The blog article below is written by Robert M Nordlund, PE, RS founder of Association Reserves. I'm including his biography as an example of the backgrounds of the people who evaluate and prepare reserve studies. I find it to be very disrespectful and a huge waste of money when board members purchase studies and act like they don't have to follow them or it's a scam. I once heard a property manager say that it's just a guide you don't have to follow it. To them I say, architectural guidelines are just a guide and we don't have to follow them. I wish!
This article Mr. Nordlund wrote hits home for me because it happened in our community to the tune of $100,000.00. Our governing documents state that a special assessment can only be charged in the event of an unanticipated expense and cannot be more than two months of dues without a vote of the membership. The board accumulated over $100,000.00 over three years. They never contributed it and has deferred the street replacement for almost 4 years. When the new reserve study was done, it was discovered that the funds accumulated to pay for the street replacement were now short $200,000. Where as 2 years ago it was only $100,000 short. Instead of following AZ law and contributing the excess dues they spent it on stupid stuff. They built an add on to the monument sign that wasn't even a funded component and converted landscaped areas which were insignificant in the amount of water used, size, and cost to maintain. I think it's important because if it's happening in my community then it is happening in other communities.
When is a Special Assessment not a Special Assessment?
Posted on August 6, 2012 by Robert M. Nordlund, PE, RS
Some Governing Documents (or jurisdictions) require that a Reserve Funding Plan not be based on a special assessment. But some communities wiggle around that requirement by just “temporarily increasing the monthly assessments”, not levying a one-time special assessment. What is the difference?
A special assessment is a short-term “tax” levied on the ownership to quickly raise necessary funds (usually for a special project like a roof repair). Sometimes owners are given the opportunity to pay the special assessment over a few months. So what is the difference between a temporary increase in dues and a special assessment?
An association is a not-for-profit entity. Its income is only justifiable when there are expenses to match. A special assessment is just that – a short-term fix to a short-term problem. Ongoing assessments, on the other hand, are designed to sustainably provide for the ongoing needs of the association. If the the regular dues structure is raised to a point where they are not sustainable over the long term (they lead to a net accumulation of cash), it is a special assessment. Plain and simple.
Hold your board and management to this test. In a situations where special assessments are to be avoided, make sure the Board is truly budgeting sustainably for the association. Special assessments are disruptive – even the ones billed only as “temporary increases in the monthly assessment”. See through the smoke and mirrors.
Copyright © 2012 Association Reserves Inc. All Rights Reserved
Biography
Robert Nordlund started Association Reserves in 1986. As a registered professional engineer and Reserve Study pioneer, Robert was involved in creating the 1998 National Reserve Study Standards and has greatly influenced the community association industry. His insights and views have translated into remarkable value for Associations of all shapes and sizes.
Under Robert’s leadership, Association Reserves has grown to include 11 regional offices scattered throughout California and the United States.
Prior to forming Association Reserves, Robert was a “rocket scientist” at Rockwell International, serving as the Lead Engineer on the Space Shuttle Main Engine Program. He was awarded a BS degree in Mechanical Engineering from the University of Washington.
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