Special Assessment vs. Additional Increase to Monthly Fee

Looking for opinions on a one-time special assessment vs. increasing the monthly assessment to raise some cash.

We were directly affected hurricane Ian. We have hurricane related expenses that total about $500,000. We don't know how much of that we will get back from insurance, probably around $200,000, but meanwhile invoices have come in and our treasurer approved them to be paid without thinking about how we were going to pay them. We have a short-term cash crunch but also long-term we won't be able to do any projects next year if we use all our cash for this.

Our choices are: one-time special assessment of about $325 per home or add an extra $20 per month to the already announced monthly assessment for next year (it already went up $25 per month over 2022). We are borrowing from our reserves to pay bills next month, but we have to pay that back.

We do not have to get homeowner approval for the special assessment and we will be discussing in an open meeting. I think we should do the special assessment and be done. The treasurer thinks the monthly increase is the way to go. No word yet from the rest of the board.

Any thoughts or experiences on this?

As a homeowner, I am generally a bigger fan of one time assessments versus monthly dues increase when considering how to pay for a one time cost. I am a cynic of entities like HOAs, city governments, schools, etc, and believe that a increase to the monthly dues will become permenant while a one time assessment will be temporary.

Special assessment. Stop the bleeding now.

Curious when was the last hurricane was in Washington and how you would be such an expert on the subject?

Lots of other things besides hurricanes can be unpredictable and cause damage to items covered under reserves. You comment doesn't pass the smell test.

Lori

While not disagreeing with you, typically (and in our association) a Special Assessment has to be approved by a majority of owners. In our case, 2/3rds. Also in our case, the BOD can raise the Yearly Assessment (Dues) as much as they want but only once a year. Personally I would not look favorably on buying in an association where the BOD alone can create a Special Assessment.

I would vote for the one time SA . Spreading it out only makes it hurt more.

Special assess and make your repairs. An extra $20/month, if approved now, will become a permanent increase in the years ahead.

Skip the loan.

Lori,

Glad to hear that your Association has already thought about the unexpected and have a line item for Hurricane Contingency Fund.
Obviously, you may need to increase that amount to cover the deductible (or more) of any insurance policy.

Borrowing from reserves and paying it back with a special assessment or proceeds from insurance payment would certainly be acceptable.
Unless you have a large reserve item to take care of soon, I wouldn't consider a loan.

If you take out a loan, you will need to increase assessments and terms are set by the bank.
If you borrow from the reserves, it's money you have and you (the board) sets the terms on repayment.

I suspect that your Treasurer is simply seeing a sea of invoices and is worried how to pay them.

Remember, everything doesn't have to be fixed at once.
The Board should prioritize and some items might need to wait until insurance comes through.

We are continuing to work on this issue. Right now we have almost $500,000 in bills directly related to the hurricane and have been able to move enough money from our reserve account to pay for most of them. I'm not sure why the treasurer and PM didn't hold some of the bills until we figured this out, but it's already done.

We have to pay back the reserve account. We still have well over $1 million in our reserves.

We have a claim in with the insurance company, but we don't know how much they will pay and what our deductible will be. Once we know what we will receive we will know how much we will need to pay back our reserves.

Our bylaws (and state statutes) do not require the vote of members to do a special assessment. The board can do it themselves. We have never had a special assessment in the 25 year history of the HOA, so no one has taken advantage of that rule. Because this was a declared emergency, we don't even have to give 14 days notice of the special assessment discussion. However, we are always required to have open meetings and we will not be discussing this in secret - there will be discussion with homeowners. If we decide to just add additional funds to the monthly assessment, we have to go back and have a budget workshop and give 14 days notice of a budget meeting so homeowners will be aware. If we borrow money, we can borrow up to 2% of our annual operating budget without homeowner approval.

The amount we owe for hurricane damage includes almost $150,000 for our gate system (we have 6 entry and 6 exit gates). The wind was so strong the wrought iron gates were ripped off their hinges. All the motors were destroyed and the electronics were damaged. Our pools were both damaged by flood water. Our small maintenance shed was completely destroyed. Our roll down hurricane shutters were damaged by something flying into it. A large portion of the cost was for landscape damage and clean up. We have 25 year old, 50 foot royal palm trees that line our streets that were blown over and the roots heaved the sidewalks. Those trees and our large oak trees were blown over and had to be cut up and removed, plus most of the palm trees were stripped bare of palm fronds. There were mountains of debris that we picked up.

I'm just trying to give you an idea of why we could not have conceived of the extent of the damage and why our contingency fund wasn't enough. We definitely will plan for the future. I learned a few things, including 1) we need a much bigger contingency fund and 2) don't let your treasurer get talked into a CD ladder by the investment advisor so all your reserve is tied up for years and 3) this isn't a business where you have professionals who look at cash flow and let you know in advance if there's an issue.

You may have to do a little of both, but like the others, I think biting the bullet and doing the special assessment is the way to go. Paying $325 is better than $3250 or $32500. That can get you over the hump now, but you probably need to take a long hard look at the budget and consider how well assessments are keeping up with inflation. With the price of everything going up, no one should be surprised that assessments have to keep up.

Glad you're having an open meeting (aka come to Jesus meeting) about all this. If necessary, tell people to remember Surfside - those homeowners didn't raise assessments and balked at a special assessment, and you saw what happened.