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