Dues Increase for 01/01/2016
(Questions and Answers)
1. Why raise dues in 2016?
The Board recently received (8/6/15) the results of a comprehensive Reserve Study recommending beginning to accumulate funds promptly to replace all our private roads. That strategy saves money over time. Our capital reserves (items >$2,500.00) are at a lower level than recommended. That low level (24%) of capital reserves increases the risk for undesirable special assessments.
2. We didn’t have a dues increase for 5 years (2010-2014). Why Not?
What were dues monies used from the 2015 dues increase?
Since the dues had not been raised for 5 years because of the national recession (2009-2014), we had to make up for inflation in operational costs. For example, inflation of 2.0%/yr. X 5 = 10%; that is half of the 19.25 % increase which recalibrated the operating budget. That left about half of the total $59,500 increase to begin funding new programs added over those 5 years. Such new programs include frequent Central Alarm security/safety visits ($10,000/yr,), the Packrat Removal and surveillance program ($10,000/yr.), plus a modest $10K added to major capital projects targeted for 2014-2015 while awaiting results of the Reserve Study in August, 2015.
3. Has the HOA ever raised the dues 2 years in a row? Yes.
Dues were raised at least twice in a row in 1993-1994 and again in 2006-2007, both times for major capital expense projects. Both times the Board avoided a special assessment and increased dues <20% at both 2-year raises (ARS#-1803A). Therefore, SMVE HOA is not setting a precedent by supporting an increase in dues for 2016 (again <20%). Moreover, the Board elected to wait for the results of the Reserve Study. That comprehensive study focused on capital needs going forward. Projecting the cost of repairing roads by removing and replacing all 3.25 miles of private roads plus guest parking areas consumes about 60% of capital reserves just for NEW ROADS.
4. Why not wait and do a “Special Assessment” rather than incremental dues increases? When was the last special assessment? Why not just do that?
The BOD has never resorted to a special assessment in over 25 years and has always avoided that potential member turmoil that would cause. Also, we have kept every dues increase to <20%/year to cushion Homeowner’s finances allowing them to plan ahead incrementally not create a financial hardship precipitously.
5. By the way, what are the rules that govern the implementation of a “special assessment”?
SMVE HOA’s Conditions, Covenants, and Restrictions (CC&Rs) spell out rules (CC&Rs, Article VIII, Section 2: see SMVE’s website. for full wording). Brief Summary: Long-term conclusion of the Board of Directors since 1991-1992:
- Special assessments are a poor choice as a substitute for active HOA management. Special assessments are designed only as a last-ditch default option; far from a prudent choice when used regularly.
- An intermittent special assessment frightens many HOA members, creates community uncertainty, gives the HOA a “black eye” in the neighborhood with potential new owners and real estate agents, and potentially reduces property sales. Deferred maintenance of the Commons becomes a “red light” concern for all potential buyers.
- The unpredictability of special assessments establishes a poor precedent that numerous SMVE HOA Boards have relentlessly avoided for 25 years.
6. Given that the Board has raised dues in 2015 and 2016, do you plan to raise the Dues yearly?
No. That is certainly not the Board’s intention. Previous Q & As # 1-5 have explained why after 5 years of NO Dues Increase (2010-2014), we strategically planned and implemented SMVE HOA’s first ever Reserve Study. During a year of analysis, we employed SMVE’s archival data accumulated over 10 years, to provide unique SMVE HOA data for the Reserve Study. Results of that comprehensive study were provided to the Board on 8/6/15. This financial roadmap can now guide the decisions to be made regarding removal and replacement of 51 items identified by Association Reserves. (By the way, Association Reserve Study Specialists perform about 3,000 studies each year. See https://www.reservestudy.com.)
By starting now and incrementally adding to long-term reserves after 1/1/16, at $25.00/month/lot, we can hope to avoid emotionally vexing and unpredictable special assessments.
Moreover, the Board is now positioned to plan a low-cost update of a followup Reserve Study in about 2 -3 years. Such an option will fine-tune our projections and expenditures going forward based on our own cumulative real-time data. Please recognize that it is not prudent to predict never increasing the dues in the future. However, an enhanced, proactive deliberate process certainly gives us concurrent data to guide Board decision-making. All Homeowners can be reassured that the Board’s CC&Rs direct the Commons to be maintained and enhanced to protect property values despite the guaranteed normal deterioration of physical assets.
7. Why should I be concerned about helping to fund upkeep and replacement of the Commons and amenities when I’m old and don’t use the amenities anyway?
Planning periodic maintenance is a smart financial decision. A guiding principle of a well-run Planned Community is that the Homeowners share equally in the cost of amenities regardless of your age or use. SMVE HOA had followed that principle since its inception in 1991-1992. The packet of information Homeowner’s received when purchasing their home clearly stated Conditions, Covenants, and Restrictions, Bylaws, and Rules and Regulations. Those documents make the HOA Board directly and totally responsible for maintaining the upkeep of the Commons.
8. Does our HOA have enough Capital Reserves for replacing or repairing all our 3.25miles of private roads? No.
That’s why the Board authorized a Reserve Study by a Nationally Certified Organization of engineers and financial specialists out of Phoenix to assess our HOA. That major effort purchased knowledgeable professionals for legal and financial advise going forward. Further, the Board previously maintained short and long-term reserves (fund balance) plus a line item for capital reserves (items >$2,500.00). Presently we have begun to review our first ever professional Reserve Study presented to us on 8/6/15. After about 6 months of volunteer work assessing contracts, reviewing physical and fiscal assets in our inventory, extensive review of historical archives, plus a personal site visit from our Phoenix contractor, the Study was completed (see smve.org website for the full 79 page Reserve Study Document). Results recommend that the BOD begin promptly (1/1/16) accumulating a larger percentage of capital reserves (now 24%) to focus initially on the biggest capital item, 3.25 miles of the 30-year old private ROADS (See Table 3: Reserve Study Document).
9. When were our roads 1st built?
Ground breaking for the SMVE Community began during 1986 with construction of our 3.25 miles private roads, infrastructure, and amenities proceeded over about 1.5 years.
10. Does the BOD maintain “bridging funds” from end-of-year until new dues are collected during the 1st 3 months of the new year when many major capital projects are bid and implemented because of favorable cost negotiations with contractors?
Yes. Bridging Funds are included as part of the Fund Balance reported by our accountants, HBL CPAs every month to the Treasurer and BOD.
11. What inviolate rules determine Reserve Expenses for any Planned Community?
- Reserve expenses always occur, deterioration is inevitable; we cannot dodge that fact of nature, e.g. deterioration happens faster without upkeep.
- If reserve expenses are ignored and/or deferred, costs grow. Bills for repairs or replacement do not disappear. Nobody gets a pass whether HOA or personal physical assets (e.g. your home).
- Members of the HOA always end up paying. The only choice becomes to pay now or pay more later.
- The BOD is legally and directly responsible for the Commons. The Board is directed to maintain, protect, replace, and update physical assets as stated in the HOAs governing documents.
12. What are consequences of not actively building a Capital Reserve Fund to remove and replace roads plus other big-ticket items in the SMVE Commons?
- Members are forced to choose a Special Assessment: unpredictable, disruptive, and emotionally vexing because it engenders financial insecurity among most Homeowners. Insecurity and financial concerns ensue.
- Property Values decline as amenities become unsafe and inoperable.
- Homes for sale cannot qualify for mortgages (especially government backed) in a deteriorating community.
- Deferring maintenance hastens deterioration of big-ticket” items in the Commons. Replacement of physical assets becomes more frequent and more costly.
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