Table of Contents
(1) How to build a responsible HOA budget (jump to)
(2) Funding reserves (jump to)
(3) Cutting landscaping is both un-workable and actually self-defeating (jump to)
(4) Snow/ice removal is a legal and civic responsibility as well as a liability limiting duty (jump to)
(5) Cutting pest control services would be a serious mistake and likely a tough-sell to the owners (jump to)
(6) Importance of community events (jump to)
(7) Cash management and investing (jump to)
(8) HOA and tax issues (jump to)
(9) Water/sewage costs (jump to)
(10) Trash/recycling collection (jump to)
(11) Insurance (jump to)
(1) How to Build a Responsible HOA Budget
First , have the right objective. While low assessment fees might seem attractive, in the long run under-budgeting will inevitably lead to much bigger problems for the association and even individual owners down the road.
The Pros And Cons Of Low HOA Fees, https://www.cedarmanagementgroup.com/low-hoa-fees-pros-cons/
HOAleader.com webinar: HOA Reserves and Other Funding Options: Tips for Everyday Smart Money Management (slides, recording)
HOA Homefront: Readers ask by how much should assessments rise? https://www.pressenterprise.com/2018/11/09/hoa-homefront-readers-ask-by-how-much-should-assessments-rise/
Second, have an analytic framework to keep budget analyses tethered to reality.
Third, understand that HOA fees cover necessary items, like water/sewage, trash removal, common areas upkeep and maintenance. These costs increase and so must HOA fees. If you are concerned about the increases in LM dues in years 2020-2022, you can refer to the last reserve study to see why those increases became necessary.
Why Would an HOA Raise the Fees?, https://www.cedarmanagementgroup.com/homeowners-association-raise-the-fees/
Fourth, HOA budgeting must follow responsible business decisions.
How to develop a funding plan
https://www.kppm.com/building-hoa-management-budget/
https://clarksimsonmiller.com/budgeting-mistakes-of-self-managed-boards/
https://gogladly.com/blog/top-3-bad-board-decisions/Fairfax Community Associations Manual
Fifth, budget planning should proceed from good information, e.g., audited financial statements, the most recently updated reserve study, and information on this website.
Under-funding reserves and deferring maintenance are both bad business decisions. In fact, especially the former might be an actionable business crime as a matter of business law. (Look up shareholder derivative lawsuits.)
https://www.chicagobusinesslitigationlawyerblog.com/homeowners_may_bring_derivativ_1/
Two key things to realize about reserve funding: (1) It is not so much funding some repair/replacement of a component in the future – though that is what the money gets used for – rather it is paying for the use of the component in the present, and (2) sufficiently-funded reserve funds are very much correlated with higher property values, which get reflected in transactions and equity.
HOAleader.com webinar: HOA Reserves and Other Funding Options: Tips for Everyday Smart Money Management (slides, recording)
How a Strong HOA Reserve Fund Affects Home Prices! (link)
https://cabuilderservices.com/dangers-of-an-underfunded-hoa-reserve-fund/
https://www.hoaleader.com/public/259.cfm
https://independentamericancommunities.com/2018/09/05/hoa-condo-owners-often-pay-for-deferred-maintenance-of-previous-owners/If you are concerned about the increases in LM dues in years 2020-2022, you can refer to the last reserve study to see why those increases became necessary.
Imagine having to experience a double-digit (25%) increase in dues AND a $4,000 special assessment. Kicking the can down the road by under-funding reserves almost always leads to greater in-affordability and economic losses to the association and its members in the end.
(3) Cutting landscaping is both un-workable and actually self-defeating.
In Arlington County there are applicable legal requirements on landscaping and the general condition of our property that we are expected to comply with as members of civil society. Moreover, all industry and academic studies spanning may different types of communities, market conditions, and time frames, all indicate that investing in landscaping results very high rates of return on investment in terms of home resale values and livability indexes.
Years of lived experience, every applicable livability index, housing pricing economics, and the global market for lawn mowers all indicate that hardly no one likes unkempt grounds. If we are to have lawn, trees, and other plants, they have to be maintained and watered. If we are to change to some other landscape design, we have to account for the changeover costs and the probably deleterious effects on home values, and of course be sure about savings on maintenance.
Assertions like ‘saving by mulching less’ should come with quantification of how much money could be saved, knowledge of why people apply mulch, and what would be the cost of ‘not-mulching’ , e.g., more soil erosion, plus many other downside effects. If we do not adequately mulch, we would have much greater labor costs in addressing the problems that not-mulching brings. The mulch itself does not add much to our cost, the County literally gives it away. This is an example where an analytic framework would lead to thinking assertions through.
Landscaping and house values: an empirical investigation
By and large, a positive tree cover differential between the property and its immediate neighborhood, provided it is not excessive, translates into a higher house value. Findings also suggest that the positive price impact of a good tree cover in the visible surroundings is all the more enhanced in areas with a high proportion of retired persons. Finally, a high percentage of lawn cover as well as features such as flower arrangements, rock plants, the presence of a hedge, etc. all command a substantial market premium.
Lawn and Landscape Items That Increase, Decrease Home Value
One Virginia Cooperative Extension survey found that landscape expenditures — especially large ones — “significantly increase perceived home value.” That leads to a higher selling price than homes with minimal landscaping. Bigger landscaping spending means a bigger return, according to the study.Items that increase home values
- A well-maintained lawn
- Shrubs and trees
- Tidy garden
- Landscaped pathway
- Lighting
- Fresh mulch
- Pop of color through container plants, garden bed
- Professional landscape design
Items that hurt home values
- Artificial grass
- Unkempt garden
- Broken fence panels, cracked walls
- Big concrete patio
- Fruit trees
- Old-outdated garden decor, furniture
- Highly personalized niche landscape design
https://virginiagreen.com/news/nice-lawns-virginia-increase-home-value/
https://www.parealtors.org/does-landscaping-increase-property-value/
https://www.lawndoctor.com/blog/how-to-boost-your-homes-value-with-a-beautiful-lawn/
https://blog.coldwellbanker.com/increase-homes-value-15/
(4) Snow/ice removal is a legal and civic responsibility as well as a liability limiting duty.
As any well-run HOA knows—either through common sense or painful experience – failing to clean up snow or ice promptly can result in injuries, acrimony, and expensive lawsuits. Laurel Mews has in fact been sued by a resident on a snow/ice removal matter, and there have been recent incidents where neighbors have experienced slip and fall injuries.
Arlington County’s snow removal ordinance requires all property owners to clear snow and ice from public sidewalks adjacent to their property within a designated time period. The ordinance also prohibits transferring or depositing snow and ice from private property onto public property. Specifically, the ordinance requires that snow be removed within 24 hours after the it stops falling when accumulations are less than 6 inches, and within 36 hours when 6 or more inches of snow accumulate (as measured at National Airport, per National Weather Service).
Note that the ordinance goes into effect whenever snow falls in Arlington; there is no minimum amount of snowfall. At less than 3 inches, even less than 1 inch, the Arlington Snow Removal Ordinance applies. Two inches, even less than one inch, would still have to removed under the law. Two inches, even less than one inch, is a lot of snow to leave un-shoveled, especially if it freezes and thaws, making ice patches.
The Arlington County ordinance also explicitly speaks to icy conditions, so we should of course mobilize ice removal when there are icing conditions, which may come with or without snow, as is common in Northern Virginia winters. Given the pitch and drainage pattern of our parking lot, Laurel Mews is particularly susceptible to “black ice“. When snow melts in our parking lot and walkways as well as off of some rooftops, the flow towards the drains leads to thin sheets of black ice. Thin ice, especially black ice, tends to be more slippery than thick ice, and especially against asphalt, black ice is often not seen until it is too late, i.e., when you’re slipping and falling on it.
Arlington County’s ordinance is on top of the HOA’s general legal obligation to exercise care when maintaining the property – including parking lots and sidewalks. The standard that the Supreme Court of Virginia has adopted for these situations is that snow and ice accumulations are treated the same as any other dangerous condition on someone’s property. In Virginia, property owners have to make some positive (if reasonable) effort to clear the sidewalks, even if there is no county ordinance requiring them to do so. (Virginia law is actually less forgiving towards HOAs, thus more favorable to plaintiffs than the law is in DC, MD, and many other states.)
“[I]t is the duty …to use reasonable care to remove natural accumulations of snow and ice from walkways for the common use…within a reasonable time after the storm ceases.” Langhorne Road Apartments v. Bisson, 207 Va. 474 (1966).
Residents (not to mention guests and people who are on the property for whatever other reasons) can and do sue their HOA for damages related to slips and falls. Not unreasonably, these residents expect parking lots to be plowed and walkways to be clear of snow and ice, including areas between and behind cars, which are nonetheless part of the parking lot. Boards that fail to deliver those desired services face the potential for lawsuits to occur. Liability litigation can be debilitating to a community, and there is no joy in saving money only to see a neighbor suffer a serious injury on a cold wintry day, or any day for that matter.
So realistically, the wise, law-abiding, and morally-responsible HOA mobilizes its snow/ice removal service when there is a chance of anyone suffering a slip and fall incident. The idea of saving money by mobilizing snow removal only when there is heavier accumulation (say 3 inches vice 1 inch) is not only unlawful , but is unethical to the point of being sociopathological, thus would be grossly violative of HOA board members’ duty of care.
Likewise, imagining that part of the parking lot is somehow not part of the parking lot belies reality, and puts individual residents and the entire association at greater risk with very little reward.
Questions have been raised regarding clearing snow and ice in the parking lot in areas behind and between cars. Depending on the amount of snow, it takes a crew considerably less than 5 minutes per parking space to shovel behind and between cars. At 108 parking spaces, and the prevailing labor rate, the cost turns out to be less than $800, and probably half that actually. In the case of last year’s epic snow fall that would have been part of $12,000 worth of service; so small price to pay for the risk reduction and convenience.
People can and do slip on ice in between and behind cars, and often suffer substantial injuries by hitting their heads on the car as well as the ground. A lot of times, once fallen between cars, the victims go unseen for a period of time. As such the HOA incurs certain liability risks, and the VA Supreme Court’s “reasonableness” standard applies everywhere in the parking lot. Not only that, in this particular case, we do not have any quantification of what is to be saved if we do not shovel between/behind cars, vice what (and who) are put at risk.
However, the central point is that the areas between and behind cars are still part of the parking lot. Even considering that numbered spots are limited common elements, our CC&R documents are explicit in saying that the association is responsible for the total upkeep and maintenance of the entire parking lot.
Understandably people might feel that shoveling between and behind cars is not uniformly applied. Indeed it does not snow uniformly year over year. There were years from 2010-2019 where we spent >$20k and years where we spent $0. In 2020 we spent $0, 2021 $9k, and so far in 2022 ~$13k.
Personal injury law, especially where it intersects with business fiduciary law and insurance law is very tricky. One thing that can be said is that it is much better to pay a snow shoveler $20 per hour than it is to pay a defense attorney $400-500 per hour, insurance notwithstanding. Given how case law and liability go, the HOA should probably not want to spend 100s of thousands of dollars to find out what the VA Supreme Ct meant in 1967 or means today by “reasonable.” In any event, who wants to see a neighbor, visitor, or any human being get hurt at Laurel Mews?
Note that for several reasons, the HOA has long treated stoops and porches as common element, be it for snow removal, brick repair, repair of the railing, etc.
https://koonz.com/liability-for-slip-fall-icy-sidewalk/
https://pricebenowitz.com/virginia-injury/premises-liability-lawyer/icy-sidewalk/
https://www.kdisonline.com/winter-risks-managing-snow-ice-exposures/
Cutting pest control services would be a serious mistake and likely a tough-sell to the owners.
https://cedarmanagementgroup.com/hoa-pest-infestation/
In Suburban Arlington, An Urban Bane: Rats https://www.washingtonpost.com/archive/local/2002/11/23/in-suburban-arlington-an-urban-bane-rats/bedeb0fa-450e-456b-bcc9-adb67528f287/
Arlington County Rodent Control Program https://www.arlingtonva.us/Government/Programs/Health/Environmental-Health/Rats-Mice
(6) Importance of Community Events
It might not seem like a big deal, but there are huge benefits in having neighbors getting to know one another. Developing meaningful relationships will increase happiness and decrease the chances of individuals getting frustrated with their neighbors or the HOA itself. Many owners and associations dismiss community events as non-essential, but they are key to facilitating personal camaraderie amongst neighbors and a stronger sense of community in the neighborhood.
Community relations, be it via AEFCCA or LM events, is a good use of HOA funds. On the latter, a good strategy is to make the events kid and mom friendly. It’s worth it to have some kind of event where we can invite ACPD and ACFD community outreach, and now probably even other departments of Arlington County government, Public Safety Communications, Environmental Service (water/sewage) and Human Services (homeless persons intervention), and Parks & Recreation.
https://spectrumam.com/community-in-your-hoa/
https://www.kppm.com/building-community-in-a-community-association/
Normally the HOA organizes a Spring community event on the first Saturday after the last day of Arlington Public School’s academic year (mid-June). In the last few years we have had special guests including Arlington fire and police units. In 2022, both the chief of police and the deputy chief for community relations dropped by our Spring community event.
Another regular event that the HOA supports is the National Night Out on the first Tuesday of August. We have in the past had Oktoberfest and Fall flower planting parties. Our youngest neighbors really enjoy that latter events, and the community reaps beautiful benefits in the Spring.
Occasionally there will be other community gatherings at the gazebo to support the so-called 9 o’clock routine. These events have been well-attended, and everyone has seemed to have a good time.
Despite that fact, there have been voices on the HOA board that have taken a green-eyed shade view of the events. After not having the event in 2020 due to COVID, in 2021 we had the event catered by local family-owned restaurant, Sloppy Mamas, mainly due to food safety but also to ensure reliability in the logistics for the day.
The Fall 2021 discussion about the Spring event got wrapped around the wrong expense account. Because last year GHA coded the (new) catering cost to the Community Activities, as opposed Common Area Maintenance, the event got conflated with the account of for the dues to the Arlington-East Falls Church Civic Association (AEFCCA) ($5 per household= $270) that Laurel Mews has traditionally paid.
Maybe we need to break out the event in its own expense account going forward. It has only been in the last 2 years that COVID-related participation issues come up, and reliability issues that had been festering came to a head.
The food and other costs for our own community event(s) have always cost well more than $270. Catering only adds maybe $250 to the cost of the Spring event over what it might have been without catering, but in exchange we get professionally prepared, safe food with reliable logistics, and perhaps with everyone bought into the event, we get greater participation.
More recently objections to inviting guests have been raised, be it the Arlington first-responders, our neighbors from adjacent communities, or personal guests, e.g., children’s playmates. Extending such invitations is indisputably in our community safety interests, and barring residents from having guests is probably not a good position for the HOA take. In the gross scheme of things, this issue – and maybe even the catering issue – is not about money as much as it is about community values, and what kind of community and people we want to be.
We should be open to new ideas and re-imaginations what the events entail, including going back to having a Fall event like we used to. If the events are to involve food, we should have reliable logistics, which includes doing the food shopping, showing up early for set-up, the in-event preparation and serving, and staying late to help with the clean-up. We should probably be concerned about food safety issues since that (in addition to the reliability issue) is what drove us to catering in the first place.
AEFCCA, by the way, does good work for our neighborhood from which Laurel Mews has always benefited, and we have always had a rep on its board. In 2020 and 2021 AEFCCA did not have in-person meetings, thus did not collect any dues. The AEFCCA board is trying to figure out how to manage post-pandemic and how to get on with the Langston Blvd Alliance.
(7) Cash management and investing.
Sometimes it is attractive to invest reserve funds, especially as a hedge against inflation, and when the size of the reserve fund is larger than expected near-term outflows. An HOA can make their reserve fund stretch further with a bit of investment. On the other hand, the HOA board has the duty to safeguard the community’s funds such that the reserve funds are available when the community needs them.
So the key is to strike the right balance in protecting the HOA’s reserve fund from losses due to inflation as well as the risk of losses inherent in investing. To strike that balance Laurel Mews has recently moved its reserve fund to an FDIC-protected, high yield savings account, and has purchased a limited amount Treasury instruments (I-bonds and T-bills). Treasury instruments are safe, liquid, and as of July 2022 are delivering fairly high yields.
https://www.hoaleader.com/public/152.cfm
https://www.hoamanagement.com/investing-hoa-reserve-funds/
https://cedarmanagementgroup.com/managing-hoa-reserve-funds/
HOA and tax issues can be a somewhat long and complicated subject. The tax laws are really more about associations that make revenue by operating swimming pools, athletic and golf clubs, bars, restaurants, and other entertainment facilities. Governments do tax interest income on reserve funds. Also for exemption from taxation purposes, the IRS has a different definition of maintenance, repair, and replacement than what an HOA might practically use. Long story short, Laurel Mews files the IRS 1120-H form and the corresponding Commonwealth of Virginia forms.
The forms are prepared and submitted as part of our annual audit engagement.
https://overnightaccountant.com/blog/article/what-is-hoa-exempt-function-income
https://hoatax.com/hoa-tax-return/
https://www.irs.gov/charities-non-profits/other-non-profits/homeowners-associations
https://www.irs.gov/government-entities/irc-section-501c4-homeowners-associations
https://www.irs.gov/pub/irs-tege/eotopicr82.pdf
Laurel Mews has two water meters for 54 units, one for the Washington Blvd addresses, the other for Langston Blvd addresses. The LM HOA dues include water/sewage fees, charged by Arlington County. In fact that is the HOA’s largest operational expense.
Through the pandemic and continuing afterwards there has been a 20% increase in water consumption at Laurel Mews, undoubtedly because people work from home more.
The County implemented a new rate formula since January 1, 2022, which for us results in a 3% increase in rate charge overall, and since July 1, 2022, the Country increased the water rate by 7%.
Many years ago, the HOA looked into installing water meters on each unit. We found it to be wholly impractical. Instead we encourage every owner and occupant to take steps to conserve water use.
(10) Trash/recycling collection
Trash collection is also a significant HOA expense. Laurel Mews has used Olivio Trash for over 20 years. The contract is done in 2-year cycles, and we do a serious re-compete every 2-3 cycles. We have always found the Olivio offers superior services at a superior price. Olivio is an Arlington-based, family-owned and operated company. (The driver that you might see is a son in the family and vice president of the company.)
The last time we competed the trash contract, 2019, we found that we were getting far superior pricing and performance from our vendor, an Arlington-based family business that Laurel Mews has used in excess of 20 yrs, than what was offered by any other competitor, including the County.
A few things to know about our trash service:
(i) We have trash pick-up 3-days per week + recycling 1-day per week because we do not have space for trash dumpsters in the common area, nor do most units have space for the large trolleys that Country trash customers must use. There is absolutely no savings to be had in bumping that down, because reduction of number of days of pickup does not translate to less trash, rather more trash per pickup whereat we lose economies of scale. Plus it very likely translates to more trash being in the common areas on non-pickup days since our units have limited space for trash trolleys and we have no space for a dumpster.
Arlington County requires multi-residence communities to offer recycling pick-up. So there is nothing to be gained by reducing the 1-day recycling pick-up to zero as that would be unlawful. Plus from the volume of material, it looks like most residents use the service.
(ii) All of that said, we pay less than County customers though they only have pick-up 1-day per week, and again must use those large trolleys for both trash and recycling.
Moreover, if we used the County’s service we would have to take our trolleys to street since the County’s service will not drive onto the property.
(iii) Going back to competing our trash contractor, you might have seen on NextDoor that some communities are having trouble with their contractor not showing up. We have almost never had that problem at Laurel Mews.
In addition to your individual home owner’s insurance (HO-3 or HO-5), the association and owners are covered by HOA general liability, directors and officers, and workman’s compensation policies.
The first covers the association and individual owners in cases of claims of action for incidents occurring in the common and limited common areas. Directors and officers insurance (D&O is the industry-wide shorthand) is liability insurance that covers the directors and officers of the association against lawsuits alleging a breach of fiduciary duty. This is coverage so directors and officers can serve confidently as leaders of their organization without fear of personal financial loss. The third covers compensation for contractors and volunteers that may get hurt while working on some project on the property.
Common claims in the first case are slips and falls due to snow/ice and/or tripping hazards. The second gives cover to directors and officers while doing normal duties like CC&R enforcement, good-faith management, and realistic budgeting. Laurel Mews has had to pay out a workman’s compensation claim in the past to an owner who took upon himself to shovel snow after a major blizzard, but unfortunately suffered a serious injury because of it.
Since the pandemic, some associations have received double digit increases in insurance premiums. A lot of that might be insurance companies price gouging, and due to losses in the stock market, but as this articles says, after the 2021 collapse of Champlain Towers South in FL, insurance companies have placed greater scrutiny on business decisions of HOAs and their boards.
You may have noticed new signs at the vehicle exits. It turns out there some rule regarding height of trees/shrubs and visual line of site as it relates to sidewalk pedestrians and cyclists. The signage, and getting people to look right when driving out of our parking lot is another risk management issue. The address signs on individual units were another. ACPD and ACFD both will tell you that 1 min off of a response time can mean a world of difference.
Despite having insurance coverage, it is important to keep in mind that insurance is for accidents not for willful negligence. Insurance companies do sometimes refuse to pay out if they can identify clear intentional negligence by the insured. Also every insurance policy has a deductible, i.e., a base amount that the insured has to pay on a successful claim. So just because we have insurance does not give us leave to ignore and not mitigate risks.
More
| Budget Overview | Analytic Framework for Budgeting | The Reserve Fund(s) | Prior meeting notes |