Dues decreasing from $180 to $90 to $0 for NC SFH HOA

$25K was our old annual budget with Mgt company
We fired them and hired sister financial mgt company
$11K is our new budget. We will waive $90 dues in the spring.
If we fired the financial mgt company then
$5.5K would be our new self managed budget for 154 homes. Major expenses are $1600 for insurance and $3000 for lawn care of common areas, $360 for electricity and $400 for mailings. very simple.

Sources of income if self managed.
Closing document fees $350/sale 12x per year....$4200
Interest from $120K in CD's @ 4.5...............$5400
Total...........................................$9600

Judging from recent survey's. About 2/3rd of the neighborhood would probably be happy to not pay dues. only 60 out of 154 homes vote and of that about 1/4 vote pro fines and are hawkish, everyone else is laid back.

Any con's to getting rid of HOA dues for the next 5 years? Possibly much longer? biggest down side is I'll have to do all the self management stuff, but I'm doing it 90% already. No major expenses should come up in the next 20 years.I'll probably be dead after that so not gonna worry too far ahead.

Making long-term, fiscal decisions for an organization when you plan to not be around (Dead or moved) should lead you to reconsider your thinking on gutting your HOA operation. When you're gone, the HOA and community are left in worse shape due to your decision-making. That's not the goal but I commend you for subsidizing 153 other homes because you're working for free on their behalf...not yours

Wendy

I agree with both Kelly and Tim. Also if Reserves get to high, consider establishing a Capital Improvements budget line item.

-- I expect both the closing document fees and the CD interest may be taxable HOA income, and at a high rate. Consult whoever does the HOA taxes to get an idea of how much income tax will be owed.

-- Does the HOA insurer know a director will be (or is?) preparing closing documents?

-- As others noted, what does the reserve study require for a reserve contribution each year?

Thanks for all the feedback.

I think that every dollar the board spends could also be a dollar back into the member's pocket.

We have very low expenses and the park and picnic shelter were just redone so they shouldn't need any funding for 30 years.

I'll look into taxes which will be an issue.
Happy Thanks giving.

I completely forgot about this threshold. What TimB4 posted is important, AFAIC. To quote from the instructions from Form 1120-H that TimB4 linked:

To qualify as a homeowners association, the following must apply.
• At least 60% of the association's gross income for the tax year must consist of exempt function income (defined later).
[snippage]
...
Exempt function income. Exempt function income consists of
membership dues, fees, or assessments from... [owners in the HOAs]

I would expect the bill from the accountant who does the taxes is going to be over $1000.

It is likewise troubling to read that the OP thinks reserve funding can be ignored for 30 years. Reserve studies' goal is to spread capital costs (costs associated with replacement and major maintenance of infrastructure or amenities) over as many owners and as many years as possible.

Twenty-one percent (21%) is what I am seeing.

I am not sure all income is taxable when filing Form 1120.

Form 1120-H's 30% tax rate is on taxable income. When a HOA qualifies to use 1120-H, the taxable income often amounts to zero.
Please clarify: Are you saying you yourself prepared a reserve study, estimating remaining useful life and cost to replace, assuming a certain number for inflation?

I grant that if amenities and infrastructure amount to little, and there are enough owners, then yes, there's a lot of room for the current owners to cover any error made in reserve planning.

Like Wendy, I did my past Associations reserve study. No it wasn't perfect. Yes, it was much better then no reserve study at all.

During the annual reviews, I added things I missed in the initial study.

Our second study was done by a Reserve Specialist. Based on his figures, I was pretty much on target.

My study included input from catalogs, internet research and asking companies for advice. Some were willing to give a life expectancy on the things for a promise to be able to bid on replacements. If you don't have a structure (club house, condominium, etc.) or a pool, with some guidance, you can do a fairly good study on your own.

If you have a structure or a pool, I strongly recommend getting an engineer to give input to any study.

I always cringe when I see HOA's with little to no dues collected, but here are some things to ponder.

A dozen years ago when I was buying, I found a house in an HOA. I called the HOA that was listed on the MLS and
the company said this was a "non managed" HOA, There are CC&R's but there was no board per se and the HOA was not
in receivership. The monthly dues was like $12. The street was public, no amenities but the streetlights was paid for by the HOA.
There was just a small patch of landscape that virtually needs no maintenance with a small water bill. I think there was like 24-26 houses
on the street. Not much need for reserves and consider the ombudsman gets $5 per door per year. I think the same PMC managed
about 15 streets in the area.

Those low numbers are quite possible, just be weary.

so did you buy a home in this HOA? how's it working out 12 years latter?

I negotiated down the closing fees with our latest financial mgt co. to $150, (previoulsy $400) . I'm not really for increasing them again, but will leave it up to the membership to vote on it. I'm guessing since only 6% of owners move during any given year the majority will vote to increase the fees so they dont' have to pay dues each year. I'm sure there's some people that will think not paying dues is going to destroy the HOA. The more I look into the tax issue the less important it seems to be. Looks like HOA's can deduct expenses from the profit so the HOA might only pay taxes on a very small 0 to $2000 carry over each year.

During the transition 3 people overpaid and the new financial mgt company wants HOA BOD/us to get HUD statements so they can mail out 3x $250 checks.
Only 1 out of the 6 buyers/sellers bothered to reply to my email. If people are so apathetic about getting thier money back I really doubt anyone will make a lawsut about it. Besides like you said this has been discussed before. HOA's can charge $200 for the closing doc and they can also charge a $200 fee for setting up the new members account.

I've gotten 3 grants for the HOA in the last 2 years, they are a lot of work. People dont' want to volunteer even if paid $30/hour. They would rather work a job and pay the HOA money then do social activities with their neighbors. Strange, but true.

I have not presented any of these ideas with board or cpa yet. I was for self managemetn this past summer, but 2 other board members didnt' want to handle customer service emails; strange since 99% of customer emails are from corporate rentals which they despise.
Just thinking how the HOA can benefit it's members instead of just using them as a source of income.

In the end it will be the membership that decides what financial direction they want to go, not the board.
I will say in the last survey, the membership overwhelmingly decided to conduct financial business totally opposite of how the HOA has been run for 25 years. They voted for $100 cap on continuing violations. Refunding excess funds every year instead of saving it, getting rid of monthly drive through inspections, and to stop mowing 1/3 of the park that hardly anyone uses.

We will see how it goes.

Legally it's the board that makes financial decisions.

But I get it. So much for the law, bylaws and covenants. Your board aims to re-write how HOAs are run. You all are volunteers. Who can blame you.

What is allowed isn't always the right thing to do.

I'm all for lowering assessments when possible. I'm not sure I would support lowering it to zero.

I expect what I posted before (in the thread from this past January) was carefully qualified. Fact: This HOA does not have an expense associated with the closing documents.

Just the fact that you think owners can legally make financial decisions (reserved to the board) tells me you do not know the law on this issue. This is only my opinion.

I told you how I would vote, if I were on this board. I am sure my position would not be popular, and yours (for now) would be wildly popular. As I indicated earlier, you all are volunteers, and I have a lot of sympathy for all the hours these volunteers give. So whatever. I am posting for future readers who wonder if the board can do anything it wants. No, it cannot.

It's about politics. When I tell other board members that 75% of the people who voted, voted to lower dues to $90 or to $0 how do you think that makes them feel? Are they gonna dismiss their neighbors wants? They might say, but that might not be good for the HOA's finances long term. Then I present an excel spread sheet showing the HOA's current money in reserves and operating could run the HOA for 12 years without a single extra penny input?

The whole notion that the HOA will get sued for legally lowerig dues I find laughable. HOA's get sued for being power hungry over issues like covenants and ARC's not for lowering dues.

Thanks for the clarification. I also disagree anyone would sue an HOA over a $200 set up account fee. Certainly the most 3 recent home buyers did not, an interenet search showed a local news story about HOA's where one person though about suing over this reason, but ultimately did not.

I'll let you know how the vote goes, but you and I already know what will most likely happen.

I agree, suing over a $200 set up fee is ridiculous. What's in the set up fee? Do you get keys to the pool, and or clubhouse, keys to to the pedestrian gate. Remotes
for the entrance??

Adding to others' comments about reserve studies, professional studies usually project expenses out 30 year or more. If a study only looks at the next 10 years, for example, the reserve account are probably underfunded unless the common elements in the community have specific characteristics that make the shorter time horizon reasonable. In condo communities, that's very unlikely since the common elements generally include foundations, framing, roofs, possibly decks and patios, and the like.

If I were condo hunting and came across a community that was self-managed, claimed they had a surplus in their reserves, and was over ten years old, I would be very skeptical. Over-funded condo communities are unicorns: you almost never encounter them in the wild. Could one exist? Sure. But the odds of me finding it are basically zero - especially in areas that are prone to extreme weather and given the recent trends facing all communities (inflation and spiking insurance premiums).

This doesn't just apply to community associations. Any time you come across something that seems to be wildly outside the norms, it needs explaining - especially when money is involved, since far too many people engage in magical thinking when dollar signs are involved.

Nope no one has looked at the numbers. Let's be realistic, people have biases on how money should be spent and just give opinions based on how they feel not on the actual data/financial math. When we get an accountant (financial mgt company accountant is worthless) I'll run it by them.

I'm being serious. Some paraphrased survey comments below:
The HOA should be dissolved it doesn't do anything besides take care of the common areas. And there is some trash on the corner someone needs to pick up. (Hmm, wonder who would take care of that trash if there wasn't an HOA?)
Don't spend any more money on adding trees to the park. (zero money was spent, grant money was used)
Why dont' we have a pool or tennis court? (a tennis court is $25K and only 2 people voted for it, and a pool is $300K and 9 people voted for it)
Our own treasurer has never even made an annual budget, I make it up and she's always saying we need more money with no justification for it.

I am not joking when I state I am the only one out of 154 owners that understands the budget.

In 20 or 30 years zero people will give a crap about how I ran/steered finances a couple of decades ago. Seriously. There will never be a special assessment to get a new playground. People will either repaint it or just play on it anyways.

Meanwhile I"m wondering how past boards were dumb enough not to invest tens of thousands of dollars into at least a CD, but instead just let it get 0% interest in a bank account. we have zero records before 2017. From 2017 to 2021 we have two board meeting minutes.

Long-term 5 year CDs (can't be recalled) are paying 4.5 % nowadays. Not worth it to invest in short-term cds' to get an extra 0.5% interest IMHO. I do not buy the argument that past boards thought the money was needed in reserves. They coudlnt' even fix a visibly leakig picknic roof. If the board isnt' gonna invest the money they should return it to the owners instead of milking the membership for "contingency' funds that are never used every year.

I agree with ElleN about the interest rates.

Prior to the pandemic, the government pursued a zero interest rate policy (an aftermath of the Great Recession). Inflation started to rise during the pandemic, driven partly by the overheated real estate market and by supply chain issues due to the pandemic.

In addition, boards have limited options for investments, since the primary goal is not to lose principal. This means CDs, money market accounts (not money market funds), and government securities held to maturity. There is always a trade off between risk and reward, and safe investments that guarantee return of principal by definition won't earn much. There are periods like now when you can earn over 5% on a CD, but we haven't seen this in quite a while since the government tries to manage the economy so that inflation runs around 2%-3%.

As far as CDs go, the usual method of increasing returns is to have a ladder of varying maturities so that you're regularly reinvesting money and capturing higher returns when interest rates are rising. Some may be tempted to redeem low-earning CDs early during periods like that - but the penalty for doing so can mean forfeiting a good chunk of the money you've earned (I've even seen some CDs that ding you on principal, but they're not common).

Nobody has a crystal ball, not even professional investors. It's very easy for anyone to get things wrong, especially board members may not be skilled in finance. They may even be afraid of making a bad decision - and if an association is rolling in dough, which is what's being claimed here, they have little incentive to take uncomfortable risks.

Last year I tried to get an account set up with Fidelity because they had 1% better CD rates than the bank our Full service Mgt company used. however the full service mgt company was incompotent and coudlnt' get the CD account application set up. Upon looking at our contract they didn't even have the autority to be signers on the CD account which is what made the application so confusing and get rejected. In the end the HOA lost $2000 in interest because I was trying to get a few hundred more. this year just trying to KISS.

Appreciate all the feedback.

I think I will propose dues going to $50 instead of zero.

That way I don't have to debate the merits of giving money back to owners to people that have opposite feelings.

I'm not gonna bust my ass to educate people on how the budget works. Most don't seem to care anyways.

I'm just gonna accept there is a group of people out there that know nothing about the budget, but will flip out if/when the board decides to reduce fees to zero. Better to make it a small amount and not deal with the political blow back. It will be easy to show the cost of grass cutting, insurance, mailings, etc works out to $50/home and not discuss interest or closing doc fees.

After a couple of years the budget should show we are still getting excess funds every year and I might try again then to reduce it further.

Thanks.

Not caring about the playground structure eh! They need regular maintenance and inspection. Google Lamplighter Village Las Vegas and see what happens when negligent boards ignore routine
maintenance on the play set.

If I were on the board there and someone asked, "What about all the interest and the closing doc fees?" I would respond: "In my opinion, these are prone to variation and mostly should not be relied upon in setting the budget. I feel any income from these sources is gravy and will certainly be considered, one way or another, in the following year's budget. That's just my take."