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Diamonds in the Rough
Many homeowner associations find it difficult to hold the line on expenses. Inflation erodes endlessly increasing budgets and members scream for relief. But help is on the way. There are practical ways to reduce costs without cutting services. The HOA's budget is like a collection of uncut gems of different type, size and quality. Some of them are diamonds in the rough just waiting to be set free. And like diamonds, your budget, with a bit of cut and polish, can sparkle. Here are a few examples:

Insurance Raise the deductible and reduce the annual premium. Create a line item in your Operating Budget called "Insurance Deductible" equal to your deductible. If there is no claim during the year (usually the case), the money is saved.

Pools Check temperature and pump cycle times and adjust for savings. Swimmers may not notice a two degree drop in temperature, but lower temperatures significantly decrease the heating bill.

Lighting Convert to high lumen-low energy lighting. The conversion expense is usually paid back within only one to two years due to reduced power and labor costs.

Postage & Mailing Many meeting notices and information can be distributed to residents by way of flyer boxes like the ones used by real estate agents.

Develop an HOA Website Enjoy HUGE communication savings with your own HOA website. Post important information like the governing documents, newsletters, meeting minutes and rules. Use email for maintenance and information requests so the information is moved quickly to the right person with a date stamped record. Poll your members on important issues or proposed policies. Notify them of meetings and other events. An HOA Website is probably the best move your HOA can make to improve efficiency and reduce costs.

Preventive Maintenance Catch problems when they are small enough to resolve cheaply by regular property checklist inspections. Of particular importance:

• Carpet Cleaning: Professionally clean common area carpet at least once a year to prolong its life.
• Elevators: Do an annual inspection of the shaft, pit and equipment room with the contractor to ensure that proper maintenance is being performed.
• Gutters & Downspouts: Clean at least annually prior to winter or rainy season; clean out underground drains as needed.
• Lighting: Convert to high lumen/low energy bulb alternatives to reduce supply, labor and energy costs.
• Moss & Algae Removal: Pressure wash walking areas for slip safety.
• Paint: Use only the highest quality paint suitable for the application for maximum performance and durability.
• Pool Filters: Replace cartridge type filter with low maintenance sand filter; usually pays for itself within 1-2 years.
• Roofs: Inspect and clean annually prior to winter or rainy season; look for obvious problems like missing shingles, breaks in the membrane; contract with a roofing contractor to perform this function automatically prior to winter.
• Sidewalks: Inspect annually for tripping hazards; grind down or remove and repour.
• Trees: Prune trees every 3-5 years to eliminate deadwood, enhance shaping and identify treatable diseases and pests. Install a "No Turf Circle" around each to protect against landscape equipment damage that will tear the bark and kill the tree.

• Furnace Filters should be checked every two weeks during cooling seasons and every month during heating season. Dirty filters should be cleaned or replaced.
• Heat Pumps require annual checkups to maintain peak efficiency. Research shows that if your refrigerant level is just 10% less than what it should be, your system's efficiency can be decreased up to 50%. Consider obtaining a service agreement with a licensed air conditioning contractor or dealer to assure peak efficiency of your heat pump.
• Do a side by side usage comparison for all your utilities for previous years/same period to detect fluctuations in usage. This is especially critical with water since underground leaks can go undetected for long and expensive periods of time.
• Set air conditioners at 78-80 degrees during the cooling season and 68-70 degrees during the heating season. Install a clock thermostat to reduce night time requirements.
• Use ceiling fans, portable fans or whole-house fans instead of air conditioning.

Handyman Services For HOAs that can't afford a full time maintenance person, contract with a licensed, bonded and insured handyman who can perform a monthly "laundry list" of small repairs. Combine tasks to provide a full day's work.

Wood Fences Use a stain rather than paint since stain won't peel and requires less frequent maintenance. For cedar & redwood: Leave unpainted to age naturally. No stain, paint or sealer required. Use steel pipe instead of wood fence posts that don't rot.

Paint Supplies Discuss special pricing options with local paint supply companies. If your HOA is large enough, it may qualify for contractor pricing.

Sidewalk Repair Use a grinding service to repair walkway uplifts and tripping hazards instead of the replacing the concrete.

Siding

• Hardboard When replacing hardboard siding, consider a cementaceous siding like Hardiplank which is both fireproof and has at least twice the useful life as plywood.
• Vinyl The quality, color, selection and durability has improved in recent years. Vinyl eliminates the need for cyclical painting. Keep the color selection neutral as it lasts a long time.

• Submeter water where possible when the homeowner association is paying the water from a master meter so cost can be allocated accurately to users.
• Repair leaking toilets, faucets and shower heads with an association sponsored inspection and annual repair program. The cost to repair a couple of toilets is cheaper than paying for wasted water.

• Install a sprinkler system with a rain sensor to eliminate unnecessary cycles.
• Early morning sprinkling reduces water loss from evaporation.
• Adjust sprinkler heads frequently so water lands on the vegetation, not the paving.
• Set mower blades to at least three inches. Grass roots grow deeper and hold soil moisture better than a closely-clipped lawn.
• Avoid over fertilizing the lawn Fertilizers increase the need for water. Apply fertilizers which contain slow-release, water-insoluble forms of nitrogen.
• Mulch the lawn to retain moisture in the soil and to control weeds that compete with plants for water.
• Plant native and drought tolerant grasses, ground covers, shrubs and trees. Group plants together based on similar water needs.
• Broom clean paving and sidewalk instead of hosing them down.

As a jeweler carefully examines and sorts his gem stock, consider the ways your homeowner association spends its money. Cut and polish those items that aren't shining like they should. If you look closely, you will indeed find diamonds in the rough.    BACK

Policizing Reserves
Planning for future repairs and replacements is one of the most critical and beneficial things a homeowner association should do. A Reserve Study is a long range planning tool that identifies common element building and grounds components that have useful lives of 3-30 years, the current cost of repair or replacement of each and a Funding Plan to accumulate the money to accomplish the work.

A Reserve Study is an indispensable planning process. But the Study itself doesn’t commit the Board or Members to follow it. A formal policy should be adopted that commits the HOA and Board to the reserve planning process and holds future Boards to the standards. For that, a Reserve Study and Funding Policy is calle for. Without it, a future Board could decide to set the plan aside or worse, spend reserve funds on something they were never intended for.

A Reserve Study and Funding Policy obligates the homeowner association to follow the recommendations of the study. For many associations that have been handling costs by special assessment, this is a radical paradigm shift. So, formalizing the commitment to change will help ensure that some Board in the future won't drop the ball or shift back to old and bad habits.

Below is a policy which can be adapted to your HOA’s use. Whether you already follow a good Reserve Study or are thinking about getting one, consider enacting one to formalize the commitment.

Nottacare Condominium
Sample Policy Resolution #____
Reserve Study & Funding

WHEREAS, Section ___ of the Association Bylaws grants the general power to conduct the business and affairs of the Association to the Board of Directors, whose members shall be members of the Association; and

WHEREAS, the Board of Directors has the responsibility to plan for the proper maintenance, repair and replacement of the Association common elements; and

WHEREAS, the members have the responsibility to fund the proper care of common elements; and,

WHEREAS, proper care of the common elements directly impacts the value of members' homes,

NOW, THEREFORE, BE IT RESOLVED THAT in order to properly maintain the common area, protect market value of members' homes and livability in the community, the Board of Directors establishes a policy as follows:

Reserve Study Defined. The Board shall have a Reserve Study performed that includes this criteria:

• Identifies all components that are the homeowner association's responsibility to repair or replace that have a useful life of 3 to 30 years.
• Assigns a reasonable cost of repair or replacement to each component based on current costs for the area.
• Assigns a reasonable useful life to each component based on local conditions.
• Lays out a 30 Year Repair & Replacement Schedule which identifies the years when each component work will be performed including the inflation adjusted cost.
• Establishes a 30 Year Funding Plan which takes into consideration the costs of repairs and replacements, contributions from members, impact of inflation, revenue generated from invested reserve funds and taxes owing on interest earned. The Funding Plan shall include monthly contributions from members adequate to meet projected costs without the need for special assessments. The Funding Plan shall include a "Percent Funded" factor (percent of actual reserve funds on hand versus the ideal of 100%). If Percent Funded balance is below 100%, the Funding Plan shall provide for a plan to systematically increase contributions to attain the 100% level without special assessments, if possible.

Permitted Uses of Reserve Funds. Reserve funds are to be used only for the repair and replacement of the specific components identified in the Reserve Study.

Annual Review. The Board shall review and revise the Reserve Study annually to reflect changes in costs, inflation and interest yield on invested funds. Component information shall be amended to reflect new information received, component additions or deletions. With this revised information, a new 30 Year Reserve Study projection shall be generated and used in conjunction with the Annual Budget process.

Borrowing Reserve Funds. Under special circumstances, like an unanticipated Operating Budget shortfall or an emergency, and if allowed by state statute, the Board may borrow from reserve funds. In such cases, the Board shall adhere to a strict repayment plan that will replace borrowed reserve funds within 12 months.

Investing Reserve Funds. In order to reduce the amount of member contributions, the Board shall invest reserve funds to generate interest revenue that will be added to the reserve account. Unless otherwise approved by the membership, all investments will be FDIC (Federal Deposit Insurance Corporation) insured or guaranteed by the United States Government. Investments should take into consideration the repair and replacement schedule so that there is no loss of interest for early withdrawal. The Board shall review the reserve fund investment plan at least annually to ensure that the funds are receiving competitive yields and make prudent adjustments as needed. The Board may hire an investment counselor to assist in formulating an investment plan.

Performing the Reserve Study & Annual Review. To ensure objectivity and competence, the Board shall hire only a third party Reserve Study professional with experience, references and credentials to do the Reserve Study.

Dated: __________________, 200___

____________________________________
President - Board of Directors

Attested by :___________________________
Secretary  BACK

Pedal to the Metal
What does an association do about the chronic delinquent who finally pays only to become delinquent again the following payment period? Repeated dunning and legal action can impair the relationship with the owner and can cost the HOA time and money. And, of course, the HOA’s cash flow is interrupted over and over. An often overlooked HOA option is acceleration. Acceleration is the HOA’s right to declare an owner’s future assessments to be presently due and payable if certain conditions occur.

The most obvious condition is delinquent payment or non-payment of assessments. The right to accelerate is usually found in an HOA’s recorded declaration. A typical acceleration provision reads: Effect of Nonpayment of Assessments. If any assessment becomes delinquent, the Board, in its sole discretion, may take any or all of the following actions: . . . Accelerate all remaining assessment installments so that unpaid assessments for the remainder of the fiscal year shall be due and payable at once.

Invoking this acceleration provision allows the HOA to maximize the impact of its collection efforts. Instead of acting to collect first quarter assessments, then starting over to collect second quarter and so on, the HOA can act once and resolve the whole year’s assessments. Also, collection efforts may be completed sooner. Specifically, they may be completed before an owner in worsening financial difficulty falls into bankruptcy or foreclosure that can impair the HOA’s ability to collect the owner’s delinquent assessments. An additional benefit to the HOA is the deterrent effect on an owner who may otherwise be unimpressed with the penalty for "slow paying."

Some states specifically authorize acceleration provisions but provisions may vary. A particular provision may require a specific period of delinquency before the HOA may accelerate. The provision may specify the number of future assessments which may be accelerated. Allowing acceleration only through the end of the current fiscal year is typical. The interplay of notice and budget provisions should be considered.

If your HOA’s governing documents lack acceleration provisions, what can your HOA do? One solution is to amend the governing documents to provide for acceleration. Another solution is to adopt a Board policy allowing for acceleration. Virtually all governing documents empower the Board to enact reasonable policies, so long as they do not conflict with the HOA’s governing documents. That is, if the documents specifically authorize or are silent regarding acceleration, the Board may adopt a policy. The policy should be reviewed by your attorney before adoption.

Your HOA cannot function if assessments are not timely paid. Accelerating the payment obligation of habitually-delinquent owners offers another tool to assure that those payments are received. When it comes to collecting delinquencies, put the pedal to the metal and accelerate.

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