Budgets

How about a quick poll on CPI this year.

We have had for years a bad idea imbedded in our documents. Our Board is allowed to raise the the dues, the CPI % for southeastern US. They don't have to but they have never failed. This year they are proposing to do it again and use the figure for the average CPI of all the US Cities. I have been against this from day one but to no avail and of course the explanation is always there is a need for the money.

This year there are critical economic consideration for all of us. I assume the Board knows this also but if the option to institute the CPI each year is used, doesn't that mean also the option to not use the CPI is just as compelling and if the present situation county wide doesn't trigger that option due consideration is not being measured.

And, a quick yes or no about embedded rights to raise the dues yearly at least to the CPI. I know we have gone over this a lot, but this year 2009 is going to be different for all......everywhere.

Robert are you upset because dues are going up again or that they're using the CPI? Our dues too are being raised this year the first time in 4-5 years but unlike wages the cost of everything else seems to keep rising and the bills have to be paid.

Good posting Shelia,
The CPI is a government measure of inflation and it would natuarally (in normal times) varying significantly from area to area, so the government, being and doing what they do have a mess of CPI's. Last year our manager used (with board approval) used the figure for a specific month (Aug or Sept) I think for 2007. All this aside I agree with your logic that any increase in the fees should be justified. Could you redact the names etc, and post the justification for your increase this year which by your measure is sort of out of line with the Cost of Living increase of around 2 % that you normally use.

I objected to this method of increasing dues when they did it, but with apathy so high and 85% (at least) absentee owners I was beaten down like the dog I am. It is hard to imagine how much an automatic increase costs associations, and once the deed is done and history writes you a note it is hard to convince the Boards that a mistake was made and to correct it, they would , in effect, admit they are not flawless. Boards want the members to accept that they carefully scrutinize each budget item yearly for ways to save money. I have yet to see any explanation from any board that they saved X $ last year and the fees will be reduced. Of course the explanation for this could be that the Board is controlling the budget there is never, ever, any fat to cut, which again hints at perfection.

Glen,
If your dues have not gone up for (let's say) five years, and our dues have gone up five years at (let's say) 5%; who is doing the better job or is this NOT a measure of effeciency?

We lowered our dues for 2009 by about 1.5%, more as a gesture to Membership than anything else. But again, we received "found" income of about 15% of our Budget from our tree loss settlement (after paying for removal and a replacement tree elsewhere on the property). But again, about 17% of our 2009 Budget is dedicated to cleaning up three of our four ponds (Year 1 of a 2 Year effort), an expense we never had. But again, we're cutting back on landscaping fees about 7% to help pay for the ponds stuff. But again, we've increased Reserves (essentially a rainy day fund) about 40% to = approx. 43% of a typical Annual Dues rake.

But again...

We have a balanced 2009 Budget.

My point? 2009 Expenses are projected to equal 2009 Income. In another set of circumstances, dues might have been lowered further, or increased, or left the same based on the CPI, a CPA or the CIA. But we, the BOD, work with what we know and what we think we know. That's one of our duties.

If Membership doesn't like our style, they can hold a recall and have somebodies else do all the work.

Susan,
Just to add, this fall we received a managers report that we are going to be under budget by some 36K. Now you know a little of our history, how does this happen? It has nothing to do with CPI or yearly dues increases, it has to do with managing the money in such a way that you come up with a positive 36K, just at the time you are going to go out and announce this major work that has been needed for probably ten years. Again, I support the Board and what they are faced with having to do, but, well you can see the but's.

Well, let's see - several expensive repairs and delinquencies did us in. The repairs resulted in large deductibles - and a hefty withdrawal from reserves, so now we are really hard pressed to fund them. Our annual budget has taken a huge hit because of the delinquencies (well over 10%). And recently, someone or some people decided to use the in-ground pool cover as a trampoline, so now we have to worry about replaing or repairing it AND complying with the new federal law on anti-entrapment devices for swimming pools.

As I said earlier, we try to keep fee increases to around 2 percent to keep up with inflation, but as you know, when some don't pay, the rest of us have to dig deeper to pick up the slack. We have several homeowners at the attorney's office, and although they'll ultimately have to reimburse the association, we still have to put up the money to haul them to court.

I feel your pain regarding owner apathy and absentee owners - I'm hoping our letter was a huge reality check to these people. We also reminded everyone that our community is older than many of the condo communities in this area - you can't expect a community over 20 years old to have the same level of maintenance needs and cost as one that was built five or 10 years ago. If people don't like it, that's ok - come up with another plan and volunteer to help put it in action. If not, shaddap and siddown!

Robert without knowing whether or not the HOA expenses go up by the CPI each year it's impossible to tell whether or not it's a good idea. Could it be that your BOD has language written into the contracts limiting the cost rise to the CPI. Or it could be you BOD is a bunch of retired bureaucrats from D.C. where base line budgeting is an art form.

If your assessments go up by the CPI each year with under funded reserves and you have an ongoing SA with the possibility of another one this year I will agree that someone somewhere doesn't seem to know what they're doing. Maybe you should propose to your state legislature that they enact something like Ohio did for COA's. A majority of homeowners must vote each year to allow special assessments or the BOD must fund the reserves with at least 10% of the annual budget.

I will get to the meat of the budget discussion in a moment, but first I want to put one thing “to bed”. I agree wholeheartedly with those who question using the CPI as a base for inflating budget numbers. Not only does the CPI bear no resemblance at all to property costs, but the idea of even adjusting your predicted budget amounts for inflation is excuse me … ridiculous. We’re talking about predictions for one year into the future so no matter what the inflation rate is, its influence on the cost estimates is close to zero.

Turning to the main point, the question behind all the discussion is … how do you prepare a proper budget? Here are some pointers.

ONE — use your real expenditures over the last couple of years to arrive at your new figures. If “gardening” was $15,000 two years ago, and $17,000 last year, use at least $17,000 if you have no new information to the contrary.
TWO — Acquire new information. A call to your gardening company will provide what their thinking is for the year ahead. Even better, this might be the time to get a few quotes to ensure you’re getting decent prices.
THREE — Think about changes. If (gardening again) you’re considering putting in some new flower beds at the community’s entrance-way build those changes into the budget. If you feel it’s time the superintendant got a raise, build that into the budget.
FOUR — when you slot the estimated expenditures into the monthly columns make sure they’re put in the months that the particular bill is paid. If you insurance premiums are $12,000 payable quarterly put $3,000 in each of Feb, May, Aug and Nov. That way your actual outgo will be in sync with your budget.
FIVE — Before you finalize your budget, you should build in a cushion to take care of eventualities that were not predicted. We have a simple approach for arriving at a cushion amount but it’s arithmetic (easy arithmetic by the way) and it takes some space to describe it. There’s also the matter of considering the level of your opening balance for the budget year. We also have some views on why budgeting for operations expenses is vastly different that arriving at reserve fund contributions, and that’s available from us as well. Just contact me for a copy. No charge of course.
SIX — Lastly …calculate what the fees collected from unit owners will have to be and do the usual arithmetic to allocate the demands in the prescribed way.

Does this help?

Robert,

Thank you. We try to do our best. But I can only speak to my BOD. Which I actually will tonight as we assemble our dues package, stuff envelopes, drink Scotch, make our final decisions on the Budget and pending matters, then thank fully (hopefully) go into hibernation until Spring.

As to flexibilty? I dunno. We just 1. look at what we've got, 2. what we expect to get, then 3. plug in numbers as to what we expect to have to (or choose to) do next year. I imagine your BOD does too, 'cept apparently they start with #3 then tack on the ol' CPI?

One thing that puzzles me is that in light of your obvious interest and understanding of all (most?) things HOA, why you aren't on your BOD. To be sure, there're plenty of valid reasons (for anybody) not to get involved, apathy included.

All three of our BOD, I'd say, originally signed up for two reasons: Lack of other volunteers, and personal agendas. At the time, we had a PM. In Oct 07, when we got the proposed Budget that would have raised dues to support the PM's increased fees = about 1/3 of the total Budget, we had to make a tough call: take the easy way out and leave the lifting to the PM, or take on the lifting by going self-managed. Sure, Membership universally supported the latter (what's not to like?). It's taken us more time than we bargained for, esp. in the early months, but we stuck it out. However, though we'd hoped for more actual time-in support from Membership, it's been like pulling teeth. They simply don't want the hassle as long as they pay the freight, which fortunately they have, thus far.

So, essentially, the three of us make all the decisions and we do not look kindly on being questioned (which again, thankfully) we rarely are. We earned that attitude.

Which returns us to the Q: If Membership (or a Member) is unhappy with the BOD's ways and means of conducting the operation, what should he/she/they do? I maintain he/she/they ought to get involved or button-up their pie hole(s).

If we removed all the posts here about "The BOD did this, did that, what can I do?", HOATalk would be as quiet as a singles' bar on Christmas Eve.

All of the above leads to today and I find I am not doing as I want but as I have to. Without belaboring the subject my wife requires extensive care and I work hard trying to keep her in our home. I find this experience has made me a lot less critical and I hope somewhat wiser. So I stick my nose in and keep abreast, I still find fault but am less vocal, and I find I can help or think I do posting here. There really are some special people here and as they say birds of a feather stick together. I am comfortable posting here and enjoy the mental challenges and all that entails. I feel I am respected in my community and given a platform to voice my concerns, so it all works somehow.

Robert,

Thank you, again.

Your previous pair of posts demonstrate you're a concerned, active HOAer who simply doesn't see BOD membership as working within your desires and current responsibilities, and that's fine. It's not for everybody, that's for sure. But you contribute in other ways, including as a critical voice, which while your BOD might not sometimes appreciate it, I'm certain you have their respect. Personally, if I had to choose one or the other, I'd rather be respected than liked, but that's just me.

And yes, our BOD likes doing what we do, and no, we don't draw battle lines among ourselves nor with Membership. We have as our primary philosophy maintaining consensus among the BOD and with Membership. So far, so good.

But returning to volunteers & apathy, following is the lead of the 3 page Update I'll be mailing out to Membership tomorrow:

>>>Xxx HOA UPDATE 11

The Board met on 11 Dec 08 to stuff envelopes, finalize our 2009 budget and discuss any and all things great and small. Speaking of any and all…

Calling Any and All Volunteers

We (your humble Board) are planning to yank the fountain on Saturday, 20 Dec at 10:30 AM (clement weather permitting). You’ll recall that in the Spring we had it reconfigured so we (the HOA) could do it ourselves and avoid the typical charge of $650 Xxx used to bill for this service. Yes, we understand everyone has busy lives, and that volunteerism from Membership is tough to get. But could you spare an hour to assist us? If so, please let us know. All you need to bring is a pair of work gloves, though anyone with a heavy duty trolley or upright wheeled hand truck and/or knee-high wading boots would also be most appreciated.

We (your humble Board) think we’ve done a pretty good job since the HOA became self-managed. In 2008, we’ll have saved the community about $8,000 that would have otherwise been shelled out to outside vendors, not to mention picked up over $4,000 (see below) that we wouldn’t otherwise have banked. All this while not raising dues and increasing services. COULD we (your humble Board) do everything? Probably. Though a few occasional helping hands WOULD make our continuing efforts more comfortable. Thank you in advance.<<<

Mmmhmm. Of the 18 non-BOD households which receive this missive, if a single one responds with an offer to assist, we'll be amazed. Even with a week's notice. Even with the attempted guilt trip!

We'll see, eh?

Among three people, as with our BOD, consensus and unanimous are essentially two sides of the same coin. So far, we’ve reached both in every final decision we’ve ever made. Some are no-brainers, some not. When faced with a “some not”, we typically opt for putting off deciding in favor of gathering more info, often by querying Membership for their opinions. Recently, our Prez suggested we might want to install a picnic bench next to our biggest pond. Me and VP were not thrilled with the idea. So we elected to ask Membership. 6 of 21 replied = 1 for, 2 against, 3 no opinion. Prez then said we ought to forget it, which we have.

VP, after a chat with a Member, recently suggested we have a reg about how long Membership (read: a specific, different HO) could keep visible, unused construction materials on his lot. Prez was for the idea, VP leaning to for, I didn’t care. So our consensus was to tell Membership in our Update 11 that we had been asked about this, we thought a reg would be reasonable (such as we’d done re: holiday decorations), but that we’d prefer Membership police themselves and would therefore table the possibility until Spring. If the HO in question doesn’t get the hint, we’ll enact the reg.

As for our Updates, we try to include everything pertinent since the one prior. The one I quoted from had our 2009 Budget attached, along with our Income/Expense breakdown thus far for 2008. The next (in 2 weeks) will contain our final 2008 numbers, and a separate summary of same to explain to Membership why the BOD will not request an Audit. Also attached will be a ballot with which a majority of Membership can override our decision on the Audit.

Just the facts, Ma’am. Which is why we don’t, nor would, include music, cartoons, photos of the Smith’s kids in their Halloween costumes or Mrs. Jones’ favorite Christmas recipes. We recently put up a web site, and that, if Membership (unlikely) starts using it, would be a venue fine for all of those items. Or, an HO could opt to send an email to everybody (or somebodies) on our master mailing list.

Updates ain’t the appropriate vehicle. While I (as writer) might add an occasional aside, I treat them as business communications from Management to our Customers/Shareholders. The more “professional” we keep them, IMO, the more Membership will consider us competent and concerned managers.

BREAKING NEWS: So much for my cynicism. Of the first 3 replies to Update 11, we have 1 Fountain Volunteer, Houston!

Yikes - this post has been hijacked about three times.

so to get back to the original question:

Robert said: "Our Board is allowed to raise the the dues, the CPI % for southeastern US. They don't have to but they have never failed."

The point is that they have an option. You say they always do (raise the dues by the CPI)

Who APPROVES your budget, Robert? Is it the Membership or the Board?

Ah Susan,
You counter with an opening move by using the "let's blame in on the owners" ploy. Of course the owners APPROVE$ the budget. I would counter by saying if you have 85% absentee owners, King Kong could propose the Budget and the owners would likely approve it because if they don't, it won't do any good. You do remember that the Board solicits Proxy assignments, don't you. So now, who APPROVES the budget. I doubt if the owners even realize this and have no interest in this. On top of that we are not talking a budget we are talking an automatic increase in the dues each year. How many years do you have to raise the fees to the CPI before it is considered automatic. How many years does the Board collect on what was at the begining, an annual Special Assessment? We are coming up on seven straight years that the Board has tacked on this increase and of course that becomes part of the budget, same as the CPI does, and you ask, "who APPROVES the budget?

I KNOW we need more money, I support the Board trying to run the organization, I just wish they wouldn't go through all this convoluted manuvers to get there. Call a spade a spade, admit what you are doing and don't repeat the kind of stuff that was in their latest reports. We run about 250K a year, each year they make a budget and get approval (see above)and each year they spend the budget with no set aside for Reserve. We need to do some preventative repairs that have been let go too long so now is the year to catch up and an increase is going to have to be made and of course voted on. Now to make the process easier and more paltable they just declared they are going to be 37K (approx, numbers don't matter)underbudget for 2008. Now ask me who APPROVED the budget.
Sad thing is I really believe they need the money and maybe this is the way to get it. But what's to do? If I raise cain what do I gain? Nothing! Is the process flawed over time, seems to me it is. Is it proper to bring the train back on the track using these mthods? Maybe you can answer that.

Susan,

Hijacked? Nah. I’d say evolved, as many discussions here and elsewhere do from their original kernels. Evolved is a much more pleasant term, to paraphrase Claude Raines in “Casablanca.”

Returning to my fellow Evolver, Robert (our OP):

“Evolved is a much more pleasant term, to paraphrase Claude Raines in “ ‘Casablanca’ .” That’s an aside. Short, sweet, and doesn’t interrupt the flow of the point (hopefully) being made. Might even expand on it. But yes, as it’s hard enough to get folks’ attention, and keep it, cut and dried works for me on both stylistic and functional levels. The more extraneous stuff that might get added to an Update, the less the reader is apt to fix on the meat, the “business” at hand. And we, or any HOA, is a business. True, some HOAs also function as social operations and front for and/or sponsor numerous activities outside of the nuts and bolts. That’s fine, but ours doesn’t. If Membership wants a block party, they handle it, not the BOD.