How Low Can We Go?

System - Saturday, October 27, 2018

You can’t raise my fees – all my other bills are going up!

It’s budget season again, and I’m constantly hearing comments from board members that they cannot raise the maintenance fees – people just can’t afford it! All their other bills are going up! Yup, and the Association’s bills are going up too. Yes, I understand your dilemma. However, reality is, the affordability of a normal raise in fees to your owners isn’t your concern as a board member.

Your fiduciary duty as a board member is to care for the Association. You are tasked with maintaining and protecting the common assets.  The budget is a tool for estimating the needs of the Association, and informing unit owners of the cost of living there.  When completing the budget, you should be listing all the expenses needed to care for the Association: utilities, insurance, repair & maintenance costs, overhead, etc. Then, you simply calculate the annual expense for each line, based on REALITY, not on wishful thinking. If your lawn contract is $500 per month, you cannot budget $3,000 for the year, just because you want to keep maintenance fees from going up. A budget is simply the sum of the expected expenses of the Association. Maintenance fees should equal the expenses, less any other sources of income.

There are several major factors in why you should NEVER under budget, aside from the fact that it is against Florida Statutes:

  • If you under budget any expense lines, then you simply won’t have enough cash to pay your bills. Unless you’ve found the cash equivalent of the fountain of youth, cash going out can only equal cash coming in. So, what are you not going to do?
  • So you have some extra cash in your operating account today, and you under budget this year. What happens next year? That cash is gone. Can’t do it again! Now you’re looking at an even larger increase. Cheating on the budget is a limited time option.
  • Our buildings are aging, and increasingly facing unexpected repairs. If you under budgeted the regular operating expenses, what happens when that riser pipe splits open? Pretty sure you didn’t include a contingency budget for things like that, and you probably don’t have reserves for plumbing either. Most Association’s don’t. Now you’re facing an emergency special assessment, which is far worse for cash strapped unit owners than spreading out expected costs over 12 months, and you used up all your cash savings when you under budgeted last year.
  • If you are delaying repairs or maintenance because you don’t have the cash, then your association is going to start showing it – faded paint, scraggly landscaping, potholes and cracks, etc. What happens next? Your property values decrease. You aren’t living in a beautiful, well maintained building any longer. What you bought is no longer what you have.
  • Which leads to the last issue – you are deliberate understating the cost to live in the Association, but potential buyers don’t know that. So, you end up with buyers that really think they can afford to live there, but can’t. Now, you’ve created a true financial problem for the Association. That buyer can’t afford proper maintenance amounts, definitely can’t afford the special assessment that is coming, and all you can do is foreclose on them.

Let’s put that increase in perspective. The increase the last Association I heard from was only $12 per month. Is that really a lot? No, it isn’t. That’s less than 40 cents a day. If you can’t afford that, maybe you need to look at your other expenses. One person complaining in an HOA was paying $200/month for their satellite tv service. That’s not a necessity – it’s a luxury. You can buy an antenna for 20 bucks and get all the networks for free. Another was standing in front of me with a brand new iPhone, cost over $1000. So, you can drop a grand on a toy (because really, a fancy smart phone is NOT a necessity), but complain because your dues are going up 40 cents a day?

I don’t want to sound insensitive to the needs of the communities, but caring for the financial health of a few unit owners is NOT your job as a board member. You should be caring for the financial health of the Association, not its members.