Calculating how to raise dues...help please.

Started by DaneE • 23 replies • 3956 views

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DaneE (Texas)
Posts: 12

Posted:

My HOA has been struggling for years, and it seems as though we are on the cusp of really getting back in the swing of things. One thing that is going to be changed is the dues (they haven't been raised since 1969 when the HOA was created). The CC&R's are very specific and outline how to increase the dues without a vote, but I'm not good at math so I'm hoping this community can help. The CC&R's indicate that the dues can be raised without a vote by using the Consumer Price Index.

CC&R's Section 4 states: Method of Computation When Using the Consumer Price Index - The Consumer Price Index established the United States City Average numerical rating for the month of July 1968, as 104.5. This will be the base rating using 1967 as the Base Year for the Index. To determine the percentage to be applied to the maximum annual assessment for any subsequent year, divide this base rating into the numerical rating established by the Consumer Price Index for the month of July preceding the proposed assessment year. This adjustment percentage, if in excess of 100 per centum, is multiplied by the original maximum annual assessment ($120) to obtain the maximum assessment for the subsequent year.

Anyone that could help calculate this for me would be greatly appreciated. I'm pretty good with most HOA/CC&R/By-Laws stuff, but this is not a strong point of mine.

Thanks for your help!

MelissaP1 (Alabama)
Posts: 13,836

Posted:

The HOA is set up as a non-profit corporation but NOT one that is charitable. That means that the budget is such that whatever it collects in it must spend out on it's maintenance/operation. It can also have a reserve fund for long term capital repairs. Anything above that can be considered taxable.

I would suggest taking a serious look at your overall expense and what long term capital you may need to save up for over time. Whatever that adds up to then split that evenly amongst ALL owners. You may also want to factor in some expenses for placing liens or other legal steps into the proposed budget.

A HOA is ONLY funded by it's members FOR it's members. So everyone needs to kick in evenly and squarely to maintain.

Former HOA President

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Dane

Many docs refer to CPI but many do not limit dues increase to that alone. I cannot speak to your docs but ours have the CPI stuff in them but when read closer they say:

1. The BOD can raise dues by the CPI and the owners have no recourse.

2. They also say the BOD can raise the dues by any amount they want to but there is a procedure and the owners can reject such. Not that the owners have to approve such, but they can reject such.

I say read your docs closer if you need/want to increase your dues more than the CPI.

The bottom line on CPI, as I understand it nor did I read yours close), is it will be in the 2 to 4 % range so your $120 per year (is it yearly?) can go to about $123 per year. Will this do it? I did not check your math formula but I think I am close. I also believe the CPI method of calculation has changed since 1989.

Could it be retroactive is something to look at. I had a building landlord do that to me once when I was selling my business (including the building lease) and my lawyer said as long as our lease did not say it could not be retroactive, the chances are it could be.

RogerB (Colorado)
Posts: 5,067

Posted:

Dane,
If your CC&Rs only use the CPI as a guide for raising the amount of the assessment, I suggest you amend the CC&Rs. Otherwise, if your association chooses to use the CPI how do you add funds to your reserve account to offset for inflation? But first, I have a pet peeve about the use of the term "dues". Dues are voluntary amounts which are paid by a person belonging to an organization. Whereas, an assessment is a manditory charge against a property and paid by the homeowner.

A change in the amount of the assessment should start with a review of a long range (20 years or more) reserve plan. Followed by developing the annual budget which includes the planned assessment and the amount scheduled to be added to the reserve funds. The approval needed is based on your CC&Rs. Some CC&Rs allow approval by the Board of Directors for up to 5.0% APR and approval of xx% of the members present at a members meeting if greater than 5.0%.

LarryB13 (Arizona)
Posts: 4,099

Posted:

Quote:

Posted By RogerB on 11/15/2015 8:01 AM
I have a pet peeve about the use of the term "dues". Dues are voluntary amounts which are paid by a person belonging to an organization. Whereas, an assessment is a mandatory charge against a property and paid by the homeowner.

I second that emotion.

Quote:

A change in the amount of the assessment should start with a review of a long range (20 years or more) reserve plan. Followed by developing the annual budget which includes the planned assessment and the amount scheduled to be added to the reserve funds. The approval needed is based on your CC&Rs. Some CC&Rs allow approval by the Board of Directors for up to 5.0% APR and approval of xx% of the members present at a members meeting if greater than 5.0%.

I think all of these suggestions overlook the problem that the OP is trying to solve: imposing an immediate increase in the assessments without seeking member approval using the CPI provision in his CC&R's. Assessments have not remained stagnant since 1969 because this is a well-run HOA; the situation exists because irresponsible and childish homeowners have chosen to keep assessments unrealistically low. It is not reasonable to expect owners to suddenly become responsible adults, thus the need to act without their approval.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Dane

An add on.

Our Covenants say the BOD can submit a new budget, including a dues increase of any amount on or before 12/01 to become effective on 01/01 unless the budget is rejected by a majority of the owners. If rejected, then the BOD can implement a CPI-U increase which cannot be rejected.

In order to reject the budget (including the dues increase) it would take 10% (12) of the owners to call a Special Meeting and 57 of 113 owners would have to vote to reject. I say a Special Meeting as for sure the BOD is not going to call a meeting for a vote on their proposed budget. Unless said dues increase would be off the scale of reasonable, I doubt enough would call for a Special Meeting and I really doubt a majority of owners would attend nor vote. Plus it would have to be done during the month of December.

For some reason there has been a rumor going around our neighborhood that the BOD cannot increase dues more than 5% without owner approval. I have no idea where this rumor came from but it is not factual.

People need to read their docs closer. There is often more than one way to skin a cat in there.

Technically it is assessment but dues is easier to type....LOL

DaneE (Texas)
Posts: 12

Posted:

That's for all the input. I apologize for my incorrect use of the word dues. This is about assessments, not dues.

To give some context, the HOA consists of just over 600 homes and has been poorly run and the majority of members in the HOA are seemingly okay with that. There has been little enforcement of any regulations and most members have simply given up on caring about the HOA so getting them to agree to raise the assessment will be nearly impossible. We've worked through a budget and know that the assessment needs to go up significantly, and we will attempt to get that approved, but in the case that it is not approved we will need to raise assessments as much as possible each year until reaching out goal. I simply am not good at the math surrounding the CPI. The CC&Rs and By-Laws haven't been updated since '74 and discuss servants quarters, telegrams, and disallow trucks 3/4 ton and larger. This is a Texas neighborhood, blue collar, everyone has a truck bigger than 3/4 ton...no one has servants quarters. Meeting called via telegrams, time to get to the 21sr century, this is just a small part of the mess I'm dealing with.

Your help in calculating the maximum amount I can raise assessments without a vote will be very helpful. Also, I'm open and welcome to other suggestions and thoughts regarding what the new CC&Rs and by-laws may need to include.

KerryL1 (California)
Posts: 14,550

Posted:

I can't help with the CPI, math, either, Dane.

But...is there anything in TX law that might permit you to raise dues more without an Owner vote? Sometimes, state laws trump HOA docs.

TimB4 (Tennessee)
Posts: 21,059

Posted:

Quote:

Posted By DaneE on 11/14/2015 12:05 PM

CC&R's Section 4 states: Method of Computation When Using the Consumer Price Index - The Consumer Price Index established the United States City Average numerical rating for the month of July 1968, as 104.5. This will be the base rating using 1967 as the Base Year for the Index. To determine the percentage to be applied to the maximum annual assessment for any subsequent year, divide this base rating into the numerical rating established by the Consumer Price Index for the month of July preceding the proposed assessment year. This adjustment percentage, if in excess of 100 per centum, is multiplied by the original maximum annual assessment ($120) to obtain the maximum assessment for the subsequent year.

As I read it.

(July City index CPI / 104.5) = % Board may raise assessments by

if (CPI / 104.5) = >1 then multiply by 120 to determine max increase amount.

Examples:

2015 assessment = $200
City CPI = 95
95 divided by 104.5 = .909 (90.9%)
.909 * 200 = 181.80
200 + 181.80 = 381.80 max assessment for 2016 without membership vote

2015 assessment = $200
City CPI = 110
110 divided by 104.5 = 1.05 (105%)
1.05 * 120 = 126
200 + 126 = 326 max assessment for 2016 without membership vote

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Tim

I cannot argue with your numbers but they do "scare" me.

In your examples the dues went from $200 to $381 it would be a 90% increase and from $200 to $326 would be a 60% increase.

My understanding is the CPI has been about 3-4% per year thus $200 to maybe $208 after one year. Even if 4% per year was cumulated each and every year it would only come out to like $200 to $243 after 5 years.

I would need my lawyer and accountant to put their heads together to "decipher" what the OP's docs say.

KellyM3 (North Carolina)
Posts: 2,239

Posted:

Quote:

Posted By DaneE on 11/14/2015 12:05 PM
My HOA has been struggling for years, and it seems as though we are on the cusp of really getting back in the swing of things. One thing that is going to be changed is the dues (they haven't been raised since 1969 when the HOA was created). The CC&R's are very specific and outline how to increase the dues without a vote, but I'm not good at math so I'm hoping this community can help. The CC&R's indicate that the dues can be raised without a vote by using the Consumer Price Index.

CC&R's Section 4 states: Method of Computation When Using the Consumer Price Index - The Consumer Price Index established the United States City Average numerical rating for the month of July 1968, as 104.5. This will be the base rating using 1967 as the Base Year for the Index. To determine the percentage to be applied to the maximum annual assessment for any subsequent year, divide this base rating into the numerical rating established by the Consumer Price Index for the month of July preceding the proposed assessment year. This adjustment percentage, if in excess of 100 per centum, is multiplied by the original maximum annual assessment ($120) to obtain the maximum assessment for the subsequent year.

Anyone that could help calculate this for me would be greatly appreciated. I'm pretty good with most HOA/CC&R/By-Laws stuff, but this is not a strong point of mine.

Thanks for your help!

The original dues amount was (and is): $120

The original CPI U.S. City Average for 1967: 104.5

The CPI US City Average for July 2015 (to calculate for the 2016 budget year): 238.654

238.654/104.6 = 2.2815 aka 228.15% (the 167 CPI divided INTO the July 2015 figure)

$120 * 2.2815 = $273.79......or round to $273.75 for easier accounting

2016 Dues = $273.79.

This is a clever by-law that allows boards to financially "Catch up" should the HOA board clearly and artificially hold dues too low. Next year, the math would simply allow for a basic year-to-year inflationary increase w/ no spike in dues.

KellyM3 (North Carolina)
Posts: 2,239

Posted:

Keep in mind that this HOA's rules set the maximum assessment and DO NOT establish the amount by which the HOA board may raise dues from the current amount. The Board seems to be allowed to set the dues rate at a maximum $279 - an increase of $159 over the $120 at which, I presume, the rate currently sits.

There is no adding $279 on top of $120 in assessments/dues. The board has decision-making authority up to the maximum allowed if I read correctly.

DaneE (Texas)
Posts: 12

Posted:

I apologize, I misread the dues maximum that we currently have...

Our current monthly assessment is $28/month or $336/year. I'm not sure when the last increase was, but in talking with some neighbors who've lived here for a while it's been a long time. Does this current rate change the maximum this can be raised to without a vote?

Dane

TimB4 (Tennessee)
Posts: 21,059

Posted:

One thing to keep in mind is that in 2015, the way the CPI was calculated changed.

See: Consumer Price Index, Dallas-Fort Worth – July 2015 from Bureau of Labor Statistics.

My suggestion would be to work to amend that section and simply place a fixed percentage the Board may raise assessments (somewhere between 5%-10%).

TimB4 (Tennessee)
Posts: 21,059

Posted:

Quote:

Posted By DaneE on 11/15/2015 7:57 PM
I apologize, I misread the dues maximum that we currently have...

Our current monthly assessment is $28/month or $336/year. I'm not sure when the last increase was, but in talking with some neighbors who've lived here for a while it's been a long time. Does this current rate change the maximum this can be raised to without a vote?

Dane

Use the 338 number in place of the 200 number.

One thing to be concerned about is that it's possible (as has been reported in the news) that the CPI for this year actually went down or stayed the same. Hence, being tied to the CPI may work against the Association meeting bills.

You said that you were going to try for the increase by membership vote.
We did this when we needed to increase assessments by 20% to fund the Reserves.
The key to getting this approval is to educate, show your work and gather proxies (if proxies are allowed).

E-mail me if you desire examples of what I mean when I say show your work: [email protected]

MelissaP1 (Alabama)
Posts: 13,836

Posted:

I wanted to add one thing for Serious consideration. You should always factor in a possible 10% up to 20% non-payers. You will always have a transition period of no ownership or those who will refuse to pay. Unfortunately, that means the rest of the membership taking up the slack. Which then leads to needing to have enough money factored in to cover their non-paying ways or legal lien steps to force them to pay.

We had 107 homeowners. We could count on at least 100 to pay on time every time. 3 to 5 may be late. Then we had a few not paying at all for long time. However, we had a 6 month we lien policy. 1 year we CONSIDERED foreclosure. We also charged a $20 late fee.

Basically even though your dues are to be divided out equally you may want to reduce that overall all divider number by 10% or whatever rate you have NOT paying. Example: 100 owners and 90 pay routinely. I would use the 90 as your divider and NOT the 100. That way you will have the coverage to meet bills and enforce the rules of collection.

Former HOA President

DaneE (Texas)
Posts: 12

Posted:

Quote:

Posted By KellyM3 on 11/15/2015 6:30 PM

My current dues are actually $28/month or $336/year, how does this affect the calculation (if at all)?

Thanks for all the help and input from everyone!

TimB4 (Tennessee)
Posts: 21,059

Posted:

Dane,

If you can tell me what the July city index was, I can do the actual calculation for you.

DaneE (Texas)
Posts: 12

Posted:

Quote:

Posted By TimB4 on 11/16/2015 4:12 PM
Dane,

If you can tell me what the July city index was, I can do the actual calculation for you.

I'm not really sure where to find that number. I tried to Google this and found this link: http://www.bls.gov/cpi/cpid1506.pdf

When I took a look at that link I wasn't sure which number to grab and so I'm left confused. Where would I find the specific number for the June 2015 CPI?

-Dane

DaneE (Texas)
Posts: 12

Posted:

Quote:

Posted By DaneE on 11/16/2015 5:27 PM

Posted By TimB4 on 11/16/2015 4:12 PM
Dane,

If you can tell me what the July city index was, I can do the actual calculation for you.

I think I found it here: http://www.usinflationcalculator.com/inflation/consumer-price-index-and-annual-percent-changes-from-1913-to-2008/

Which, if I'm reading this correctly means the CPI in June was 238.654

Thanks for your help!

TimB4 (Tennessee)
Posts: 21,059

Posted:

Dane,

Using your link (which I also believe is the correct link based on the base index in your documents matches) and July's number (vs. Junes as your governing document citation indicated July) of 238.654, I calculate the following:

Formula:
CPI divided by 104.5 = x
Since X is greater than 1, per your governing documents: x multiplied by 120 = amount of potential increase.
Current assessment plus amount of potential increase = max assessment for 2016 without membership vote

Calculations:

238.654 / 104.5 = 2.2837
2.2837 * 120 = 274.05
$336 + $274.05 = $610.05

Hence, per my calculations, your Board may raise assessments in 2016 to a maximum of $610.06.

However, since you pay monthly and the requirement not to go over $610.05, the actual monthly payment could be no larger than $50.83 or $609.96 per year.

My recommendation: Go no higher then $609 for the 2016 annual assessment (which is $50.75 per month).
It's easier on the math and ensures you don't go over the max allowed.

Keep in mind that my recommendation still represents a 181% increase in assessments.
Therefore, make sure you explain the need and the authority as clearly as possible to minimize the grumbling you will receive from the membership if you take assessments that high.

What is the amount you are trying for?
What is the reason (reserves, general operating expenses)?

TimB4 (Tennessee)
Posts: 21,059

Posted:

Quote:

Posted By TimB4 on 11/16/2015 6:44 PM

Hence, per my calculations, your Board may raise assessments in 2016 to a maximum of $610.06.

Typo. Should have read, a maximum of $610.05

DaneE (Texas)
Posts: 12

Posted:

We're hoping to raise dues to help cover the cost of signage, recreational equipment/playgrounds, better lighting in greenbelts, and few other items. Our HOA was built with greenbelts and parks planned, but most were never built out with playgrounds or pavilions or anything useful...they are currently just empty lots of land that we keep mowed. Our dues haven't increased much since the HOA began which is why no money was ever allocated for the improvements. At this point the dues primarily go towards our pools, which is nice for the few homes that live near the pools, but no one else likes paying for someone else to have a nice pool. Many homeowners have a pool of their own. The parks, pavilions, and signage would improve our neighborhood as originally intended, but at this point that comes at a cost of raising dues. I've priced everything out and we need each homeowner to pay at least $10 more per month to cover the cost of the improvements (assuming we finance the improvements and pay for them over the next 5 years).

The $10/month increase would bring each homeowner up to $38/month, however there are multiple other improvement projects on the list so as a board we were shooting to be able to raise dues to $50/month which, if all this math is correct, is exactly what we'll be able to do. I appreciate your help with that math. The wording was confusing me a little.

TimB4 (Tennessee)
Posts: 21,059

Posted:

Dane,

As the money is to be used for new capital components (vs. repairing, replacing or restoring existing capital components), you need to read your governing documents to see if Assessments may be used for that purpose without membership approval.

Typically, Assessments are utilized to maintain or replace existing components.

Adding new components normally, but not always, requires special assessment funds or loans to be used. These items may require membership approval.

Again, read your documents carefully as to what assessments may be used for and do not exceed the documents give the Board or you may find legal challenges to the increase (not for the amount but for the purpose).

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