Why Are The HOA Fees "As low as they are?"

In a recent post I responded to a reader's question about why HOA fees are what they are. I've based my opinion on what I have learned here at BLMH,  the experiences of my friends and relatives at their HOA's and reports in the popular press.  I don't consider BLMH to be a typical HOA. It has 336 owners, 44 buildings on about 40 acres and is a PUD. Of course, I don't know if there is a "typical" HOA.

When owners or potential owners look at the fees of a HOA I have found that most ask "Why are the fees as high as they are?" That was the perspective of some owners in 2001 and it remains so today. I have suggested that it is also useful to ask "Why are the fees as low as they are?" The unasked question is why do we automatically think of fees as being "high?"

An Internal Bias
When we look at the fees of an HOA, many of us are predisposed to think "Wow, those fees are high." After living in an HOA for over 10 years, I have decided that it is of no matter what the number is. It seems that some view HOA fees as a "tax" and as we all know, taxes are collected and poorly spent, aren't they?  So the very thought that it's a tax creates an internal bias. But why would we compare the HOA in which we live to the government in Washington, or in Springfield, IL?

I've concluded that it's about the use of money. In a HOA we are required to turn over a fee each month to an "association." That fee includes the costs of operations & maintenance. It also includes an amount for savings for reserves. But we don't think of it as a just fee. Now I ask, why would we think this way?

It might be societal.

An Example - And Yet a 1% Annual Fee Increase!
So how are associations managed and does this justify the poor opinion of some owners? In 2013 the BLMH association experienced a severe problem with a water main. This was anticipated by the board but it was not predicted to occur. So how to collect fees for such an event?

In 2013 not one but several breaks occurred in a small area in which several previous breaks had occurred. I was appalled by the costs of the repairs and pressured management and the repair company to come up with a better solution and one which would be pre-emptive. Emergencies cost far more than "planned" maintenance during normal 8-5 business hours on Monday through Friday.

As breaks occur on weekends or nights and sometimes over holidays the costs can be formidable. In 2013 a water main break was very destructive. A recently replaced driveway was destroyed, an entranceway was torn up, a foundation was damaged, and not one but several repairs were made, each at a cost of thousands of dollars. The City of Wheaton threatened to bill the association for the water lost. Cleanup, landscaping and driveway and entrance repairs costs additional thousands of dollars over the cost of repair of the main.

After consultation with experts and discussion with management the board agreed to replace a large section of the main. From my perspective, waiting for the next "unforeseen event" and only then doing ongoing repairs in that area was the equivalent of the "death of a thousand knives." We have the numbers to prove it. Some were published in the association newsletters. All were discussed during normal association meetings and any owner with the interest to come, listen and take notes knows as much about the costs as anyone on the board does.

We did not have money earmarked specifically for this in our budget. We had amassed and continue to collect a small portion of the monthly fees for a "contingency" fund, which is something I began arguing for in 2009. Even our manager and the board was skeptical at the time. That fund was created and has been used to date exclusively for water main repairs.

Was There a Special Assessment for "Water Main" Repair?
No, there wasn't. Nor was there a large fee increase this year, unless we take the perspective that a 1% fee increase is a "large" increase. Nor was a loan taken to deal with this. How was that possible?

The contingency fund helped. Having sufficient reserves helped.  But that money was spent and it will be replenished. The board will continue to walk the tight rope.

The board has discussed fees during association meetings. A 1% fee increase was agreed for 2014. This was considered by one board member to be "too high" an increase and "too low" by another. I agreed with the 1%, but with reservations. One concern I have is the reserves. Are they sufficient? I'm of the opinion that we will know only after after the full costs of the replacement of half of Lakecliffe Blvd. a professional assessment of the remainder of the streets and then an update to the reserve study.

Yet, I understand some owners think "Our fees are high." To date we've had twice the normal snowfall and we've had four times the snowfall of last winter. In this HOA our fees pay for snow removal and the application of "salt" on the streets and driveways. Obviously, our snow removal costs will exceed the budget for the winter of 2013/2014.

Do We Have Enough Money?
That's a difficult question for any association to answer. The BLMH HOA is 39 years old. The buildings, streets and so on are "middle age." Some types of failures are impossible to predict. Yet we do know that the streets, roofs, driveways, garages, building, street lighting and water mains and sewers have a finite life. An HOA should be saving for this, shouldn't it?

Yet, some of our owners have argued "We have enough money." Even former boards took that position and glibly passed 0% fee increases.

I think the real question for any association should be "Do we have sufficient reserves and are our fees levels sufficient to support our Operations & Maintenance budgets?"

If the owners of a HOA can't answer that question with substantiation, then I suspect they are gambling. If a board can't answer that question with a few caveats, then I think the board is also gambling.

What Do I Mean By "Caveats?"
Any budget is based upon assumptions. For example, our 1% fee increase assumed a "normal" winter which includes about 26 inches of snow and that means a certain number of "pushes" by our snow removal contractor and the application of a specific amount of "salt" to the streets.

So if I were asked "Is our budget adequate" I would say "Yes, with provisions." My provisions include the weather, the conditions of our streets, the assumption that no more than six roofs will be replaced each year as part of the "roofing project," there will be no disasters such as fire, and so on. I would also say that any assumption about fees is that owners will pay them. However, since 2008 most HOAs have experienced delinquencies, foreclosures and higher legal fees. In other words, collections aren't what was expected and legal fees are required to collect from some owners. Our association uses a specially prepared delinquency spreadsheet with charts to track delinquencies. I created it with the assistance of our current Treasurer. It historically tracks delinquencies, number of owners delinquent, amounts and so on. It spans the period from 2008 to the present.

Sadly, a lot of people seem to prefer the quick answer about budgets. They want the simple "Yes" or "No" about budgets and assurances. I've concluded that they want someone else to carry the burden. This too may be societal.

The Real Question
I suggest that if we really don't know why the fees are what they are, then perhaps our opinions are not grounded in reality. Remember, your board pays the same fees you do. I suppose there are some associations where the board gets "special" favors. In a professionally managed, transparently run association that should  be impossible.

I do have a lot of uses for those fees I pay each month to my HOA and it would be wonderful if someone else paid for the lawn care, the driveways, roofs and street repairs. It would also be wonderful if the exterior maintenance and painting, snow plowing and so on was free. Ditto for the arborist and picking up the trash and doggie bags in the community trash receptacles.

But I as a unit owner don't want to do these things and so I have to pay someone else to do them. That's the way it works. As they say, "there is no free ride." Nor do I have the benefit of building a fence and having a private yard. BLMH isn't designed that way nor is it a townhome complex.

The real question to ask is this: Is my HOA board acting as fiduciaries and in the best interests of the association?

When asking that question, it is useful to remember that we each have our personal biases and opinions that color everything we do. It's also useful to remember that Home or Condo ownership is not for everyone. That was and continues to be a fiction promoted by certain politicians and those who financially benefit from the real estate and home building industries.

So why do we think the way we do? It could be part of the psyche of living in a society in which many of us take these positions:

1. We don't like to be told what to do.
2. We think we each know what's best for ourselves.
3. We don't trust those in authority.
4. We think we can do just about anything better than the next person, and that includes the board of the HOA.
5. We think we're smarter than everyone else.
6. It's my opinion that matters most; after all, I'm the center of the universe. 
7. We each have a better, personal use for those fees.
8. What works for me is what matters.
9. We may feel we are entitled. 
10. We may not want to be accountable for our personal situation. 
11. Most of us are such poor savers that we won't have enough savings for our retirement. So why should I be willing or coerced to contribute to a HOA when I could use this money for my own retirement? See the Notes at the end of this post.

If the things on the list are part of our personal perspective, and I assert that they may be, then of course, fees collected or should I say "imposed" by a board of managers are not going to be spent the way you would want them to be. Someone with these perspectives will be unable to see that association fees will be spent for any good purpose, unless it is directly spent for their personal benefit.

Notes:
Here are some recent statistics (2014) about how well Americans save for the future. I provide this to substantiate my opinion. The figures are based upon statistics for those who begin working at 25 and reach the age of 65. These are according to U.S. Census Bureau figures, Bankrate.com and Saperston Companies:

1. How many will have sufficient retirement savings at 65? Answer: 4%. 96 out of 100 won't have enough savings. 
2. How many will be working at 65? Answer: 1%.
3. How many at 65 will be dependent upon Social Security, charity, relatives or friends for their financial well-being? Answer: 63%
4. How many 25 year olds won't live to reach the age of 65? Answer: 29% will die before reaching 65. 

How many retirees over 65 rely entirely upon Social Security for their retirement income? Answer: 35%.  In other words, only about two out of three retirees has sufficient savings to augment their Social Security income. The rest live from SS check to check. 

Here's something to think about. Knowing the plight of many retirees, is it financially prudent or is it harmful to allow retirees to take control of an association? Are they capable of operating as fiduciaries? Or would they be inclined to operate on their own behalf? This question is general in nature. It is very difficult for anyone to put aside their personal beliefs, wants and needs and operate altruistically for others. Investors have their perspective and it might be simply to maximize their bottom line. Others may simply want to keep fees as low as possible because of personal financial hardship. Our association doesn't require a financial statement from a board member. It's assumed we're all capable and we will operate and make decisions for the good of the association. Dream on, I say! This is America we are talking about. Look toward Washington DC and Springfield IL for your inspiration and you will know what I mean. Operate for the good of others? Oh, how quaint some may say.

Any board member who is financially disabled should recuse themselves from financial matters in an association. That's the "honor system" and I assure you it does not always work. This is not a matter of age or personal wealth; it's a matter of financial impartiality and integrity.  How many of us would vote for a necessary fee increase that we personally could not afford?

Of course, if an association achieves sufficient numbers of financially strapped owners, what do you think will happen to that association?  Here at BLMH, we have a few owners who will readily state "What's good for me is also good for the association."

One of the questions an association might want to ask is "How do we deal with a rising number of aging owners?" This is not a frivolent exercise. At BLMH we have some owners who have been here 30 years or more. Some have said "I'm going to live here until the day I die." That's well and good, but what happens when they do pass on and leave their unit behind? Who then assumes the payment of fees? My experience is the property is donated or the bank takes possession or the family takes it over and sells it as soon as possible or turns it into a rental. If there have been no plans for the unit then it goes to the bank and the remaining owners in the association have to pick up the slack for the lost fees until a sale is completed. This will be the subject of a future post.

Why Are the Fees What They Are?

A reader recently asked "Where do the fees go?" The question was also asked "Are owners happy with the fees?"

I suggest that anyone interested in fee details contact the management of the HOA of interest. This is directed to anyone contemplating HOA ownership.

The official website for the BLMH association is: Clicking will open a  New Window> BLMH Official Website

Why are the fees in an association what they are?
In my opinion the fees in any association are a combination of planning, long term trends and current financial reality. For example, the level of fees over a 10 and 20 year period. I've written about the challenges and obstacles to setting reasonable fees in a HOA.  It's been my opinion that there has been a tendency in HOAs to attempt to "kick the can" down the road.

Fees at an HOA may either be "as high as they are" or "as low as they are" because of  recent board action. By recent, i mean within the past 15 years. I realize that most of us have a tendency to ask "Why are fees so high?" However, it might also be prudent to ask "Why are fees so low?" In other words, the real question to ask is "Why are fees what they are?" I also suggest that owners or those contemplating a purchase in a HOA consider long term maintenance and where the HOA is in such planning.

Of course, for a time any HOA can depress fees. In other words, keep them artificially low. This can be accomplished several ways.

1. Defer maintenance and capital projects for another day.
2. Ignore the realities of long term maintenance and project costs.
3. Fail to collect adequate fees for long term projects. 
4. Lower fees artificially with  the assumption that a financial solution will miraculously occur some day in the future. Arguments to do this may include "The economy will be better next year" or "Owners will be better able to deal with fee increases 2, 3 or more years in the future." A board may take the position "Some owners can't handle a fee increase so we won't have one." 

The problem is simply this. There will never be a good time to raise fees. Deferring fee collection merely transfers the financial burden onto future owners. By "future owners" I mean those who haven't sold their units by the time the fee increases ramp up and roll in. Can that happen? Would owners argue for lower fees hoping to clear out and leave their neighbors "holding the bag?" I've read or heard more than a few "HOA Horror Stories."

Deferring maintenance merely allows problems to compound. Ask any competent and truthful manager how difficult it is for an association to catch up once they fall behind and the answer will be "difficult to impossible." Delaying fee increases may require unusually large annual increases for a period of years. By "large" I mean fee increases greater than 5% annually. Deferring fee increases may require special assessments. The farther behind an association falls, the more difficult it becomes. Compounding deferred maintenance and deferred fees is a formula for disaster. Yet, that is precisely what some owners demand and some HOA boards create. Why would anyone do this?

It's important to remember that HOA boards are volunteers and owners. Some run their personal agenda contrary to fiduciary duties. Some do their best and yet, we all make mistakes. When these mistakes come to light, what is a board to do? The "old timers" may prefer to avoid responsibility. The new guys or gals on the board may not want the flak. After all, who wants to be the bearer of bad tidings? New boards may realize that they did not create this situation which was a decade or more in the making. They may be unwilling to take on the establishment. They may lack certainty. So it is likely that problems even if detected may not be dealt with, or may be dealt with in a gradual manner. Of course, the longer one delays the greater the difficulty.

How is it that owners ignore these problems? HOA owners may realize that "the emperor has no clothes" but they want their property values to be "as high as possible" and so some may choose to ignore the problem. Fee increases may be detrimental to sales. Owners may choose to promote a "feel good" board or a "tell us what we want to hear" board, hoping that the music won't stop, or that the "good times" will exceed their lifespan. Some may choose to simply pass the buck. I recall in 2009 there were a few people at BLMH who said "Elect Norm and your fees will go up." This attitude was a long term pattern and one of the reasons our reserves were what they were in 2001. When I asked BLMH owners about fees in 2001 some had the opinion that that "Our fees are too high." At the time I recall the fees were about $195 per month, and reserves were less than $400,000.  According to my records fees were increased to $204.64 per month in 2002.

If an association allows itself to fall into the "kick the can down the road" trap, what can it do? It's my understanding that some HOAs have dealt with this problem by turning the maintenance of "limited common elements" over to the owners. For example, costs associated with unit patios, decks, garages and driveways. Of course, this is in reality a stealth fee increase.

Delaying maintenance or capital projects may be accompanied by an attempt to keep fees artificially low. After all, if the money isn't being spent then owners will argue "Why is it being collected?" That is a reasonable question to ask. Here at BLMH in 2008 the question was posed as "What do we get for our money?"

In older HOAs the fees are the consequence of decades of decisions. These decisions were made by owners. Owners elect the boards and owners are ultimately responsible. So if you are contemplating purchasing in a HOA it's my suggestion that you look at the long term numbers and meet with the board and ask your questions. This will provide you a much better idea of the temper of the boards and of the owners. Don't allow rules to stop you. While only owners are allowed to attend association meetings, there is no reason a prospective buyer can't request a brief meeting with the HOA board prior to the scheduled meeting.

At BLMH some of the "old timers" attempt to avoid responsibility for the consequences of their actions. The "old timers" are those who have been here for 10 or more years. Some argued against higher fees and in favor of lower fees for decades. They did so in 2001 and in 2008 and did their best to put in place boards to do just that. They include those who said "We have enough money" and some said "Elect Norm and your fees will be higher." In other words, their position is simply to elect anyone who promises lower fees. And for a time at BLMH the owners aligned and did just that. The consequences of inadequate reserves and a lack of planning in any HOA will always be something for future boards to deal with.

To answer the question "Why are my fees what they are" at an HOA requires a historical perspective and for older HOAs it requires about 20 years of data. Why 20? That's the lifespan of roofs, garage floors, patios, decks, streets and so on. Only with 20 or more years of information can one determine the financial reality. It's useful to know that reserve studies span 30 years, as does reserve planning and saving. There is a very good reason for this.

Honesty and Frankness are the Best Policy
I think the best way to answer owner questions is via factual, in-depth newsletter articles. Every owner gets the same information. All owners, be they living onsite or on the other side of the world are given the same information. That's what I've attempted to do here at BLMH. This has not always been greeted by owners. It's my understanding that some owners have said:

1. I don't have the time to read the newsletter.
2. I don't understand the information. It is too complicated. 
3. I don't like the information and I refuse to read the newsletter. 
4. I don't like the author and I only read things written by people I like. 

Running an association is not supposed to be a popularity contest. Newsletters are not supposed to be the "good news" paper. Things sometimes go wrong. HOA boards sometimes have difficult decisions to make. In today's economy HOAs do have foreclosures, delinquencies and so on. There are also expensive failures, be it fire, storm damage, trees falling, nearby flooding, water main breaks. liability suits or whatever. These things are all somewhat unexpected. When they occur any HOA in which they occur must deal with them. Nevertheless, providing insights during HOA meetings or via letters or a newsletter can disturb some owners. Some owners deal with this by attempting to elect the "good news" people. 

Some catastrophic damage may be covered by insurance, but there are deductibles to contend with. Fire, etc. may result in unusual or unexpected insurance increases. 

Unusual winter events can result in higher snow removal costs, ice damage, etc. So what type of winter should the board plan for? The same as last year, a milder one or a more severe one? I sometimes think owners argue a solution to this question based solely on their perspective about fees. An owner who is in favor of lower fees may argue "We are spending too much on snow removal." A board member tells the story of an offsite owner, an "investor" who argued that our snow removal efforts were excessive. He lived offsite and it was his perspective that plowing at 2 inch depth was unnecessary. Of course, he would not have to drive his car or walk in the consequences of what he was promoting.

Some owners simply argue for lower fees with the expectation they won't be living in the HOA in a year or so. For them, reserves are a waste of money. A board member tells the story of the owner who was selling his unit and came to an association meeting and demanded a reimbursement for his portion of the reserves. For others who contemplate moving on, the position seems to be "Why save for a future I will not benefit from?" A lot of people apparently thought this way before the housing bubble popped. At that time a lot of HOA owners expected to cash in and move on. Low fees made selling more attractive. Low, current fees would place a larger future financial burden on those who stayed or those who purchased. But who cared?

It wasn't simply mortgage bankers and real estate brokers who were greedy. A lot of HOA owners joined the frenzy. 

An Unknowable Future

All HOA maintenance and repairs must come from owner fees. During the 2013 annual meeting I placed a crystal ball on the podium. That was a tongue-in-cheek effort to say "We can't predict the future." What any board can do is plan and prepare for a possible future. Owners need to ask responsible questions about such plans.  Board members should be pressed to provide honest answers to the questions. Doing so may make them better board members.

Of course, some boards are comprised of politicians who have made promises. Some boards realize there have been mistakes but would prefer to sweep the consequences under the rug. Some boards lack the courage to be honest with owners and take the flak. Some boards are incompetent. I suppose some are completely unawares or are comprised of owner hell bent to keep fees "as low as possible" until they can sell their unit and escape.

Some board members strive to avoid confrontation. They tend to agree with owners or simply avoid answering certain questions and will work diligently to avoid provoking angry owners. In extreme cases board members simply want to "look good" and so the owners are told what they want to hear. So if an owner says to a board member "Aren't our fees too high?" that board member can respond with what is wanted to be heard. Of course, in doing so a board member is dishonest and isn't performing their fiduciary duty. That's why it's common knowledge that "There is no room for politics on a HOA board." Nevertheless, such problems do occur and some boards have politicians. HOAs get the boards they elect and deserve.

Banking Disaster, Real Estate Implosion, Foreclosures and Delinquencies
A good example of an "unknowable future" is the banking crisis of 2008 and the subsequent failure of the residential housing market.

Some people argue this was "unknowable" but I disagree. There were more than simply a few very concerned professionals out there, but they were drowned out by the ebullience. For example, by television programs the likes of "House Flippers" and the National Association of Realtors.  One of the favorite arguments of some of the owners here at BLMH when possible negative consequences are discussed is "It can't happen" or "It won't happen here." I disagree. We don't live in a fishbowl and we are subject to the financial rules of our economy. That includes lawsuits, delinquencies, foreclosures, financial breakdowns and so on.

However, one thing I can agree on is the consequences of the "Financial Panic of 2008."  Some people saw this coming but what could not be predicted were the precise time and consequences. Some of us knew it would be ugly. But how ugly? So even if you or I saw this coming (and I did) no one can predict the future. So no one can state predict precise dates and the specific severity of the crisis when it arrived. In 2007 I found myself in a difficult predicament. I saw the problem, knew it was really close to the "pop" but didn't want to scare the hell out of people. So I continued to advocate caution, planning and preparation for a financial disaster. However, I did not counsel anyone to prepare for "the end of the world as we know it." In my opinion to do so would have been irresponsible. I did follow my own advice.

In 2008 when the bottom dropped out, HOAs found themselves in a terrible situation. But oddly, here at BLMH the owners elected a "feel good" board. I guess that was a misguided attempt to avoid the current reality. Here is the reality experienced by many HOAs for the past six years:

1. Interest rates plummeted and so the return of those reserve savings also fell. "Safe" instruments such as CDs and savings accounts rapidly fell to returns of less than 1%. Savers were punished and HOAs found they had to increase fees slightly to offset this loss, or implement "austerity programs."
2. Marginal buyers who stretched to purchase in a HOA found themselves underwater. Many had special mortgages which were pegged to the value of their home or unit and would reset to higher interest rates if the value to loan balance reached a trip point. When housing values plummeted that's exactly what happened. A job loss or job curtailment made it impossible for them to meet their financial obligations and that includes paying their HOA fees. 
3. Some older HOA unit owners had used the value of their units as a piggy bank and took second mortgages or equity loans and spent to the hilt. Never mind that in retirement their Social Security, pension and savings were inadequate to pay back. Rising values would "buoy all boats", wouldn't it? Well, it didn't and these owners found themselves overextended and financially strapped. 
4. In extreme cases, HOA owners foreclosed or signed a "deed in lieu" and turned their property over to the mortgage holder. Prior to that they stopped paying their fees. This is a "work in progress" and the foreclosures continue to this very day.
5. HOA legal fees increased. Some HOAs which seldom used an attorney to deal with delinquencies found themselves paying thousands of dollars annually in legal costs never anticipated.  
6. The courts, overwhelmed by foreclosures delayed cases. Besides, it was politically unacceptable to toss voters into the streets. So foreclosures dragged on for months and years. Other HOA owners shouldered the burden of financial responsibility to make up for those lost fees.
7. Banks didn't help. On foreclosure, some also failed to pay the fees for the units they took over.  They were reluctant and unwilling owners. Under law, they weren't required to pay all of the fees. 
8. Owners who had planned on a sale of their unit in a year or so found themselves unable to do so at the price they expected. "Flippers" who expected to roll out and into another unit also found themselves trapped. In some HOA this made for an ugly owner body who were upset and angry. Boards found themselves trapped between angry profit seeking owners and complacent owners who simply expected a place to live.  It got really ugly at some HOAs. 

Believe me,  responsible HOA boards everywhere have been working diligently for six years to deal with these universal problems. The ramifications continue to this very day.

On assuming a board position at BLMH I ran independent tracking of delinquencies. I have no interest in "who" is delinquent and I do expect each and every one of my co-owners to do what is necessary to meet their financial obligations. Living in a HOA is an opportunity with a cost. We are all equals and so as equals we are all, each and every on of us, to pay our monthly fee. Period! A former president, who had been run off in 2008 returned and I discussed my concerns. We collected archived data and I prepared a new spreadsheet for board use. In 2010 we began presenting that monthly spreadsheet to the board. This supplemented the data provided by management and included colorful charts of historical data from January 2008 to the present. This information facilitated the taking of some extreme measures by the board, but not all board members were happy. Making difficult decisions is never easy. After all, these were our neighbors. However, no one was willing to pay substantially higher fees and every owner in a HOA has a financial obligation to that HOA. When I suggested that a "hat be passed" to help distressed owners, the suggestion was dropped and there was not a single taker. I took this to mean that it was expected that someone else should pay the tab.

Under the Illinois Condominium Act, all owners are to be treated equally, and all are to pay their fees. That was not a popular position and some board members clearly had no intention of enforcing such equality. I upset a few with my written emails about "upholding our fiduciary duties."

This is a HOA which had experienced a severe board earthquake in 2008, so we could have "change." I am of the opinion we got far more change than anyone expected or wanted. Certainly the proponents of "change" expected that our fees would decrease because our "fees are too high." But reality intervened.

Not all of this was bad. The BLMH HOA was able to shift from mulch to stone over the prevailing complaints of some noisy owners. Demands for more colorful plantings were trumped by financial reality. The HOA returned to a "landscaping" path and owner complaints about a lack of flower gardens were overruled by the majority. The BLMH HOA also shifted from a social organization to a business.

Yes, change can be very difficult! But there can be opportunities and most owners do want "fees to be as low as possible" and expect their boards to take the necessary steps to do that.  

Maintenance, Reserves, Reserves Studies and a PUD
The physical make-up of an association can have significant impact on fees. For example BLMH is somewhat unusual. This association is also a PUD, or "Private Urban Development." As a consequence owner fees are required for reserves and maintenance of streets, exterior lighting and even the water mains. The fees pay for snow plowing of 84 driveways and the streets. Fees pay for street lighting, street cleaning, patching of asphalt and the curbs, too. This association is large and I have been told is about 40 acres. It includes portions of two lakes, 44 buildings, about 800 trees, 15 acres of turf in extensive grounds, three streams and waterfalls as well as concrete walking paths throughout the association. Fees include water for the grounds and the streams and the maintenance of them.

Some associations have a single large boiler for providing centralized heat and hot water or a wonderful stone facade. Some associations maintain the windows. Replacement of these can be very expensive. I have acquaintances who owned units in these types of HOAs. They each had special assessments to deal with boiler replacement, exterior masonry repairs or window replacement. The cost of these special assessments? $10,000 to $20,000.

Fees include both normal maintenance and reserves for capital projects. At BLMH normal maintenance includes landscaping, carpeting, electrical costs, water, hallway and exterior painting, exterior building repairs, snow removal, streams, management, accounting, insurance, postage, mailings and so on. The BLMH association had a reserve study in 2011 to aid the board and management in acquiring the necessary reserves. The most recent study included a 30 year projection. When is the last time your HOA did a reserve study? Who did it?

At BLMH reserve expenditures include replacement of walks, streets, curbs, roofs, driveways, patios, common area waterfalls, streams, decks, gazebos and water  mains. The association is in the midst of a multi-year re-roofing of the 44 buildings in this association. That project includes improved ventilation, insulation, relocated gutters and downspouts. The improvements require drainage modifications to move water away from the buildings which is deposited by relocated or new downspouts. These improvements are intended to extend the life of the new roofs and driveways and to reduce annual maintenance costs.

Certain expenses can be managed in various ways. A significant change at BLMH was a shift away from mulch to stone around buildings. This stone is part of the drainage improvements.  It's my understanding this association once spent about $18,000 per year on mulch. Stone is a much better use of association funds, in my opinion. It does not degrade, does not require annual replacement and doesn't float on water and fill sewers or settle alongside buildings. Mulch carried by rainwater to driveways, walks and streets is simply another maintenance expense to deal with.

Annual Fee Increases and Special Assessments
For 2014 the BLMH fees increased approximately 1%. That means I'll be paying $3.46 more each month in 2014. Why? The City of Wheaton has ramped up water rates and a portion of that fee increase will go for that purpose. A ComEd electricity utility increase was approved for 2014. Approval occurred in December, 2013 after the annual association budget planning workshop.  Inflation is predicted to be about 1.8% in 2014 and that may influence other costs.

The BLMH association is replacing all roofs, driveways upgrades are about 80% complete, garage floors are being replaced where necessary. All patios and decks were recently improved and the concrete patio replacement project was completed in 2012. The association has a major street replacement scheduled for 2014, etc. Reserves will pay for these things. Every owner in any HOA needs to ask the question "Are reserves adequate and are planned reserve collections sufficient?" They should ask the board and management to prove these numbers. Simply being told "Oh, yes, we have enough money" is not a responsible answer. I can say that from practical experience. If you do not know the detailed answers then you might have a rude financial surprise in the future. However, it is also the responsibility of owners in a HOA to read all of the documents. A failure to read with an expectation that the board will read them to you is not a good use of board time.

It's my understanding the BLMH association has never had a special assessment. For anyone considering HOA living there is a personal question to be answered. Do you prefer the lowest possible monthly fees or special assessments? It's a choice of financial stability or special assessments. Owners must ask themselves "Do I have the financial discipline to save for special assessments?" Most owners apparently hate special assessments. Avoiding special assessments requires long term planning and savings by the HOA. Savings can only be accomplished via fees. So fees may seem higher than expected if they include realistic reserves.

Alternatively, owners can argue for a bare minimum of reserves. To do so can be a decision and a vote for special assessments if capital projects are to be accomplished. Driveways, streets, sidewalks, streams, large decks, landscaping (replacement of trees, etc.), patios, roofs and garage floors are expensive. How much does it cost to maintain or replace these things? The BLMH association collects about $1190 per owner per year for all reserve items. That amount was determined in part by the immediate needs of roofs and driveways.  In reality, $1190 does not go that far. But some have argued we don't need to collect this amount, we can get away with less, or by looking at the balance sheets and the bank statements have argued "We have enough money." Really?

If a board collects sufficient fees over very long periods of time, it may achieve the lowest possible fees and avoid special assessments. For example, if roofs can be expected to last for 20 years, then it is necessary to collect the value of 1/20th of the replacement cost of all roofs each year and place that into reserves. Add to this the equivalent value of asphalt, garages, etc. and you then have the best method to avoid higher fees and future financial "surprises."  In reality, our association doesn't replace all roofs in the same year. We are currently replacing 6 roofs per year and a complete project will require about 7-1/2 years. In an ideal world the reserve contributions are staggered to match the 20 year anticipated lifespan.

On the other hand, associations can hold fees low and simply deal with financial "surprises" by charging special assessments. Let's assume that a HOA decided to collect half their reserves via fees and rolled the dice and collected half via special assessments. What would that look like? Here at BLMH it could require regular "special assessments" of about $3,000 every 5 years. Of course, if anything went wrong with this planning then the special assessment would be higher.

Our association has taken the position that special assessments are to be avoided. They are the means of last resort. It is impossible to predict the future and so I don't think any HOA can make the statement that "special assessments will never occur in our HOA." However, I do think they can be avoided and BLMH has done so for the last 30 years.

So what would a $3,000 special assessment cost an owner? It would be about $57 a month for a 5 year loan. $6 per month of this is interest at 5.0%.

Some HOAs apparently deal with their finances by doing just that. Of course, the owner must save for that special assessment or can take out a loan. This is why I have heard this approach called "smoke and mirrors." HOA fees are lower but owners get a "back door" demand which increases the actual fees paid by the amount of that special assessment. In my example, that's an additional $57 per month. So which is better, "lower" fees with special assessments or fees with the true costs of reserves and projects built in? Of course, if the HOA budgets and manages their finances then there is no interest to pay the bank for loans. In other words, the monthly cost to owners is less if special assessments and borrowing can be avoided.

Special Assessments - Add to Your Monthly Fees
If owners argue for even lower fees for reserves and the board complies, then it is possible that special assessments would be much larger. I have read about and am aware of  HOAs that have in recent years has special assessments of $10,000. The approximate monthly payment for 60 months would be $188.71 at 5% per year interest. Of course, owners could pay any such assessments via their credit card. Today with a 14% annual rate, that would require a $233 monthly payment. At 18% it would require a $254 monthly payment for 5 years. .

A $20,000 special assessment if paid off over 10 years at 5% will cost the owner $212.13 per month.

Of course, at the time of a unit sale the seller would be completely responsible for any outstanding balance.

A HOA  Mortgage - Add the Repayment to Your Monthly Fees
Several years ago, some owners were pressing for the BLMH HOA to take on a mortgage to cover anticipated roof work, driveways and so on. Some board members weren't convinced and I was one of them. I prepared a financial plan and presented it to the board president. i also published a similar document on this blog.

The bottom line was straightforward. A mortgage would have to be repaid by the owners. A mortgage would require the monthly payment of principal and interest. That interest would be added to the monthly fees. In other words, a mortgage might be a reasonable solution but it will require higher fees than timely collections and accumulation of reserves.

Other board members also pointed out to owners that a mortgage could take a decade or more to repay. In other words, the owners who were promoting a HOA mortgage were in fact "mortgaging their future." To this day, I think some of the owners don't understand this.

Planning and preparation is the better approach. A mortgage, as is the case with special assessments is best held as a path of last resort. That is my opinion.

The Lowest Possible HOA Fees
Is it possible for fees to be even lower than the recommended minimum? The lowest monthly fees would include no reserves and no savings. Of course, that is not in accordance with Illinois statute. However, there are a lot of poorly run HOAs out there, if I am to believe what I read in the press. BLMH is operating in accordance with a 30 year financial and maintenance plan. Our fees include reserves for capital projects and a 2011 reserve study is providing guidance to the board, as is professional management. I'd personally like to see an update to that study in 2014, and a closer look at the condition of some portions of the HOA.

Are owners happy with our fees? To be realistic, and I state this as an owner, we would all like to see "fees as low as possible." For a very few owners I suspect that their expectation is zero fees. Of course that's impossible.

Timely Project Completion and Accumulation of Fees
One concern any owner in any association should have is the timely completion of projects. Once a board undertakes a specific path, then that path must be carried to completion. In other words, the board is obligated to obtain sufficient funds and plan for such work on every building. All owners are to be treated equally. There are no exceptions.

This implies that a board should have a financial plan in place prior to beginning a multi-year complex project. Now that would seem to be common sense, but boards can underestimate the complexity or costs of projects and find themselves in a difficult position.

Roof replacements are an example. Once a HOA begins such a project it has made the commitment to finish that project and to have the funds sufficient to do so.

For example, at BLMH our roofing project  began with a single roof. The pace ramped up slowly as the board accumulated the fees for necessary reserves to replace 40 large roofs and 4 smaller roofs.  Of course, other work and maintenance had to continue. In 2009 3 roofs were completed, then 4 and for several years 6 roofs have been completed annually. The plan is to replace the roofs before major repairs are required and to do so at a pace which will not excessively deplete reserves. The board has set a minimum level for reserves.

At present about 56% of the roofs have been completed and the balance will be completed within three years if the board and the association maintains the current pace. In the process problem roofs have been completed. These are roofs tagged by roofers as being in need for "sooner" replacement and also those identified with leaks or other expensive problems. The board does have the option to repair versus replace, but at a current age approaching 20 years, doing so to a roof is probably a waste of money. It's useful to keep in mind the fact that a large project with 44 roofs can require 8 years to do. In other words, by the time the current project is completed at least one roof will already be 8 years old. Some of our roofs are over 20 years of age. The roofs are due for completion!

When the project began, some owners complained about whose roof was being done. It is no coincidence that some owners also stormed the board and one of the battle cries was "What do we get for our money?"

At the time, the BLMH HOA had experienced nearly 10 years of gradual fee increases. Some owners were unhappy and said so. The board found itself under attack and it was in a difficult position. This is a large HOA and a PUD. Streets, driveways, roofs, water mains, street lighting, decks, patios and streams, etc. all require savings. It seemed the board was playing financial "catch up" and in my opinion it was. Four boards have been taking this on for 6 years.

An improved newsletter and consistency have quieted some of the grumblers. I'm of the opinion that one mis-step by the board and I'm confident the complainers will be back.

The stress of dealing with the necessity to build up reserves has placed the board on the opposite side of the table from some owners. As one board member said "These are my  neighbors." True, but that didn't prevent the neighbors from running off some of the board with some very vicious attacks in 2008. When it comes to money, "being neighborly" is an option. I'm of the opinion that the events of 2008 were pivotal in creating significant tension in the BLMH HOA and are one of the reasons the board is consistently understaffed.

Are Some Owners Gamblers?
That's a good question. I have read in HOA and financial publications of owners who obtained second mortgages as they approach retirement age. This implies they expect to have sufficient income in retirement to pay for that mortgage. I have also observed and read of owners who vehemently oppose fee increases. Unfortunately these same owners don't simultaneously argue for severe austerity programs. Everyone expects their street and driveway to be snow plowed, they expect the roofing project will include their building, they expect their building will be painted in accordance with the 6-year cycle, and so on.

Money collected should be spent to maintain the entire complex. That means that each owner is paying a portion of their fees each month for exterior and hall painting. Yet, it might be several years before the building in which they reside gets a new hall carpet, or paint or a roof.  Here at BLMH I'm aware of one owner who objected to fees for repairs elsewhere on the property. In other words, some owners apparently have the opinion that any money collected via fees should directly benefit themselves and no on else.

That's not possible or permitted under the Illinois Condominium Act. If this were the case then if there were a fire in a building, then the deductible would be charged only to the owners in that building. Any tree maintenance on a cul-de-sac would be paid by owners on that street. Driveway replacement or roof replacement would be charged directly to the owners who reside in that building. Any work on the lakes or or shores would be charged directly to the owners with a lake view. And so on.

That isn't going to happen here at BLMH or at your HOA if your board and management follow the rules.

I suspect owners who argue to lower fees today because of their short term financial plans or problems are arguing to raise fees in the future, or are attempting to "pass the bills" to others. Of course, who would admit that they have financial problems? Who will be honest and say "I just want my needs taken care of, and I don't give a darn about the rest of the owners?"

HOA Boards are comprised of owners who donate their time and talents "for the betterment of the association." Boards take on the duties to see that the HOA is maintained and financially capable. HOAs can have boards that are gamblers, too. If your HOA does not have a reserve study, if it does not have competent professional management and if it doesn't have a plan, then I would offer the opinion that the board is gambling, and the owners too are "rolling the dice."

The Rise of the Investor
I have read about banks and investment firms which have moved into residential real estate. So too have individuals. This is apparently the consequence of very low interest rates, low or negative returns in bonds, concerns about the stock market, falling commodities prices and so on. Real estate has been a good deal and as I have written here, some significant returns on investment are possible.

Condominiums aren't apparently as attractive to the investor because real estate taxes and HOA fees must be contended with. For the HOA investor these are the possible costs in an association such as ours:

1. Real Estate Taxes.
2. HOA Monthly Fees.
3. Possible HOA Special Assessments.
4. Unit Maintenance, including furnace, A/C, plumbing and electrical. 
5. .Opportunity Costs.

Condominiums also have rules and regulations. Owners of units in condominiums understand that they have no direct control over their monthly fees. An owner can join the board and attempt to influence decisions. However, there is also state statute to deal with. Here it is the Illinois Condominium Act. Larger HOAs also have professional management and professional maintenance. These things all increase the costs for an investor via fees, and take the day to day control of operations out of the hands of the owner. 

Individual real estate via homes or apartment buildings is probably the best way to realize maximum returns. After all, the owner decides on all maintenance and does not have to contend with other owners, state statutes or rules and regulations. In fact, the investor makes the rules because he or she has total control. No board, no licensed management firm, no reserve studies, etc. 

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In a HOA, the tenant is entirely the responsibility of the owner. For an investor that means possible costs for rules violations. Tenants who are "good tenants" will operate as if they are surrogate owners. However, not all investors understand this and I state this from practical experience. I am aware of some individual investors who give their tenants a small financial incentive each month to deal with such things as applying snow melt, minor interior repairs and so on. However, that appears to be the exception and again, such financial incentives deduct from the bottom line. 

I'm personally interested in observing how HOAs deal with the rise of investors as opposed to onsite or nearby owners. 

Notes:

1. According to the definition I am using I too am an "old timer" as I have been a BLMH owner for about 12 years. 
2. I purchased several years after a change in management. The BLMH HOA has been under a professional management. With a change in professional management in 1998 and closer financial controls, there was a change in the methods to determine budgets. Not all owners were pleased by this. 
3. Fees for the initial 5 years of this association fees increased at an average of 19.2% per year. In my opinion this is not unusual. The transition from developer to HOA owners is frequently accompanied by some difficulties in determining actual annual budgets. 
4. For the period 1983 through 1992 the average increase was 3.2% per year.
5. For the period 1993 through 1998 the average increase was 3.5% per year.
6. With new, professional management for the period 1999 to 2007 the average fee increase was 8.575% per year. I purchased in 2001 and closed in 2002. For the previous four years the average fee increase per year had been 9.25%. That's why about 33% of the owners I interviewed prior to purchase complained about the "high fees."  
7. In 2008 with a partial board change the fee increase was 5.5%
8. In 2009 the fee increase was 5.1%
9. In 2010 with the transition to the new board accomplished, the fee increase was 0%.
10. In 2011 to correct for budget shortfall the fee increase was 7%.
11. In 2012 and beyond fees have stabilized as the board realized that this see-sawing of fee increases was far too difficult for owners to plan for. Fee increases have averaged about 2.6% per year
12. For the 2014 budget the fee increase was 1%. 
13. All fee increases are approximate. Actual owner fees are rounded per their percentage ownership. Several years ago (2010) and owner complained that the board had lied because his fee was not a precise 7% increase. The previous year the increase had been 0% and with a new board, a few owners apparently expected that fees increases would go to 0% and stay there. 

The Sun Sets at BLMH

The "Wheaton Sun", that is.

This post will serve as a condensation of recent happenings, although I have prepared some additional notes on the recent association meetings.

I didn't get my paper last week, and it seems neither did my neighbors. What happened? For several weeks we had multiple copies of  the "Sun" delivered and the extra was dropped in the driveways. Some of our "homeowners" didn't bother to pick up the papers and left them scattered around. So after being run over several times and after a period of days the papers became a soggy mess, scattered in driveways and the streets, because of the recent rains.

Cleanup of this is, of course, an expense to the association. This is reminiscent of a situation which occured several years ago and I assume FUPM again took charge, called the Sun and asked them to suspend delivery to everyone in the association. That's certainly one way to get a result.

It's probably the best way to deal with a problem of this type. We were given several weeks to deal with this as "owners" and we didn't. As with overflowing trash containers, etc. our paid maintenance crews pick up any trash that is left behind and they do it for us, at our expense, when we the "homeowners" are unwilling to do it for ourselves. It keeps this association looking nice, and is a wonderful, but mandatorily expensive benefit of living here.  I say mandatory because there is no individual choice in this matter and those of us who do pick up trash in the street reap no benefit for our efforts; other than deriving some pride of ownership. Our fellow "homeowners" who can't be bothered are given the hand-holding of the board, at our expense. Isn't socialism wonderful? The committed get to work and slave for the rest of us. That too is the way the board works. So it seems to be increasingly difficult to get capable people to run and accept positions on the board.

Ah, yes, but "everyone" they say, complains about high fees.

In fairness, not all buildings had papers left outside; for example, I twice picked up the extra four in front of our building, stripped off the plastic wrappers and put them in my recycle bin. Some other unit owners did the same. But on driving the grounds, it was obvious many did not. I know; I took the time to check, just as I take the time in my busy schedule to post this blog and attend association meetings and study the issues and vote. So too, do a few of my neighbors and fellow "unit owners." But many do not.

My immediate neighbors and I have a good working relationship. That is, the unit owners who share the entrance in this building. For example, if I should return from work late on a Friday, my recycling bin is already in the garage; courtesy of my neighbors. I return the favor whenever I can. Residents of the building pick up the newspapers in the outer hall and bring them in; in that way the mailcarrier doesn't step all over them. Oversized packages and Express Mail deliveries are brought inside and are placed at the specific door of the occupant. One or more of my neighbors vacuums the hall carpets. Monthly meeting notices, etc. are removed from the cork board and recycled after the meeting.  Do we all participate in this? Perhaps not, but when four are sharing the load, such tasks are achieved effortlessly. It isn't about liking or disliking one another. Sharing a building entrance isn't a popularity contest. It's one small aspect of honoring a social contract.

Returning to the problem of newspapers scattered all over the grounds, this occurs to me as another example of how this association continues to devolve with a board that attempts to satisfy "everyone" by not offending anyone who lives here. Oh yes, we're all "homeowners" the board keep insisting. Really? REALLY? Don't "homeowners" have duties, accountabilities and responsibilities? Aren't they expected to keep their property clean and neat? Aren't they expected to adhere to some minimum standards? So why, if our board insists we are "homeowners" are not rules violations enforced when situations such as these papers occur? Isn't that littering? Isn't a "homeowner" supposed to handle the litter on "their" property?

I conclude that some of our board members are playing a childish game. They are pretending we are homeowners and providing "lip service". I must ask, how will calling us "homeowners" get us to act as "homeowners"? What actions on the part of this board would be a correlate to treating us, the unit owners as "homeowners"?

I think it's very easy; either everyone in a building finds a way to cooperate and get the job done, even if that means only one in four makes the effort and takes the time to pick up the papers littering the driveways. Or, everyone gets violation notices and if this continues, are fined. Oh, but that would be "repressive measures" one on our board has previously written. Promoting anarchy is preferred to promoting a neighborhood!

As for enforcing rules, the new board via our R+R Director with their new procedures, never discussed in front of unit owners, by the way, now merely writes letters and runs focus groups to discuss the betterment of the rules. One of the "better ideas" is to pass inspection to the professional management. I understand some of the politics. Who on our board is going to tell their "friends" that they are breaking the rules? From the board's perspective, that's apparently not the way "nice" people are supposed to operate in our association. So who is to be the heavy? It's now up to the professional management to do the inspections and provide a list of violators to the board. Those that don't pass the subjective "filters" our "loving, tender, caring" board have established will get some sort of letter of violation. Do all the violators get a letter? Who knows? It's in the hands of our board. The same board that repeatedly hides behind closed doors in executive sessions.

This approach is how we will now get much less bang for the buck from management. Instead of running the business, our management joins the cadre and army of people who are supposed to clean up after us. Does management have unlimited time available for this? No they don't. So I am inclined to ask, if the management is now doing clean-up duty, what aren't they doing? What tasks are no longer being completed in this assumption of the duties of the board by management? There are a limited number of hours in the day, aren't there? I suppose not if one is a serf. And make no mistake, we have board members who really treat everyone as a serf.

There was a time, very recently, when the R+R Director walked the grounds daily and made lists. But that resulted in violation notices and some upset unit owners. There were also disagreements on the board. After a vigorous campaign against board "repressive measures" we have new procedures, per statements in the newsletter and even more forthcoming rules changes and procedures, all by our new board and our new R+R Director. Will these be better procedures as in "more effective" procedures? I'll let you be the judge of that. It all depends upon one's perspective. An immediate benefit is, we no longer get the "Wheaton Sun".

After attending many meetings and listening closely to the board, I have concluded that all this talk about "being nice" and it's flip side, which is about "repression" is personal in nature. Collection procedures are not directed as a means to punish. Enforcement of the rules are not "punishment". Each and every unit owner and every renter has a social contract with this association and that is ultimately an agreement with their "neighbors". Living here is a privilege and as a "right" has specific duties and responsibilities. For example, we are expected and contractually bound to pay our monthly fees in a timely manner. If we fail to do so, there are consequences. Those consequences are not "punishment" and unit owners and members of the board should not expect their "neighbors" to carry that load for others. Our attorney addressed this at the May meeting. When a unit owner does not do certain things, or violates the rules, he or she violates the social contract. Such actions are undermining to the association and undermining and damaging to the others who live here. I have concluded that for one or more of our board members this "nice" talk is sourced by a deep animosity. I have news for you. "Nice" people honor their agreements and keep their contracts and pacts with their neighbors. "Nice" people pick up the trash, pick up their dog litter, adhere to the rules and pay their fees. If there is an issue, they don't "demand" that the rest of the planet change for them. They clean it up or ask for clarification of the rules and then they clean it up. Anyone who doesn't is an undermining person who lowers the quality of life here at BLMH. Period!  That also has a deleterious impact on unit sales. That's right, Virginia, all of this "La-la land talk" and lack of action could be driving potential buyers away.

After attending many meetings, it would seem that the emphasis of the board is to cater to pseudo "homeowners" who are waiting for the next party, the next free coffee, the next fee reduction, and someone, anyone to pick up after them.  These same "homeowners" supposedly now want, or is it "demand" private gardens! That's the latest "grand idea" coming through the board, I understand. Who will maintain the "gardens" of these "homeowners?" Who will set the rules and who will enforce them and levy the fines when people violate those rules? No one, is  my guess. When unit owners do go too far, when their gardens turn to patches of weeds or die and create mudholes, then it will be up to someone else to clean up the mess, at association expense.  Just another task for our professional managers and maintenance crews. Just another expense passed to the rest of us.

Promoting these ideas is much easier than creating an association that works. It's much easier than dealing with the difficult issues. It's more popular than enforcing the existing rules.  It's a lot easier than living by example.

The suspension of the Wheaton Sun is what I call a reduction in services. Potentially the first of many.

Comments, Corrections, Omissions, References
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1. Of course, setting standards and adhering to them would impact everyone including the board members. That might be uncomfortable for some of them. Issuing citations to offsite owners for uncollected newspapers in driveways would be too close to "home" and any fines levied would be a fee increase. Board members wouldn't want to promote such things. Such fines might come out of their own pockets. 
2. When our CD promoted the attendance of renters at association meetings, there was no conversation about duties and responsibilities. If I were in a building sharing an entrance with a renter, could I expect the renter to help out and act like an "owner"? Could I expect them to return the courtesies and pick up "my" newspaper or trash bin and bring it in? Could I expect them to help shovel snow or distribute salt in the winter? Could I expect them to carry a part of the load?  If you are an owner sharing an entrance with a renter, who is it that does these tasks? If the renter doesn't do it, shouldn't the unit owner who owns the rental, or the unit owner's "representative" be required to do it? Why not? I realize it wouldn't be convenient for the off site owner. In other words, on site owners are supposed to deal with all of the problems. On site owners are supposed to do the tasks the off site owners are unwilling to do. On site owners are supposed to carry the load. Aren't these the types of issues our board is supposed to be dealing with as fiduciaries?
3. The obvious question to ask is, how many of the  members on the board do these things; e.g. carry in their neighbors trash bins, shovel snow or picked up those papers? That is to say, how many board members "walk the talk" and act as owners? Or are they also waiting for someone else to do the work?
4. If we aren't willing to do the work, then the only option is to pay others to do it or suspend services and reduce the scope of projects. Read your Manor Briefs and attend association meetings. The board talks about lowering fees. The only way to do that is to lower expenditures. Reducing the scope of projects is one way. Architectural shingles can be eliminated. It could mean shifting some chores to unit owners. However, I see no way for that to occur with a board that is unwilling to press unit owners to participate beyond coffees and parties. If the job is to get done, it needs to start somewhere, and that is "leadership by example" followed by consistent and uniform enforcement of existing rules, treatment of owners as "owners" with duties and responsibilities, and discussions about the duties of renters and the duties of offsite owners. All necessary to maintain the quality of life here at BLMH. 
5. When it came time to vote on the reserve study, there was no mass outcry on the board against the motion by the CD to approve the higher bidder. Our CD, who promoted the higher bidder, didn't stop and say "I prefer the higher bidder, but I promised to scrutinize every bill and to hold the line on fee increases. So I can't recommend them." Wouldn't that have been the responsible thing to do and to say? Would you believe that we have just begun an incredible roofing project here? The board may gut the project to reduce the expenditures. That's one way to reduce fees; lower the cost of projects to be accomplished with the reserves collected. Of course, the real question is, are we saving money or is this financial "slight of hand". For example, reducing the scope (no insulation and/or no roof ridge vents), using cheaper shingles and materials and construction techniques, reducing the length of the warranties, using lowest bidders no matter what the references, could lower the up front costs. But it's a game. Put on shingles that will last 10 years as opposed to 20 or 25 and do we save money? Only if the cost is less than 50% that of the "higher" roof. But I am certain this board will consider going that way. Then some on the board will then be touting how she or he has "saved us money". Well, in 10 years when we are again facing the prospect of doing roofs, possibly with no reserves, those left "holding the bag" will pay the piper. How many recent and current board members will be long gone at that time? I'll be watching. However, when it comes to "pet projects" we will go with the higher bidder, just as the board did with the reserve study. The justification? We now have the "higher bidder" for the reserve study who has "project management skills". We already have a maintenance company with "project management skills" so, I have to ask, what are we really getting for the extra money we are spending on this study? The obvious answer is "nothing", absolutely nothing! You may recall this same board member who promoted this particular firm is the same board member who was once promoting "we will seek ways to reduce expenses". Yes, talk is really cheap, as they say: Click here for my September 11, 2008 letter and the response
6. All of this, the board would have us believe, has absolutely no impact on unit sales.
7. In my September 2008 letter to the candidate who is now the CD I included the following statement: "To empower change and open communication it will be necessary to have a web site open to all unit owners and where ALL letters and responses are posted. Unit owners should be able to post their questions and concerns without censure by the ROC, the Board or anyone else, within the limits of what is considered to be non-obscene. Who would moderate this?" I received this reply:  "Would you like to moderate it? The job is open."  I subsequently offered to take on the job, but there was no reply. So this blog, which is a compromise, is the result. 

Would You Like a $10 Monthly Fee Reduction?

In my ongoing struggle to shift the conversation here at BLMH, I'm going to broach another subject.

Would you like to see a $10 monthly fee reduction? It is possible. However, it will require that our entire board change it's focus from Rule changes, garage and flea markets, coffees, expanded newsletters and so on, to something called "finances".

Some on the board, including our treasurer are already there. Others seem to be clueless.

What would it take to reverse the trend in escalating and increasing fees? What would it take to REDUCE fees?  Would that help to increase unit sales? So why aren't we looking at that?  It will take a lot more than talk; it will take action. We don't seem up to the task of real change.

Our new board members, and the one existing board member made a 'shoot from the hip' decision to hold fees constant this year. Unfortunately, this was not accompanied by an equal decision to hold the line on the budget. Simply publishing a budget which is a statement that "the budget for 2010 will be essentially identical to that of 2009" won't get the job done. As I recall, 2010's budget is based upon the published budget of 2009, not the ACTUAL expenditures. In other words, it wasn't based on the amounts actually spent in 2009!

How to reduce our fees by $10 a month? It's easy. Just cut expenditures by $40,000 this year. But to do that, the board will have to begin a serious discussion which goes beyond lip service about "scrutinizing" every bill - that was a campaign slogan in 2008. It will have to begin serious discussion about reducing expenditures. And ACTION. However, currently, those on the board who ran on "scrutinizing" have now shifted to "it's only a little bit of money." New items are proposed and discussed, but discussion of costs and impact on budget are avoided by saying things like "wouldn't this be good" and "it's only a little bit of money", etc. Supporters are readily available to make supporting statements to the board and to any unit owners who attend meetings. No one says "this will cost more" except our treasurer. Last year's treasurer objected to some of these conversations for the same reason, and stated so at association meetings.

Yes, talk is really cheap, especially when it is someone else's money.

Do we want to get serious about unit sales? Do we want to do something for all UNIT OWNERS here at BLMH?   Good luck, it will be necessary to get the ENTIRE board aligned and on track!

Instead, we now have people telling me that "wouldn't it be good if we had an on-site custodian?" etc. Seems somebody is committed to spending money here. The management tells me we are too small an association for a full time custodian. A unit owner who seems well connected, tells me that we, the association, could purchase a unit or pay the monthly fees of a custodian. Great. Let's reduce the income of the association by about $4,000 each year (that's the custodian's fees we won't collect) AND increase expenditures. Of course, we would have to pay "insurance" for the custodian, his Social Security, taxes, tools, etc. Or, should we just subsidize the business of some "out of work" contractor?  Yes, there is a lot of money here at BLMH, and I'm sure there are a lot of under- or un- employed handymen and contractors who would love to land the contact here at BLMH. Perhaps that was the idea behind all of the talk by new board members in 2008 about how we didn't need a professional maintenance company. We could do it with a few "handymen".

Where there is smoke, there is fire, it is said. Seems someone is planning the next "change" here at BLMH.

Comments, Corrections, Omissions, References
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1. We have large reserves. It seems that some money will be shifted from that to cover operating expenses. How can that be? The board added "coffee and donuts with the board" this year. We still have a glossy and larger newsletter. We have a new website. There was no vote to increase budgeting for these items, or above 2009 levels. In fact, our budget this year was voted to be EXACTLY as it was to be in 2009 as published in Fall 2008. So how can we spend more and yet not collect more? So where will the money come from?  The only possible method is taking it from reserves. I'm still waiting for the details of 2009's actual expenditures, in which some money was spent on landscaping, etc. as part of driveway and roofing (relocated downspouts), etc. I still have no idea exactly how much was spent in 2009. Some work performed in 2009 was possibly billed and paid for in 2010.

2. Our treasurer is an appointee who is experienced from previous boards. One board member ran in 2008 and was elected that year. All others are new for 2010 and have no prior HOA board experience. We have a new appointee who was voted and passed in April's meeting. The open discussion by the board stated he was an employed contractor. That statement also said he would be the Landscaping Director. On that basis the board voted unanimously to appoint. The new Landscaping Director made no statement nor addressed the unit owners who were present. So we can only trust that the statements made by those on the board who promoted him, which includes our CD, were factual in this matter.

3. I'm not proposing an "across the board" or declaration to reduce our fees by $10 per month. What I am proposing is:

• Evaluate all expenditures with the purpose of holding all current spending at or below ACTUAL spending in 2008.
• Eliminate board member "pet projects". Nothing is sacred, except critical services, roofing and driveway projects. If this association is not maintained then property values will decrease. 
• Do absolutely nothing to spend additional moneys.
• Create a true contingency fund.
• If this board can demonstrate the will to accomplish the above, then begin a serious undertaking to reduce expenditures and fees.