How do I sell an increase in assessments

All,

Our reserve fund has never been adequately funded. In the past an abratary number of 50K was used. No study done, everyone who was in the know thought it was great. A couple of years ago, A light was turned on when a new person asked about a reserve study and the board actually did one. Determined that the streets will need major work in 9-10 years and discovered that we really needed a 250K fund vs. 50K (we maintain the streets/sidewalks).

Having woken up, the Board, 2 years ago, called a membership meeting to request approval to increase fees above the 5% the BOD were allowed to do. As a homeowner, I actively fought against it citing the facts that the BOD has done nothing to cut costs before asking for this increase (lots of side politics involved as well). Long story short, the membership told the BOD no.

Because of that meeting, the next BOD, last year, actually looked at re-negotiating contracts, cutting 1 of 2 employees and located other savings. However, they chose not to approach the issue of properly funding the reserve account via increased assessments.

This year, I was elected to the BOD. Since cost savings were done, and the issue still remains of needing to properly fund the reserves, I want to attempt to gain membership approval.

The basic facts I have are:

Work needs to be done to the roads within 10 years.
Work to sidewalks and tree trimming also expected
250K (at today’s prices) will be needed
Cutting expenses has saved 3-5 K.
Special assessment option would require $1,800 per lot
and would need to be repeated every major repair
$17 more per month mandated to the reserve fund should properly fund the account.

The arguments I have heard:

I expect to sell before a special assessment is needed
I just can’t afford it right now (economy)
I’ll vote for it after you fire all employees (cut more expenses)
If I vote for it, how do I know you won't spend it on something else

Best advice you can offer to counter the arguments will be appreciated.

Tim

I've seen several articles on reserves in various places on the internet which do a good job at explaining what reserves are and why they're needed - you may want to Google reserve studies to take a look.

We don't have employees in my HOA, but the first two arguments come up whenever we talk about raising fees, regardless of what the reserves are (ours are also terribly underfunded, and I think that's the situation in a lot of HOAs). As treasurer, I wanted to do a reserve study next year (our last one is 5 years old), but was outvoted (fellow board members assure me we will do one next year and I intend to hold them to it)

Anyway, here's the start of some of the dialogue concerning fee increases:

I expect to sell before a special assessment is needed
Previous owners paid for improvements that you now enjoy - why shouldn't you help pay for future repairs whether you're here or not? Second, how do you know repairs won't be needed much earlier than you think? Sometimes things break down before you've had time to prepare for them (that's why financial experts alway preach about setting up an emergency fund. And don't forget inflation - even if we wait, say 10 years, before repairs are necessary, we'll have to pay 2019 costs, not 2009 costs

I just can't afford it right now because of the economy
Everyone is facing challenges with today's economy, but your home is your most valuable asset - if you can't afford to save a little bit now, what will you do when the repairs do become necessary?

Of course, this will prompt even more back and forth, and some people still won't be convinced, but if you can get the majority to see it, you'll be ok. Also, encourage people to help reduce expenses by looking around for vendors who can provide current services at a more competitive price. Maybe a vendor will agree to keep the fee at a certain amount if you sign up for a two or three year contract. And so on.

Tim I guess this proves the old adage - Be careful what you wish for, you might actually get it. I hope you are able to get the owners to see reason and approve the needed increase but if they don't; I would start putting away an extra $200.00 a year so when that SA is needed you don't have to scramble for it.

I was fortunate that my association was never underfunded in the reserves department. That didn't stop the yearly squabbles though when the fee was increased. Some common points we hit on:

Ohio law requires associations to adequately budget so as to avoid special assessments unless waived in writing by a majority of residents. Check Virginia law, there may be a similar provision. In Ohio one problem with "taking the waiver" is that the association is then declaring that they are underfunded leading to at least three other issues:

1. Banks are becoming more particular about loans in this climate. Not only are they more stringent on the buyer's credit, but they're becoming more stringent on associations as well. There are banks out there that will not underwrite a loan to a community that is underfunded because they fear that if a huge assessment comes due the buyer will walk sticking the bank with the bill.

2. FHA has recently tightened their rules too and they are starting to ask for reserve information more than they used to.

3. On the newest Ohio residential property disclosure form, sellers are required to disclose if they have reason to believe that a special assessment is possible. If an association is expressly underfunded, then an assessment is a possibility and must be disclosed to prospective buyers. That's going to turn buyers away. What happens if the seller doesn't disclose and an assessment hits a few years later that the reserve study warned about? Look out seller because the buyer might now have a cause for a civil suit against you.

Those points are aimed squarely at the "I'm going to sell before an assessment hits" crowd.

It's tougher to deal with the I can't afford it crowd but I've found that the majority of people can never afford it. Even if they just got a $10,000 bonus at work they'll whine that an extra $5 a month will kill their budget (because they just bought two huge plasma TV's and a new car). Granted more people are unemployed these days but still it's a fact of life that things get more expensive.

Lastly I'd suggest getting into the practice of always doing an assessment increase each year, even if it's a nominal $5-$10 per month and even if the operating budget doesn't really require it, just to keep the reserves growing. If owners come to expect a small increase each year that's just how it goes. People really howl when a board tries to make friends by holding rates low for a few years and it comes time to pay the piper and rates go up $40-$50 a month, or worse, a large special assessment is due.