Property manager & annual budget

Here I am again, writing with Yet Another HOA Question. *sigh*

Background: I'm the one with the 23+ year old, 256 unit townhome/villa southeastern Florida HOA with severely underfunded reserves, and a 1.4 million dollar 20 year improvement loan (a huge mistake in and of itself...). Our Docs limit us to a 5% cap on raising maintenance fees. Historically, fees have been raised as little as possible, the exception being for the mansard loan which required a vote. The prevailing sentiment is that the future generations should worry about it. Sheesh.

I am a director, and my spouse is Treasurer. We purchased our townhome in 2005 and 2007 has been our first year on the board. And what a year it has been...

Since October, we have had several budget meetings. Our property management company has been pushing to keep the budget flat (?!), but inflation here in Broward County is more than 5% and all our regular vendors have been raising their rates at least 5% per year - including the property manager. The PM has discouraged a reserve study to help us get a real handle on our situation, despite knowing that our community is aging and we do not have adequate funds reserved to replace various components. Just the idea of keeping a flat budget when every one of our costs is rising seems like financial suicide to me, yet the majority of the Board is perfectly okay with that.

At out last meeting, the majority of the board voted against a 5% increase, but grudgingly voted in a 3% increase. The Treasurer and I compiled our own quasi-reserve study in spreadsheet form based on some current estimates for various components and worked up a reserve goal based on those numbers. We also worked up a more realistic budget spreadsheet and gave it to the PM.

Now the property manager says that if we want to adjust the reserve allocations for the budget we have to decrease the remaining life of the relevant component. Yet, approximately 40% of our roofs, for example, are in the negative years on their remaining life...

I keep getting the feeling that the PM - for some reason - does not want to increase the reserve goal based on more realistic numbers. Is under-reporting the actual costs for reserve components an acceptable practice? To me it feels fraudulent.

Does anyone have any kind of advice? (besides getting a new PM...which I am working on...)

Thanks in advance (again!) for any comments and suggestions. This forum is a fantastic resource.

EW1,
Now there are many more qualified than I to advice you. Personally, I think you make pretty good sense, work hard, are willing to help and obviously care and on the right track. Now if your Board and PM can't see this and take advantage of your input, they need an attitude adjustment. If you speak of what you know and what you suggest and the Board and PM are stonewalling then at one of these meeting, suggest they could accomplish what is necessary by not raising dues but cutting expenses. Tell them there should be a ?% cut across the board on all expenses.
That wwill get their attention. Get a couple of folks to stand up and support you. I bet you could put together a nice presentation to prove your suggestion with charts and figures.

If you are correct in all that you say, and I believe you but that don't count, you need a new horse to ride in the very near future.

A bright spot is the PM don't want to increase the reserve fund. I would not trust them to handle the money nor the Board.

IMHO, from where I sit.

EW1 - Here's my experience regarding reserve studies, and funding adequately for replacements. I helped hire our transition engineering firm, helped develope our scope of work for the transition engineer, was liaison for the transition committee, helped create a unit owner questionnaire of known construction deficiencies, and have extensively read our transition reports and forecasted the amounts necessary to fund adequately to cover eventual replacement costs. Like you, the majority did not and does not see reserve funding the way I do in critical areas such as roof replacement. I won't bore you with the details but to say I'm astonished how they arrived at a figure to transfer to reserves that is not the percentage threshold the engineering firm recommended!! Oh well, I'm one of many that must cast their vote and mine was not deterred by the lemmings that (contrary to real ones) actually followed the pack and jumped off the cliff!!

I believe the best you can do is to present your findings in the most professional succinct way at an open meeting, and site Florida laws that require adequate funding. Perform some basic calculattions to show where you will be at certain benchmarks in the future and what the expenses will be at that time. If your reserve account is dangerously low at that time, all you can do is show people the benefit of funding now. Don't forget the earned interest that will be gained if you do fund now. Show people mathematically the difference between a special assessement and maintenance fee increase. Naturally you should look first to cut out the fat from the budget.

Who is this PM that tells the Board what to do??

Regards this thread,

It will be hard to believe this, but it is true and I'm not casting blame because that is not important. What is important is what this kind of incident broods.
When I moved here in 2000 they had not even had a fee increase in 7 years and even in ten years. Hell I didn't know for sure what was going on, and that's not important. The rulers at this time still believe they did a great job and will not hesitate to tell you. Then we finally got a new manager and got some new Board members and started to play catch up. After a couple years of raising fees and trying to build reserves, and no one living here that was on the Board, we shifted M.O. and started to consider the manager was the Boss and knew everything, the Board did, but I could not move them. We then went through a period of each annual meeting was fine and a reasonable increase in fees began. Somehow by just ignoring the truth the Board proclaimed loud and clear, we are doing a great job and all is peaches and cream. Then we got a new Manager who knew the job well enough and could convince the Board of the trouble they were in and a new board came in and decided we need to bring in more money, ignore for the most part, the reserves, and started big enhancement projects. During all this time our expenses kept getting higher and higher, and since we (as a group) timidly won't push for proper accounting and sunshine, we are still well behind the curve, are going to have to spend big bucks to secure the property, and never has there been a legimate effort to find out if we really have any fat to cut. Our owners seem acceptable to let some one else worry about it, we have two many rental units and too many rental numbers, and as long as that continue we are never ever going to be able to run this place the way a business should be run. Most of the owners, and I believe a lot of them have a sense of what has happened in the past, just can't get into trying to do this whole thing right, and consider the past as a lesson not to be repeated or ignored.

Most of the above is not going to start any fires, but remember, if you want change, get it right and don't start patting yourselve on the back until what and how you change has served the test of time.

The only "fat" in our budget is fat that the previous board inflicted upon the residents when they allowed a loan to pay for wooden mansard replacements. At 1.4 million dollars, the annual interest we're currently paying is $100,000 - about 1/6 of our total gross annual revenues. Unfortunately, we can't cut that.

The property manager has been sitting on the Treasurer's reserve estimates and budget spreadsheet for just over three weeks now. The final budget meeting is tonight and email from the PM has just informed us of the new statutory requirement that reserves must be fully funded - this only after we repeatedly asked them why they were insisting on using their numbers.

It is now clear that they knew about the statutory requirement in advance, hence the stalling, and have been trying to keep the budget flat, and have insisted that the reserve goals stay the same. Their reserve numbers are several million dollars short of what the actual costs (based on recent estimates) are. Naturally, if we use the actual numbers it will mean a massive assessment for everyone.

I will not be a party to any fraud, yet I know I cannot afford the mess that past boards have wrought upon us now. My spouse and I are both considering presenting our final reports, demanding an independent forensic audit, and tendering our resignations at this point. It feels like giving up to me, but I don't know what else to do. I've spent a lot of time researching and presenting information to this board hoping to work towards getting things on track for the future, but the president and vice president have a different agenda, the property manager is complicit, and there aren't enough residents who actually care enough to even show up at meetings, let alone run for the board.

I now suspect that this is why the president recently asked me if I would consider running for president next year - she was hoping to let me take the fall for what she's let happen over the last 20 years she's been president...

EW1,
Yes I think you all should consider resigning, and you should tell the board that. You are playing softball and the Board is playing Hard Ball if you suspect they are somehow trying to set you up for the fall. I don't know what they have in mind but you have a big organization there that generates a lot of money. It is obvious that you are not going to continue working with your present PH if you take the presidency and they know that. It's possible the board and their close association with the PM is suspect. All these years and never a falling out with a PM......awesome?

If you do resign give it your best shot and copy all notes or minutes or meetings you have had with the Board. Resign at a formal meeting, give a short reason and make sure you get a copy of the minutes and any othe correspondence that has your name on it. The day you resign have a typed up letter requesting you be allowed to review any document with you name on them and if they don't supply all of them, send another letter requesting the specific documents. I would make as much noise as possible and try to get copies of the last meeting when you resign sent to each owner. Don't accuse them directly but stress you are uneasy about their accounting methods and don't feel you are able to compromise your principals by being on the Board. You need lots of support by if you can't drum it up, step aside. Work as a member of the association and do what you can to help.....admit no direct challenges and wait a while. See what they come up with, it sounds like they are sure going to get the members attention soon and this may open the door to get some support and throw the lot out. It should be a crime for board members to hold position that long. The old song, I can't get anyone to help is hog wash, you have a big enough association that you represent a cross section of the population and other Boards are faced with the same problem, some are smart enough to get people involved and suceed, you can also, it don't take hundreds of people. If you have a town hall meeting and ten show up, charge each one with bringing 1 new owner next time, then do it again and you can do anything you want with your organization. It is wrong what they have done, and I would trust them as far as I can see them. Maybe they did a good job at one time and they probably don't do everything wrong but this is a deal breaker.

We are a homeowner's Association.

Currently the PM is telling us to make up the reserve replacement cost estimates (to be lower than what the actual estimates are) and to bump up the remaining useful life of various components (when some of them are in the negative years...). That sounds like fraud or misrepresentation to me.

Carol, Excellent point. He also mentioned villas. I don't know what we are trying to solve here. I know townhouses can be in a condo or HOA, I don't know how they assess fees, but it haas to be with some reason. You put Villa in there and it would appear if the townhouses are assssedc the same fees, the villas would have to have a different fee which makes it unfair, to me.
Anyway, maybe we can drag it out of him. We really should know if there CC&R's are right to begin with. I can't imagine otherwise.

EW1: Perhaps you would want to personally contact some engineering firms to get an approximate cost of an updated reserve study. Explain that you have a study, your associations' age, and the capital expenditures which are included in the study in hand. It may be that the new study's cost won't be exhorbitant since the study has already been done and they would only have to update using repair/maintenance for remaining life expectancy, etc. and/or if "new" is necessary at this time.

You may even get a surprise that you are in good shape for awhile yet, which would give your assn. time to build up reserves until needed. It's a sound investment to have the study updated.