Archive for the ‘Board/Officers’ Category
In today’s economy, many boards are refusing to raise assessments for operating and reserve funding needs.
The main rationale that I hear all of the time is that the economy sucks and owners are struggling as is and they just can’t bear to add to their “friends” and neighbors expenses.
Such an emotional response isn’t doing anyone any favors and in fact might be doing more harm than good. It could also open the Board for criticism or lawsuits for not living up to their legal and fiduciary responsibilities.
I have one association who hasn’t raised assessments in three years and the Board is quite proud of that. The problem is that inflation hasn’t stood still and every month the association’s cash flow decreases and some months they can’t pay all of their bills and age them into the next month. They’ve dealt with this cash flow issue by underfunding the reserve account. While a small 1-2% increase each year over the last few years would have alleviated this problem and been easier for their owners to swallow, this coming year they will probably have to raise assessments nearly 15% to make up for. That increase will actually place more hardship on their owners and cause a lot of anger. Add to that the fact that their reserve fund is now very underfunded.
Here are just a few reasons why not setting your assessment levels at actual needs can come back and bite you:
1) When you do have an increase, the amount will be huge and you may have an owner revolt on your hands.
2) Cash flow issues start impacting routine maintenance that would normally get done. Such deferred maintenance lowers property values. Too much deferred maintenance also makes the day-to-day living in your community less desirable and owner resentment and anger can build.
3) Not properly funding your reserve (which nearly always is what suffers for cash flow) harms property values. Right now FHA/Fannie Mae/etc. are the only ones really writing mortgages. They have strict requirements for reserve funding. Not meeting those guidelines means your owners who are trying to sell can’t find buyers who can get financing. Fewer potential buyers mean downward pressure on property values.
It is hard to make the pragmatic and proper decision for your association’s future. I always recommend to my Boards to properly fund their actual needs and caution them against making emotional decisions rather than the sound business decisions that their fellow owners elected them to do.