Condo Media - May 2017 - 39

Kenneth Bloom, CPA,
Bloom Cohen Hayes, LLC
Board members will cite
a variety of arguments
against raising fees-
"owners can't afford it," "owners will
be angry," "we don't really need an
increase this year." But the arguments
"aren't based on logic or any reasonable
interpretation of association needs,"
Bloom says. The real issue in many
cases, he has found, is "the trustees just
don't want to pay more themselves."
Probably the most difficult argument to
counter is the concern that older residents
living on fixed incomes won't be able to afford the increase. "That is tough emotionally," Bloom acknowledges, but he tells
trustees to consider what would happen in
a neighborhood of single-family homes, if
an older resident couldn't afford to maintain his house. "Neighbors could pitch in to
pay for his new roof, or they could all agree
to let their houses deteriorate to the lowest
common denominator. Neither solution
is viable," Bloom points out. "I hate saying
this, but it's true: If people can't afford to
live in the community, they should be seeking alternative living arrangements."
Boards must base association budgets
on a realistic assessment of expenses,
and realistically, he says, that means
boards should increase fees by some
amount every year. "If you're not increasing fees every year, at a rate that at
least equals the inflation rate, you're not
handling your budget rationally." The
first time a board increases fees after not
doing so for a long time, "owners will be
apoplectic," he acknowledges. But the
outrage will diminish every year as owners come to expect the annual increases.
"They won't be asking if fees are going to
increase," Bloom says. "They'll be asking
how much the increase will be."
Regular fee increases won't guarantee
a community will never need a special assessment or a loan, he concedes. "But they
will reduce that risk and reduce the size of
any assessment or loan you might need."

David Abel, CMCA,
FirstService Residential
"I don't get much resistance
to fee increases anymore,"
Abel says. "Maybe that's
partly because of luck with the clients we
have, but I think most boards want to do
the right thing." When boards do push
back at the need for an increase-and
some do, Abel acknowledges-he responds with data, and a lot of it. "I try to
have detailed notes for every line item in
the budget. Here's the calculation, here's
how we got to this number. If you don't
want to change this number, which ones
do you want to change?"
Some boards will counter with a bit
of magical thinking-"I'm sure we can
get landscaping services at a lower cost
next year"-but the usual response to a
budget imbalance is to forego the reserve
contribution. "That's the elephant in the
room," he says. Some boards will try to
"ladder up," skipping the contribution
one year, and planning to make up for it
with a larger contribution the next. But
that just creates a harder hill to climb-a
point Abel emphasizes with board members. "We have to educate them."
Higher fees may strain some owners,
but when board members express that
concern, Abel responds pretty much like
Bloom: "From a dispassionate view, there
isn't anything you can do about it. People
living on fixed incomes will feel anything
the board does. The alternative," he tells
board members, "is to harm the entire
association for the sake of a few."
Also like Bloom, Abel advises boards to
increase fees every year, to avoid the need
for a large, catch-up increase at some
point in the future. It is a lot easier for
owners to absorb small increases every
year, he notes, than a 15 or 20 percent
jolt they weren't expecting. For boards
that haven't been raising fees regularly,
or at all, the increase required to get the
budget where it should be can be painful,
Abel agrees. "It's like removing a bandage.
Sometimes, you just have to rip it off."

"If you're not increasing fees every year, at a rate that
at least equals the inflation rate, you're not handling
your budget rationally."
-Kenneth Bloom, CPA, Bloom Cohen Hayes, LLC

Richard Brooks, Esq.,
Marcus, Errico,
Emmer & Brooks, P.C.
Setting realistic fees and
keeping them at a reasonable
level is a legal requirement for boards as
well as a financial necessity for their communities, Brooks points out. "Boards have
a legal obligation, stated in the association's governing documents, to maintain,
repair, and replace common area [components]. They can't 'say no' to necessary
repairs for five years just to keep fees down.
I'm not saying boards should do everything every year," he emphasizes. "They
shouldn't kill owners with expenses." But
Brooks agrees with Abel and Bloom that
fees should be increased every year, even
in years (and there won't be many of them,
he says) when expenses don't increase. "If
you collect more money than you need to
cover expenses," he advises, "put the excess
in your reserves."
Some real estate brokers will tell
boards that higher fees will make their
communities less desirable to prospective buyers. But deferred maintenance
will create an even greater competitive
disadvantage, Brooks points out. While
lower fees may attract some buyers,
he agrees, the massive special assessment required to make up for years of
artificially low fees will almost certainly
discourage many of them, "and it won't
be fair to new owners who had no idea
that assessment was coming."
"Owners can usually afford increases
of 2, 3, or 4 percent," Brooks says, echoing what appears to be the consensus
advice. "It's when fees jump by 30 or 40
percent that owners are screaming at the
annual meeting and voting to throw the
board out." New trustees reverse the increase "and fees are artificially low again,
until this board discovers they don't have
the money to do what they need to do,
and here we go again." The destructive
cycle-fees soar, owners rebel, the board
is voted out-repeats. "Only this time,"
Brooks says, "it will be even worse."

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May 2017

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