Restrictions on Increasing fees

We are a 5 year old 55 active adult community in Delaware. We are going thru the transition stage and currently have a task force studying the bylaws and declarations. I am the chairman of the finance committee. The committee has recomended to the task force that the revision of the documents contain a provison to limit the increase in fees, based on the inflation index. Does any one have experiance with this?

Robert, following is an example from a Declaration where an inflation index is used, as one option, for determining the assessment. I personally would have the backup option of allowing the owners to vote for a greater (or smaller) change.

b) The Maximum Annual Assessment for Common Expenses shall be increased effective with the commencement of the Association’s second and each subsequent fiscal year thereafter without the vote of the membership as required by Paragraph 5.4(d) by an amount equal to ten percent of the previous fiscal year’s Maximum Assessment or in conformance with the rise, if any, of the Consumer Price Index published by the U.S. Department of Labor, Washington, D.C. for All Items and Major Group Figures for All Urban Consumers for the Denver, Colorado Metropolitan Area (1976=100) for the one-year period ending with the preceding month of December, whichever is greater. This annual increase in the Maximum Annual Assessment for Common Expenses shall occur automatically upon the commencement of each fiscal year without the necessity of any action being taken with respect thereto by the Board of Directors of the Association.

In the event the aforesaid Consumer Price Index is not published, for whatever reason, then the increase in the Maximum Assessment, as provided herein, shall be calculated by using a substantially comparable index designated by the Board of Directors.

RobertG1

How to set and limit dues and assessments will likely be an ongoing subject of debate, and may depend upon the type of property owners association (POA). A POA such as a condo with a major requirement to properly fund the reserves may require mandatory assessments with mandatory increses pegged to repair and replacement costs restricted to reserves. Such assessments may not have to be declared as revenue. The operating fund is the one that is most difficult to control. Often the budget with prepared without integration with the operating plan.

If the board is authorized to increase dues and assessments, they will likely find ways to spend the money. It isn't any different with any other government; the easy solution is to just increase assessments (taxes).

If the members have to approve each increase, then the POA may become cash poor with lots of robbing Peter to pay Paul. Proposals to increase dues and assessments may have the flavor of "if the increase isn't approved, we will have to cancel the football program" — a classic way to get more money for schools.

But the experience in smaller municipal governments is that they work best when residents have to approve any tax or millage increase, and that a balanced budget is required and must occur in fact. That is more likely to focus the public debate on both the funding and the operating plan.

If the members are to approve the dues and assessments, then they should also have to approve the operating plan. This matches the money to the plan, and the members decide what they are willing to pay for. I have described that process in a prior post in the search below.

The annual budget issues have been discussed extensively in prior posts. I suggest a search of those posts with the search string "annual budget approval members board". Adding "operating plan" to the search string considerably narrows the search which indicates that budgets and operating plans are not well integrated.

Our 30-year old HOA also has a restriction in the CC&R's requiring that the Board may only raise assessments by a formula (lasted published CPI x annual assessment divided by the CPI from the same time period the year before. This works out to about 2-3% a year unless the homeowners approve more. Complicated? You bet! OK, we managed to figure that out but I think the HOA should be able to use the CPI for energy instead of the overall CPI because we are only interested in how much the cost of shingles, paint, asphalt and wood increases. We should at least be able to use the one for our area, Tampa Bay, Florida, which is higher than the average.

Has anyone else dealt with this system and what are your thoughts?

Thank you.