allocated to the "roofs" each year in the "Replacement Fund". From 2002-2009 I wasn't made aware of the details as an owner. I never saw a board discussion during a meeting in which the total cost of the project was discussed in the presence of owners. Nor am I aware of a public discussion of how the board would achieve the reserves required for the project. I don't recall anything in the Newsletter regarding the full scope, financial magnitude and timeline of the project. The boards prior to 2009 were clever and discrete. It seems the board decided that there was no need for the owners to be made aware of the true situation. No one wanted to give bad news and boards intended to be re-elected.  That worked until 2008.

In 2008 a small group of organized owners decided to take over the board. Interesting to me, the existing board, now under attack, suddenly discovered how to communicate the current financial situation about the roof and driveway projects. A privately funded letter went to all of the owners via US Mail. It was insufficient to convince owners and most of the board was replaced by a new board.

The roofing project was an expensive one which defined this Association for 16 years, absorbing nearly half of all of the reserve money collected during that period.  Fees collected for all reserves rose from less than $100,000 per year in 1998 to a peak of $440,000 in 2012; the project was completed in 2016.  I once stated to earlier management and board that the large, annual fee increases to accommodate this project were in my opinion a "stealth" special assessment. For years the roofing project displaced other, necessary capital projects because it absorbed, or was expected to absorb, every last reserve dollar collected. From 2002 onward the board delayed other projects, only doing what was unavoidable. In doing so the board created a sizeable backlog of work, which future boards would have to complete and collect the funds to complete.  Those future boards found themselves in a financial trap. It was a terrible spiral, where fees went up, but work wasn't done. That required additional fee increases. The board of 2009 thought they had enough money and voted on a 0% fee increase for 2010. They discovered the full magnitude of the problem in 2010 with an independent reserve study. The budget for the 2011 year included yet another large fee increase. That year it was 7%.   That new board began planning significant repairs in the fall of 2008 but within two years discovered the financial realities of the Association.

By 2010 my burning question became "How to complete the roofs in a timely manner and eliminate the large backlog of other projects and maintenance?" This was one of the legacies of the earlier boards and it was left to others including myself to solve. The earlier boards had hamstrung, undermined and burdened those that followed. Owners paid the consequences, in many ways.

One consequence is the difficulty of attracting talent to the board. That is in part because of the earlier board culture, which persists today. Some board members don't want others on the board and take steps to make life difficult for new board members.  They can't deal with some aspects of reality, preferring to be surrounded by "yes men" and "yes women". New board members are frequently unequipped to deal with adversarial board members and cliques or with the realities of the work required in a large and aging Association. There remains the echo of owners wounded by the 2008 financial crisis and the arrogance of earlier boards, such as the one that began the roofing project.  On the surface, all looks well, but that surface appearance is very deceptive.  Owners simply don't want to be targets on the board, or the headaches. It is difficult simply to do the work.  Politics and personal agendas don't belong. So those who do volunteer may find themselves to be scapegoats, targets, and even mal-treated by other board members. There is also the possibility of personal agendas. Not everyone joins a board to work.  As for the entrenched board members, well, they'll do everything and anything they can to retain power.

I've stated that while there were tangible benefits and new roofs were necessary, I did wonder if the scope and approach of the roofing project was appropriate at the time, considering the overall condition of the Association and the state of reserves and fees commencing in 2000.  Certainly boards were aware of this impending project. One of the board members has been on the board for decades as President, Treasurer and so on. Adding a second layer of shingles to roofs had begun in 1991. That approach did have its limitations, as any capable roofer can attest.  However, there had never been a formal reserve study until the new board of 2008 commissioned one in 2010, and that study created such confusion it was necessary for another in 2011. The roofing project had been underway for six years.

I was the clean-up guy when I joined the board in 2010. I really didn't have much of a choice, but to continue the project. Considering the personalities of the various boards and the status of this "pet" project, there was no possibility of change. There was absolutely no question or discussion about completing this project. It would be done.

I simply had to figure out how to complete it, and a lot of other things, too, while not breaking the bank accounts of the owners. I saw a need to stabilize fees. An earlier board planned and began this project while avoiding a reserve study. For about a decade other projects and capital improvements were given short shrift while fees were collected and saved. Some things were done on the cheap, other things were ignored.

The streets were replaced in 2002-2003, but in an inferior manner and with no engineering and limited supervision; one began failing within four years. Unit concrete patio repairs were suspended. Timber retaining walls were rotting. Water main repairs were accomplished with "band aids", two streams had serious problems, all three pump pits were failing, common area decks needed major repair or replacement, driveways were aging, deck piers sunken in streams were rotting and the decks sinking,  the condition of 84 garage floors was unknown, etc.  Operations and Maintenance money was spent on painting, panel and trim, and Landscaping. The board attitude was "If it isn't broken don't fix it" and "Only do what was absolutely necessary". Arguing against hallway work, a board member who presided over the beginnings of the roofing project made the statement "We only replace [hallway] carpeting when it becomes a trip hazard". That was the prevailing attitude as money was accumulated for the roofing project.

Special landscaping continued but reserve fund expenditures were limited to mulch, entry beautification and tree removal as the EAB took its toll on the ash trees and old willows began falling. Some shore work was done on the North lake. Appearances were kept up. But there were serious problems, and some board members were aware of the issues, but denied responsibility. One prior board president privately acknowledged this with the comment "You can paint a pig, but it is still a pig".

It seemed some of the board members understood the issue, but were unwilling or unable to do anything about it, beyond continuously raising fees. I argued that no matter what the fees, the boards would spend every dollar collected. The sky was apparently the limit. There was always an emphasis on "No Special Assessments" but large, continuous fee increases were okay (almost 7% each year for a decade). I encountered boards in which some board members were entrenched and absolutely committed to continuous fee increases, no matter what the consequences for owners. One even stated during budget discussions that she/he "didn't care about the consequences of fee increases on owners."  With the "Great Recession" of 2008 there were significant delinquencies and foreclosures to deal with. These things put added pressure on Association finances and owners.

It was a constant struggle, with what appeared to be almost insurmountable problems. When I pushed for other, vital and necessary capital repairs, one board member complained "Norm is spending all of the money". I am convinced that some board members failed to comprehend the magnitude of the problems, while others chose not to.  There was palpable fear. Owners were struggling. From 2008 to the present several cliques were formed and votes were cast along "agenda" lines. Not the way an association should be run, but as we are all unpaid volunteers, I guess it could be said that owners get what they pay for. One board leader stated that "We [the board] should not cater to the lowest common denominator" during a discussion of setting the annual budget and the impact of continuous increases on owners. All of the spreadsheets, studies and projections could not dissuade this position. By 2015 voting became a personal endeavor, where negative votes were construed in the clique as a personal attack. This is the primary reason I decided to leave the board in the fall of 2018. Enough is enough.

The next part of this post will look more closely into the roofing project.


NOTES: 

1. The 2017 fee increase was 1.5%.  That year the Association had a budget surplus of $51,035 as of 12/31/2017. Is that significant? Had the fees been 4.08% lower we would have had a balanced budget. In other words, the fee increase of 2017 was unnecessary. That was my position when we were making that budget in October-November of 2016. As a "compromise" the board agreed upon a 1.5% increase. As of September, 2018 a budget surplus was projected for 12/31/2018; the actual surplus or deficit remains to be seen, and only after all 2018 bills are in. We had a 0% fee increase in 2018, and that board decision was accomplished because of the surplus of 2017.  It became impossible for the "We need higher fees" promoter on the board to win that argument in the fall of 2017 because of the budget surplus of the prior year. Better budgeting yields better results, and that means better decisions are possible.
2. I was involved on the board from September 2010 through September 27, 2018. During my tenure average annual fee increases were 2.0%. That was a result of board actions during that period. My 1,100 hours each year were spent well. More on this in a later post. 
3. The question owners don't ask, and even some board members don't ask, is this: "Where does the "budget surplus" money go?"  Board members really should know the answer, and I can guarantee that all don't know the answer to this question.   
4. I became aware of a clique of current and former board members, run by our Association's most senior board member. After numerous attempts to sabotage or undermine other board members I reluctantly concluded there were both current and former board members who should not be trusted.  Beware being "thrown under the bus".   
5. The following links to the "official" 2018 budget, which shows the 2017 budget, approved 2018 budget and the "projected" 2018 year end as of September 2018.  In 2018 the treasurer and I asked management to provide several budget updates during the year, as part of our drive for tighter and ultimately better and more accurate budgets. "Better" budgets I define as 1) more useful and 2) less likely to result in poor decisions:

Click for BLMH 2018 Approved Budget with 2017 figures